Internet & Tech

Just about to click

Amazon’s China strategy has lost millions; will it now reap billions?

A Joyo to use: Amazon’s Chinese site

Anyone familiar with Aesop’s fable The Tortoise and the Hare remembers this lesson: slow and steady wins the race. Jeff Bezos, Amazon’s founder and chief executive, hopes the same logic applies to China’s online retail industry.

In 2004, Amazon, the world’s largest online retailer, spent $75 million to buy Chinese internet bookseller Joyo.com. But rather than quickly expanding its web presence, the Seattle-based company has taken its time perfecting the pieces behind its online store – like building an industry-leading supply chain and expanding the categories of goods it sells beyond books and DVDs.

“We are very fortunate because we have the resources to continue to invest until the right time that our business has the scale to be profitable and start being a cash contributor,’’ Bezos said back in 2007.

In the meantime, homegrown rivals like Dangdang.com are gaining ground. Last year, Dangdang – the country’s largest online bookseller – reached Rmb2.4 billion in turnover, accounting for 15% of the country’s business-to-consumer market, says Beijing-based iResearch, an online market research firm. Amazon does not break out its China revenue or give details about profit margins but analysts believe that the company has about a 12% market share.

So why is Joyo Amazon lagging behind its rival? “Joyo Amazon has a problem with branding and marketing,” says an executive with a B2C company. Instead of TV ads and billboards, the Seattle-based company has been ploughing cash into building an infrastructure and logistics system in pursuit of delivering the best customer service.

“It’s a matter of choice and my choice is to do a good job in delivering the best shopping experience, and then let your consumers do the publicity for you,” says Wang Hanhua, chief executive of Joyo Amazon.

Joyo Amazon now has large distribution centres in Beijing, Guangzhou, Suzhou and Chengdu. Together they carry as many as 1.2 million products and distribute to over 1,000 cities around the country. Customer service, however, comes with a price. After six years in China, “profit is still a challenge,” Wang admits. Bezos is not discouraged – after all, Amazon itself took seven years before it finally started making money in the US.

But Amazon has learned that operating in China means it will have to adopt some of the more ‘local’ practices that run contrary to its high-tech image, like cash on delivery. Even though the payment method is far from ideal – couriers must learn to recognise counterfeit bills, and it’s risky to send delivery people into the streets carrying wads of cash – over 70% of its customers still prefer this payment method.

Nevertheless, China Entrepreneur magazine reckons that Joyo Amazon’s investments will soon pay off. Its cutting edge technology is attracting major merchants to the website.

One of those is Apple. The tech company, which only has one shop in Beijing, operates a virtual store on Joyo Amazon. This way, Apple can leverage Amazon’s extensive distribution network to sell its products across the country. Wang says Joyo Amazon is one of the largest sellers of Apple products, with 40% of the Apple items it sells now going to third- and fourth-tier cities. In return, it was first to sell some of Apple’s hottest gadgets in China.

More importantly, analysts say, such alliances give Joyo Amazon a unique edge. Shoppers are confident about the authenticity of the merchandise on its platform. The New York Times reports that customers worry about buying fakes when they use the country’s largest online retailer Taobao.com.

Japanese electronics maker Sony also recently launched its own virtual store on Joyo Amazon. The store offers over 500 Sony products and usually at a 10% discount compared with bricks-and-mortar stores.


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