A win for Alibaba

Jeff Bezos: China’s been a struggle

In business, there are no permanent friends and no permanent enemies. That seems to be the thinking behind a recent move by Amazon. After years of struggling to crack China’s e-commerce market, the US tech giant has come up with an unusual strategy: opening shop on a rival platform.

Early this month Amazon confirmed that it had launched a store inside Tmall, Alibaba’s business-to-consumer platform (though the Seattle-based company will continue operating its own e-commerce site in China). So far it offers a limited number of product categories including imported food, women’s shoes, toys and kitchen equipment. The food section, for example, makes available Blue Diamond almonds and Californian wine, while the toy section carries popular brands such as Lego and Crayola. Amazon plans to add thousands more products next month.

The move is an unconventional one for Amazon. Other than its Kindle readers and Fire tablets, the company has never put any of its merchandise on distribution channels other than its own, says The Founders magazine. “Amazon China has been doing everything from customising its landing page to changing the names of the products so it becomes easier for Tmall users to search. That is something it has never had to do before ­– anywhere,” the magazine reckons.

By becoming one of Tmall’s members, Amazon has also become Alibaba’s customer. Retailers operating their flagship stores on Tmall typically pay a upfront fee and also a commission to the platform for each transaction.

Alibaba, meanwhile, strikes a positive tone on the latest development. “We welcome Amazon to the Alibaba ecosystem, and their presence will further broaden the selection of international products and elevate the shopping experience for Chinese consumers on Tmall,” says a spokesperson for the e-commerce giant.

Some analysts reckon that the move could be a win-win for both companies. With the entry of Amazon, Tmall will be able to learn from Amazon’s global supply chain management model; at the same time, Tmall has the potential to bring huge new traffic to Amazon China, since more than half of all B2C e-commerce transactions in the country now take place over the platform.

“Everyone knows that Chinese e-commerce is dominated by Alibaba and at some point you go fish where the fish are,” Sucharita Mulpuru, an analyst at Forrester Research, told Bloomberg.

Moreover, the move will also showcase Amazon’s impressive logistics infrastructure. Since Alibaba doesn’t actually handle any fulfilment and inventory, products sold on Amazon’s Tmall flagship store will be delivered via Amazon China’s own logistics system. At present, Amazon China’s same-day and next-day delivery services operate in over 1,400 districts and counties in the country. The company has also established more than 5,000 pick-up sites nationwide, offering flexible delivery options to consumers.

Nevertheless, a few analysts are sceptical about the move. “For a start, sales on Amazon’s Tmall site will likely cannablise the sales on its original site, so it’s like the right hand fighting the left hand. It’s hard to see how much incremental sales they can really do,” says Tencent Technology, a portal. “More dangerously, when consumers become accustomed to shopping for Amazon products on Tmall, it will severely dilute the value of the Amazon brand.”

Amazon isn’t the first e-commerce operator to open an outlet on Tmall as a means to complement its own website. Others that have followed a similar strategy include Dangdang, Yihaodian and electronics giant Gome, which also operates its own e-commerce site, adds Tencent Technology.

But Alibaba may view yet another of its new clients as even more of a coup than Amazon. According to Beijing Business Today its arch-rival Tencent also opened a storefront on Tmall this week.

The shop mostly offers Tencent’s own branded digital hardware such as portable Wi-Fi routers and blood sugar monitors from its healthcare unit. Fans of Tencent’s trademark QQ penguins will also find stuffed toy versions of the mascot on Alibaba’s storefront.

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.