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Can Amazon Find Success in China?

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Pacific Money

Can Amazon Find Success in China?

Amazon is looking to make a splash in China. Can it replicate past success?

With Chinese leaders declaring their intention to transition to a more consumption-driven economy in the years ahead, everyone from Hollywood to Apple is aggressively seeking to get its share.

Apple, for instance, issued a rare apology and rushed its CEO across the Pacific after China’s state media used the company as a punching bag for the better part of the week. Hollywood has also dispatched its bigwigs to China even as it does everything from jointly producing films with Chinese companies and feature Chinese movie stars in them, to altering the type of blood shown in the movies and allowing Chinese regulators to be on set overseeing the filming, all in an attempt to win a share of the now largest film market.

But perhaps no company has more of an interest in China’s future consumption based economy, at least objectively speaking, than the world’s largest online retailer, Amazon. This is because e-commerce is exploding right now in China with 2012 registering a yearly growth of 64 percent. With US$210.4 billion in sales, online shopping accounted for 6.3 percent of all retail sales in China last year, and this is expected to double by 2015. In terms of the numbers of individuals doing their shopping online, China oversaw a 10 percent growth rate to 564 million people in 2010. Only India has a larger e-commerce market measured in terms of the number of consumers.

None of this has been lost on Amazon Inc. Indeed, it entered China eight years ago and operates through a local company,, which it has acquired for US$75 million. After failing to meet Wall Street’s expectations earlier this year, Amazon’s Chief Financial Officer Tom Szkutak promised investors that China was one locale the company was “investing in heavily.”

So far this investment has not paid off. According to Bloomberg News, Amazon holds less than a 1 percent share of China’s e-commerce market (which is dominated by Alibaba) and this figure has remained stagnant for four years.

Its recent efforts to reinvigorate its brand in China have oscillated between unimpressive to bizarre. For instance, the company’s trademark product in the United States is undoubtedly its Kindle tablet and e-reader, and the Kindle store. It therefore seemed puzzling that Amazon didn’t feature a Kindle store on its Chinese website until it launched one in December last year. By this time Amazon’s Kindle Store— which was a pioneer in the e-book industry in the United States— was entering a crowded market place in China. Some competitor sites, for instance, had four times the amount of Chinese-language book as Amazon’s Kindle Store.

Moreover, when the Kindle store arrived in China it was missing one key ingredient: the Kindle itself. Owing to regulatory difficulties and complications in launching its cloud service—which is required for users to store and access the books they purchase—Amazon went ahead with the launch of its Kindle store in China without having a release date when Chinese online consumers could purchase a Kindle Fire or Kindle e-reader.

Instead, they could read Kindle books using a Kindle app on their iPhones, iPads or Android devices. In other words, they could enjoy an Amazon ebook using one of its two largest rivals’ devices. Meanwhile, as Amazon struggled to get its cloud service up and running in China, local competitors like Alibaba’s Aliyun (Ali Cloud) and even Western brands like Drop Box were competing fiercely for market shares in China.

Eventually, Amazon’s cloud service was released in China the middle of last month. Yet this was almost overshadowed by the announcement that Amazon was opening its Android apps stores in some 200 countries including such tourist hotspots as Antarctica. One place that wasn’t on the list, however, was China. Then, out of nowhere, Amazon did open an app store in China over the weekend.

Thus all the pieces are in place for Amazon to launch its Kindle Fire and possibly e-reader in China. But given Amazon’s woes up to now, its long-term success in the Chinese market is anything but certain.

Zachary Keck serves as assistant editor for The Diplomat.