E-commerce competition in China is so stiff that Amazon has decided to leave the market. Alibaba is in the lead but not far behind there is JD.com, China’s other e-commerce giant to keep an eye on
Amazon is leaving the Chinese market, at least its marketplace for third-party products. Why? It cannot take the competition with the local giants.
Chinese e-commerce platforms are growing at an unprecedented rate and they are not leaving any space for foreign companies. Alibaba is in the lead. However, many other platforms are now taking their space on both the local and the global stage. Among them, there is JD.com, less internationally famous than Alibaba but not less popular in China.
Last April, the US marketplace Amazon announced it was planning to close the Chinese online store that caters to mainland consumers by mid-July. Shoppers in China will no longer be able to buy goods from third-party merchants in the country, but they still will be able to order from the US, United Kingdom, Denmark, and Japan via Amazon’s global store.
Is Amazon losing the e-commerce battle in Asia? Maybe. Its alter ego Alibaba already is a winner in China, which is also moving forward in emerging markets such as India and Southeast Asia.
Therefore, since July 18, Amazon China started by stopping selling paper books. According to the company, Amazon expects to close fulfillment centers and wind down its support for domestic-selling merchants in the Asian country during the summer.
The US e-commerce giant made this decision 15 years after its entry in the People’s Republic. The truth is, on the front of local products, the business profitability in the country did not justify the commitment of the American group, which sees itself crushed by competition from Chinese operators. Suffice it to say that the Alibaba Group and JD.com control 82% of the Chinese e-commerce market, leaving small room to grow for those coming from abroad.
© Weibo. Although Alibaba and JD.com are leading the market, other e-commerce platforms like Pinduoduo are quickly moving up the ladders.
As mentioned before, both in China and abroad, Alibaba is the absolute leader. It is one of the largest e-commerce companies in the world. However, although it was born as an e-commerce platform, Alibaba has grown thanks to many branches in finance, logistics, healthcare, and entertainment so much so that today, it is a Chinese tech giant with operations in two hundred countries.
Since 2015, Alibaba’s turnover has exceeded that of American retailers, including Amazon, Walmart, and eBay while its incredible growth has also contributed to making Hangzhou a hub of technological startups. Currently, the turnover of the Hangzhou-based company keeps growing. It increased by 57% in the first six months of 2019 to $24.2 billion while the number of active consumers increased from 25 million to 601 million in the past year.
Nevertheless, Alibaba’s profit margins have been reduced due to the significant investments it has made in local services, logistics, entertainment, and international expansion. A strategy that mirrors that of the rival JD.com, which has strengthened its own business with investments in warehouses, logistics, and advanced technologies such as drone delivery.
“We will continue to invest in key technologies and top industry talent as we work to reach an even broader customer base through cutting edge innovation,” said Richard Liu, Chairman and CEO of JD.com.
JD.com – also known as Jingdong – is the other Chinese internet sensation, whose growth is overshadowing the international competition. Founded in 1998, one year before Alibaba, JD.com has managed to become China’s second-largest e-commerce company since its retail platform went online in 2004.
Jingdong has grown sales at a robust pace over the years. On a constant currency basis, its sales have risen 55.9% in 2015, 43.5% in 2016, 39.2% in 2017, and 27.5% in 2018. Analysts now expect JD.com’s sales to rise by 17.5% to $80.55 billion in 2019 and 16.7% to $93.98 billion in 2020. Though decelerating, revenue growth remains impressive for the Beijing-based firm.
Its difference with Alibaba is that while Jack Ma’s company takes a marketplace approach that lets third-party sellers promote their goods, JD.com focuses more on direct sales. In recent years, JD.com has also branched into marketplace sales, but they make up a small fraction of the firm’s total sales.
© JD.com. Recently, the Chinese firm started to test not only unmanned delivery services but also drones delivery airports.
At home, this platform can count on the support of one of the two internet giants in China, Tencent, Alibaba’s number one competitor. Tencent is not only the company behind the massively popular messaging app WeChat, but it is also a major shareholder in JD.com business, owning a 20% stake in the company.
As a result, while Alibaba’s e-store links are blocked on WeChat, JD runs smoothly through a mini-program, a light-weight application that runs inside WeChat’s interface, allowing buyers to bypass app stores. Although JD.com alone is proven to be a popular platform for Chinese consumers, WeChat is an effective channel for acquiring e-commerce users as well.
Abroad instead, the Beijing-headquartered firm is looking overseas for growth. In August 2018, Google poured $550 million in the Chinese company as part of a strategic partnership to help the firm grab more users around the world. It also collaborates with Yandex Market to increase cross-border trade with Russia. Moreover, JD.com’s drones recently landed in Japan to join the unmanned delivery squad of the Japanese peer Rakuten.
According to the e-commerce company, going global has always been an aspiration for JD.com and partnerships with international firms are a crucial part of the process.
However, JD.com never forgets to diversify the investments. With a strategic partnership with Farfetch – an online fashion retail platform that sells products from over 700 boutiques and brands all over the world – the company is taking a further step towards the hegemony of the Chinese luxury market.
In recent years, in fact, JD has worked directly with luxury brands to offer an end-to-end luxury shopping experience, from customer service to logistics, with luxury warehouses and “white glove” delivery through JD Luxury Express. Moreover, thanks to JD.com, several major brands have now made their official debut in the e-commerce sector.
© JD.com Corporate Blog. Total sales transaction volume during JD.com’s June 18 Anniversary Sale (6.18) reached new heights this year of $29.2 billion.
As well as the Alibaba Group, the Beijing company also leverages Chinese festivities and shopping festivals to grow online sales. JD.com reported impressive sales during the Spring Festival thanks to the increase in consumption and in medium and high-income customers. From 3 to 8 February, sales revenues increased by 42.74% on an annual basis, according to data reported by the company.
The Mid Year Shopping Festival’s sales, instead, reached a staggering $29.2 billion compared to $22.6 billion last year. Occurring from the 1st to June 18, JD.com’s 6.18 shopping event saw over 50,000 smartphones sold during the first three minutes of the event while over 17 million items were sold within the first hour on June 1, an 83% increase over the same period last year. And this makes it the second-largest shopping festival after the Single Day, Alibaba’s 24 hours event.
The Chinese e-commerce market today counts 722,4 million users, who spend $899 each on average per year online, according to Statista. Four years from now, estimates foresee a user increase at 931.8 million with an annual per capita spending of $984.91.
According to estimates, the total Chinese e-commerce market is worth $584 billion of revenues and by 2022 it could reach $917.7 billion. Although it might seem appealing, this market requires investments from e-commerce platforms.
And while Amazon finds its investments in China not worthy, Alibaba and JD.com show how far e-commerce companies could go diversifying the investments and partnerships.
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