Amazon China is discussing Merger with Chinese Cross-border E-Commerce platform Kaola

25/02/2019

Amazon’s China unit and NetEase’s cross-border e-commerce site Kaola reportedly have been in talks over a possible merger. It would be the end of Amazon.cn?

 

According to Chinese business magazine Caijing, Kaola, PRC based cross-border e-commerce owned by NetEase’s and US e-commerce giant Amazon reportedly have been in talks over a possible merger.

The companies signed a deal to combine China cross-border businesses in a stock-for-stock merger in late 2018. But negotiations had been difficult, sources told Caijing. Amazon and NetEase Kaola declined both to comment on the matter. So, what’s going on?

 

Amazon  has operated in China for more than a decade, but you’d be forgiven for not knowing. US e-commerce giant contribute to Chinese e-commerce environment is close to zero.

 

Amazon entered China in 2004 after it bought out local book-selling business Joyo for $75 million. In 2014, it started offering an overseas shopping service to capture Chinese consumers’ growing appetite for imported goods.

Nevertheless Western e-commerce titan has devised various marketing gimmicks to lure shoppers, but the business was never able to establish a commanding position in China, where big guns like Alibaba and JD.com dominate.

 

©Kaola.com. Launched in 2015, NetEase’s Kaola is the largest cross-border import retail e-commerce platform in China with a 26% market share in 2018.

 

According to data, Amazon held less than 1 percent of the Chinese commerce market in 2016. The market has grown, but not fully satisfied expectatives. What about Kaola?

NetEase is best-known as China’s second-largest game publisher after Tencent, but years ago decided to join Chinese e-commerce battle. Launched in 2015, NetEase’s Kaola is the largest cross-border import retail e-commerce platform in China with a 26% market share in 2018, surpassing Alibaba’s Tmall Global and JD.com’s JD Worldwide, according to iiMedia Research. Kaola accounts for the majority of NetEase’s e-commerce sales.

 

E-commerce experts argued that the merge makes sense because both Kaola and Amazon could help each-other in order to contain concorrency.

 

Although Kaola holds a dominant position in the market, it is a standalone site without the halo of big-named e-commerce sites like Alibaba’s Tmall Global, while the merger could increase sales and exposure for Amazon in China. Plus the merge with US e-commerce platform would provide to Kaola a wider range of foreign branded inventory”.

 

©Kaola.com. NetEase Kaola signs procurement deals with foreign merchants during the CIIE in Shanghai, last year.

 

The US tech titan Amazon has found the Chinese market to be a tough battleground, mostly because of high competition from Chinese online retailers. According to iResearch, today, Amazon has less than 2% of the e-commerce market in China.

 

In more than 10 years on China market, Amazon had very dull performance. Why China is vital for US based e-commerce giant business?

 

As we said, the merger could increase sales and exposure for Amazon in China, but today, according to data, Amazon marketplaces 40% of sellers are based in China while third-party sellers from China dominate Amazon’s apparel offerings. And now Chinese sellers and building brands on Amazon.

Last year, more than ten thousand Chinese sellers attended the 4th annual Amazon Global Store Seller Summit年亚马逊全球开店卖家峰会. The event held in Ningbo, Zhejiang province, last December 6-7th. Twice as many are tuning in into the live broadcast online.

The importance of China to Amazon has increased over the past few years. During the last two years the number of successful sellers from China on Amazon has doubled. The Global Store Seller Summit event is a great example of why.

 

©ChinaDaily. The 4th Amazon Global Selling summit was held in Ningbo, East China’s Zhejiang province, on Dec 6, 2018.

 

US based giant e-commerce platform data shows that Chinese sellers will create a new product on Amazon every 0.02 seconds, 60% of Chinese sellers’ sales come from new products created in the past 12 months, and for Chinese sellers nearly 50% of the top 10,000 hot-selling items in sales are from new products created in the past 12 months. Thusm China is leading apparel sector on Amazon.

Amazon’s top five apparel “brands” sell unbranded clothes shipped to consumers from China. One such brand, listed on the site as WSPLYSPJY, alone makes up 8.6% of all Amazon men’s and women’s clothing listings.

 

Is Amazon losing ecommerce battle in Asia? Maybe. Its alter ego Alibaba already is a winner in China, but is moving forward in emerging markets such as India and south-Asia.

 

Despite a weak presence in China, Amazon is trying to arise in other Asian markets, but Jeff Bezos company navigates in bad waters. Trough Lazada, e-commerce platform owned by Alibaba, the Chinese e-commerce firm is already ruling PRC market and now is winning in Malaysia, Indonesia, Singapore and other south-Asia countries. And Alibaba is once again well ahead in India.

The two international e-commerce giants have launched different strategies in India. In fact, it was the diversified approach and the capillary investments that brought Hangzhou based company ahead of its American counterpart. First Jack Ma’s company aims to replicate the success achieved at home by entering the Indian startup Paytm in 2015, the most used digital payment platform.

 

©Ishant Mishra, indian rupee. According to data, the number of active buyers on e-commerce portals in India, is rising year by year.

 

Alibaba’s investment strategy has focused on startups of high-frequency use case and of high-level user engagement more than on its local platform. An example is a capital invested in the Indian online payment company, which then gave birth to Paytm Mall.

Thanks to these funds, Paytm acquires the Chinese platform’s most distinctive traits, thus turning the chaotic and developing Indian population into a modern “cashless society”.

What about Amazon? Last September, Amazon announced the use of the Hindi language to reach even the part of the population who does not speak English. However, this is not an isolated move by the American colossus in the country.

 

Amazon first entered India in 2013, investing up to $ 5.5 billion to ensure a position in this thriving rising market. But Amazon is suffering of lack of competitiveness and inventive.

 

What’s new in the West, is already old in China. Now PRC exports its digital innovations. Are international social networks or e-commerce giang copying Chinese trends? Since Facebook, Amazon and Instagram introduced new e-commerce features, it really looks like it.

Let’s see for example the integration of online and offline. In the west, when Amazon acquired Whole Foods Market, everyone speculated how  combined those two firms : an online brand with a brick and mortar one in order to produce a new generation of digitally-connected retail. Well, that future has already arrived in China years ago.

 

©Alizila. “Hema supermarket is what you get when you imagine a seamless blend of the online and offline shopping experience”, said Alibaba Group CEO Daniel Zhang.

 

Alibaba and JD are rapidly opening retail outlets across the country, called Hema and 7Fresh respectively. Both brands offer a wide range of digitally-connected experiential shopping.  First, clients customers can use their phone to scan the barcode of any item in the store to learn about the product’s source, nutritional information and price. Delivery is available at both stores in as little as 30 minutes after consumers have made their purchases. The future of e-commerce and online business is speaking chinese.

The future is in China and today Amazon is just copying Chinese e-commerce trends. Even not talk about how Chinese sellers are the basis of US based e-commerce giant. Without them Amazon would disappear and now Jeff Bezos needs a Chinese e-commerce platform such Kaola to go deeper in PRC market.

 

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