Alibaba And Amazon: The Fight Is Just Starting — Consulting Point

Amazon (AMZN) and Alibaba (BABA) are the kings of e-commerce in their home countries. We could say that Amazon owns US e-commerce and Alibaba owns Chinese e-commerce. As they have established a firm market position in their home turfs both companies are looking for new markets to expand in.

AMZN shifted its focus away from China – it is too hard to crack

Amazon already acknowledged that to compete with Alibaba in China they would need to spend enormous amounts of money and even that might not work at all. As a consequence, Amazon pivoted away from China to focus on other regions. The main reasons for this are the following:

Alibaba has already built a strong ecosystem and a strong brand in China. Consumers have their payment systems, social media, chats, toolbars and everything associated with online shopping connected to Alibaba or JD.com. Thus, for Amazon it is currently too hard to change the behavior of Chinese consumers.

In China, government plays a very important role. Their policies are making entries of foreign companies very difficult if not impossible. The government is even less fond of a thought of a foreign company like AMZN owning a big market share in their online retail business.

Based on the above, the most effective way for AMZN to obtain a strong presence in China would be to acquire JD.com. JD.com has a similar business model to AMZN and has a market cap of a little over $55 billion. Looking from that perspective it could be a feasible candidate, especially when looking at AMZN's M&A capacity. JD is one of the few BABA competitors that have a significant market share in B2C e-commerce in China. In 2016, it stood at 24.7%. Thus, if AMZN really wanted to build its name in China, buying JD would certainly enable them to do it. The problem for AMZN is that the ship to buy JD already sailed. Tencent, one of China’s largest companies, has already acquired an important stake in JD.com. It was last reported that it stood at 21.25% and it seems that Tencent has been actively acquiring new shares. It is highly likely that Tencent will buy JD at the end and leave no space for Amazon.

Sourced from Seeking Alpha 

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