Amazon in emerging markets
The Amazon Corporation is one of the largest and most influential in the world. Started as a book vendor in 1994, it is transformed into “a global “customer-centric company serving consumers, sellers, and developers with operations in twenty-two countries” ( WDI Publishing). Nowadays, it is one of the world leaders in e-commerce. This fact is proved by the Figure 1 (Osawa, J., Mozur, P., and Winkler, R., 2014).
Figure 1 Comparison of Selected Electronic Commerce / Technology Companies
According to business dictionary, emerging markets are “new market structures arising from digitalization, deregulation, globalization, and open-standards, that are shifting the balance of economic power from the sellers to the buyers” (Business Dictionary). From emerging markets BRICS group is highlighted. Especially BRICS countries – Brazil, Russia, India, China and Singapore – play and, what is more important, are planning to play an important role in the world economy. Amazon has developed a strategy that in long-term period will bring the company a lot of benefits and will guarantee its firm world leading positions.
The first emerging market to penetrate was China. In 2004, Amazon has acquired Chinese Joyo.com for $75 million and got access to Chinese market. China is the largest e-commerce market in the world with an annual growing rate of nearly 70%. “According to World Bank data, China recorded 621.7 million Internet users in 2013” (WDI Publisher). For example, the amount of Internet users in the U.S. is 266.2 million. Moreover, “in 2002, China had an estimated 27 million online consumers, rising to over 80 million in 2004” (WDI Publisher). This figure is predicted to be 650 million by 2014. This data illustrates the reason of a high interest that China makes for e-commerce companies. However, with huge opportunities Chinese market offers many problems. China is a communist-led country with a lot of limitations and laws to control and limit foreign investment. In this case, barriers to entry into the country are very high. And even if a company was able to penetrate into Chinese market, it will not guarantee stable profit. Amazon can illustrates this fact. “Despite its early investment and efforts, Amazon’s share of the Chinese business-to-consumer e-commerce market stood at a mere 3.5% at the end of 2012” ( Saito, Goh, 2016). High level of competitions is an additional factor hindering development of Amazon. Main of them are: EachNe, Alibaba, Joyo.com, Jingdong Mall / JD.com.
Next emerging market to have activity in was Brazil. Brazil is one of the fasters developing economies in the world. Amazon started its business in Brazil in December 2012. “In 2013, 51.6% of Brazilians used the Internet or 103.4 million people” (Whittaker, 2012). However, “Amazon ultimately launched in Brazil by only introducing its Kindle (e-book) Store” (Whittaker, 2012). This activity succeeded very fast. In 2012 there were sold 435 million books that brought Amazon $2 billion. Factors that prevents Amazon’s expansion in Brazil are: “webs of tax codes, labor laws, logistics challenges, and strong competition from established Latin American e-commerce player MercadoLibre” (WDI Publisher).
Amazon launched its first business in Indian on June 5th, 2013 by presenting Amazon.in. India is the market with one of the fasters developing rate of e-commerce. “According to World Bank data, as of 2013 India had approximately 189.1 million Internet users (15.1% of the 1.25 billion population) compared with only 60.7 million (5% of the population) just four years earlier” (WDI Publishing). From this example it is became obvious that Indian market has huge potential for e-commerce and those who will be able to occupy a niche there, will undoubthfully succeed. In order to attract buyers, Amazon offered multiple incentives:
Free shipping;
a commission to all online publishers who directed their viewers;
different payment options: “credit cards, debit cards, and bank transfers, cash-on-delivery” (WDI Publisher).
Moreover, Amazon concentrated on mobile market in India. “According to Avendus Capital, India had 67 million smartphone users in 2013, a figure that could reach 382 million by 2016” (WDI Publisher). This creates additional opportunities for Amazon improving activities in India. Together with huge opportunities, Indian market contains many threats for Amazon. First of them is horrible infrastructure. Most of Indian territories have no possible ways to reach especially at monsoons season. This fact make a delivery of products really a difficult thing in India. In addition, the level of competition is high in India. Such domestic companies, as Flipkart and Snapdeal, together with world known eBay – are the main competitors for Amazon in Indian market.
Other markets of Amazon’s interests are Mexico and Russia. In August 2013, Amazon launched its Kindle Store in Mexico and its first office in Russia. Russian e-commerce market is also very attractive for Amazon. According to Morgan Stanley, there are 76.5 million Internet users (53.3% of the population) in Russia. Moreover, “an e-commerce industry expected to grow to $36 billion by 2015 from only $12 billion in 2012” (WDI Publisher).
In concussion, it is necessary to say that the strategy chosen by Amazon is very promising but with many risks. Penetrating in emerging markets has both sides: many opportunities from the one hand and many stopping factors (unstable political regimes, high levels of corruption, unfavorable laws) from the other. At the beginning of the implementing period of its strategy. Amazon should be prepared to lose its net profit. We have already seen the situation that took place in 2013, when the highest rate of revenue was observed with the lowest level of net income. It means that company faced with high level of development expenses. Developing expenses occurred in order to establish logistics in new countries, to gain a reputation and to cooperate with domestic companies. To my mind, Amazon is enough huge corporation to bear these expenses and then get firm position on new markets and get profit in the future. One more recommendation for Amazon could be to penetrate in West Asia in such countries as Saudi Arabia and United Arab Emirates where people have high purchasing power.
References
Business Dictionary. Emerging markets. Retrieved from http://www.businessdictionary.com/definition/emerging-markets.html
Amazon in Emerging Markets (1 August, 2014). WDI Publisher. Retrieved from file:///C:/Users/Elizaveta%20Saharevich/Downloads/Amazon_in_emerging_markets.pdf
Osawa, J., Mozur, P., and Winkler, R. (15 Apr. 2014). Alibaba Flexes Muscles Before IPO. The Wall Street Journal.
Saito, M., Goh, B. (2016). Amazon expands logistics reach in China. Reuters. Retrieved from http://www.reuters.com/article/us-amazon-com-logistics-china-idUSKCN0VI21F
Whittaker, Z. (6 Dec. 2012). Amazon launches in Brazil; opens Kindle Store, tablet coming soon. Between the lines. Retrieved from http://www.zdnet.com/article/amazon-launches-in-brazil-opens-kindle-store-tablet-coming-soon/
