Decades after surviving the Dot-Com crash, Amazon continues to grow. The company has amassed a yearly revenue of 11.59 billion dollars, and has a seat at the table in a diversity of industries, from cloud computing to entertainment. Today, we’ll look at the secrets behind the international expansion of Amazon.
There were many aspects of the e-commerce giant’s business model that made growth possible. For instance, the very reason why Amazon could overcome the Dot-Com crash was its early focus on profitability above all. But, in this post, we’ll examine Amazon’s international expansion strategy through two cases, Germany and China, as well as Amazon-inspired expansion tips for businesses of all sizes.
The Basics of International Expansion
What might be a winning strategy in California might be disastrous in Myanmar, a hit product in Germany might pass unnoticed in Mexico, and an ad that becomes a part of Japanese pop culture might be deeply frowned upon and forgotten in Spain.
Every market is different, with its own unique set of advantages, and its unique set of challenges. Regulatory, cultural, and linguistic differences shouldn’t be overlooked.
Ambitious CEOs might want to see their company name everywhere. But you can’t get everywhere at once. It’s best to begin market by market, first expanding regionally and continuing to grow accordingly. A targetted, localized approach to expansion is, basically, the only effective way to go about it.
That’s why every expansion effort, aside from legal counseling and business translation services, demands months of research, analysis, and planning.
Germany, at the Heart of Amazon’s International Expansion
Amazon accounts for over 13% of e-commerce sales worldwide. Its biggest market is its native market, the US, where it’s second to none in the e-commerce sector. Amazon Germany, on the other hand, is the company’s biggest foreign presence, accounting for one-third of the company’s sales revenue.
Amazon’s success in Germany relies on a simple formula: The company satisfied a market gat by offering an easy-to-use website, with a selection of products far wider than its competitors’, fast shipping, and very generous return policy. On the other hand, the Amazon Marketplace was a hit with sellers, giving them a competitive platform at a low cost. And the Amazon marketplace was also very beneficial for Amazon.
As Dr. Eva Stüber and Carolin Leyendecker explained in an article, through the marketplace, Amazon can expand its range with new products or product categories without taking a great risk. If the products are successful, they will then be added to the Amazon range, “Amazon will go into the proprietary trade with less risk after the test via the marketplace and, in the long term, even go into own production.”
Amazon accounts for almost half of online retail sales in Germany. 25% are made by independent sellers in the Amazon Marketplace, 21% by Amazon itself. Meanwhile, in China, one of the most promising markets on earth, only 1% of E-commerce sales are made through Amazon. Why? The reason is simple: Alibaba.
The Case of Amazon in China
Amazon entered the Chinese market in 2004, when it acquired online book retailer Jojo. Competing against Alibaba, the company perceived losses for 11 years.
In 2015, Amazon decided to join forces with Alibaba, and started doing business through the Chinese platform’s “Tmall” website.
The main reason why China native Alibaba could bend Amazon’s arm was that Amazon refused to adapt to the Chinese market, while Alibaba was a product of it.
For instance, the Chinese market is really price-sensitive. Alibaba’s enormous variety of merchants created a very competitive environment that resulted in low-prices and a very costumer-centric approach. On the other hand, Alibaba is the online home of many manufacturers. These manufacturers can communicate with customers directly and innovate accordingly. When it comes to both price and customer service, Amazon cannot compete.
Amazon also failed to adopt local payment systems. Credit and debit cards tend to have exorbitantly high rates. Not so much bank transfers or other prepaid methods. For instance, AliPay.
Nowadays, Amazon is aiming for a dominant position in the Chinese streaming market, with its fairly recent acquisition of Twitch. The e-sports streaming platform competes with PandaTV, a local product from Wang Sicong, son of Chinese billionaire Wang Jianlin.
For Amazon, international expansion in Germany had a clear advantage, providing German consumers with a reliable service, and offering small and medium-sized German business a great platform to grow their revenue.
In China, there already existed a platform that did just that, satisfying the specific needs to local merchants and customers.
These two particular cases from Amazon’s international expansion record, prove one of the basic principles of expansion: Localizing and adapting to each individual market is vital. This involves meeting regulatory standards and speaking to your customers in their language. But it also requires making sure there’s a clear market gap to fill, that your business has a competitive advantage, and that you’re really considering the needs and wants of your new customers.