Amazon may be the king of e-commerce in the West but Alibaba rules over the Chinese market and Amazon has been struggling to compete. The company’s latest move to expand in China could be seen as either an admission of defeat or a clever business move, depending on who you ask. If you ask me, the Amazon’s decision to open a digital store inside Alibaba’s Tmall, essentially making it Alibaba’s customer, is a mix of both, half admission of defeat, half clever business move.
As Amazon.com struggles to expand in China, the U.S. online retailer has opened a flagship store in local competitor Alibaba Group Holding’s online marketplace. Amazon’s store inside Alibaba’s Tmall, launched this week, so far offers a limited number of product categories including imported food, women’s shoes, toys and kitchen equipment. The food section, for example, includes Blue Diamond almonds and Californian wine, while the toy section carries international brands such as Lego and Crayola. By becoming a Tmall seller, Amazon becomes Alibaba’s customer. Retailers and brands that operate their flagship stores on Tmall pay a commission to Alibaba for each transaction. Amazon is a household name for U.S. shoppers, but the company has faced an uphill battle in China, where Alibaba dominates the growing e-commerce market. Amazon had just a 1.3% share of the total business-to-consumer market in China in the third quarter of last year, a 13.8 percentage point loss of market share from the same quarter in 2008, according to a Daiwa Capital Markets report on e-commerce in China, citing data from iResearch.