This report highlights Amazon’s opportunities and challenges in China. With the worlds fastest growing and changing e-commerce market, Amazon China faces the e-commerce giant Alibaba and struggles to gain adequate market share. Leading the world’s online retail, however, Amazon exposes a remarkably low presence in the country. Since 2004, the company has failed to adapt to Chinese models and infrastructures, going through different strategic routes has not alleviated the company’s growth. Amazon has become an exemplar for many B2C, B2B and C2C foreign companies who want to enter the Chinese e-commerce market, the distribution channel that leads to billions of online shoppers is attracting many foreign brands to both launch their e-commerce cite or open up a digital shop in one of Alibaba’s e-commerce platforms. Amazon has been in China for over fifteen years and no sign of growth has occurred yet they chose to endure in the Chinese market. Findings show that the company’s determination to continue to dwell in China is based upon the long run, within the years Amazon sought to position itself as a premium platform to meet Chinese demands of oversees products.IntroductionE-commerce in ChinaNowadays,the difference between e-business and e-commerce drastically matters forcompanies. The “e” that represents thefunction of electronic network technologyhas evolved to new business processes and practices. (Bartels 2000) In alarge bubble, e-commerce highlights the reach of customers across suppliers,marketing, customer service, distribution through different business models (B2B,B2C, C2C, B2G, C2B, P2P, m-commerce). Whilst e-business comprises of e-commercehowever it is more associated with the internal developments such asrecruitment, finance, customer correlation management, information management,supply chain managements etc. “E-commerce is in fact not just a commercial tool in China. It has become a model for economic development.” (Marco Gervasi 2016) East Commerce, a journey through China e-commerce and the internet of things by Marco Gervasi gives us indications on how China will continue to form and ultimately conquer the e-world in the following years. China’s underdeveloped infrastructures and uncivilized marketplaces in the past decade urged the country to implement America’s embryonic e-commerce and e-business models. However, the American model was naturally designed to fit in a developed market rather than a developing one, therefore China was unqualified to adopt such model. (Gervasi 2016) Alibaba,the first digital platform that successfully used a model adjusted to Chineseconditions and specifications. Alibaba’ssuccess arose from the idea of building a platform similar to EBay’s by linking shoppers and vendors whileleaving the trading costs to them. TaoBao, a subset of Alibaba, withits shrewd alteration from an Amazon-like model to an EBay-like model triggeredChinese e-commerce to launch regardless of its unfledged and underdevelopedinfrastructure. (Gervasi 2016)    M-commerce or mobile commerce plays a major role in Chinese e-commerce, due to the country’s rapid spread of smart devices, the Chinese online world is increasing in a revolutionary manner. With the influence of m-commerce, Chinese e-commerce has unintentionally created online shopping into a social activity. (Gervasi 2016) E-commerce and social activities are now merging, as a matter of fact, the number of mobile users has surpassed the number of internet users in 2008. (Chong, Chan and Ooi 2011) Chinese participants in online social activities have shown that the more people purchase online products/services the more it revolves around a social experience.  Posting pictures on their purchased products, ratings and writing reviews on the products and so on has created a radical e-commerce model in China. (Gervasi 2016) In a nutshell, social influence has shown to be a key principle of Chinese consumer decisions to embrace the m-commerce model. (Chong et al. 2011)  AmazonAmazon,known today as the world’s leader in online retail, founded by Jeff Bezos in 1994, starting as abookseller, the founder was never pleased of it being only a book distributor. The Everything Store (2013) by Brad Stone terms the founder’ s vision asquarrelsome; Bezos wanted Amazon to offer a limitless variety ofgoods with the best convenience at the lowest prices. (Stone 2013) Amazon’s success in the United Statesonly led the company to expand and generate international revenue, with itspromising numbers in the US, the company believed that expanding globally wouldonly overpower the world of e-commerce. Figure 1: Amazon worldwide online marketplaces. Source: Company (2015)After expanding toEurope, Amazon was hungry for moreexpansion. An entry to India’s market utterly grasped the company’s attention.Entry to India’s world of e-commerce comprised of a young population (65% underthe age of 35), increasing numbers of mobile users (80%) and growing levels ofdisposable income (individual and household). However, most of the populationlives in countryside regions under an underdeveloped infrastructure and only35% of the population are internet users. (Govindarajan and Warren 2016) India’se-commerce model could be a suitable comparative analytical tool to China’se-commerce model as they both characterize of underdeveloped infrastructures. Amazonentered the Indian e-commerce market only after it witnessed an insignificantperformance in China, Amazon’s devastation in China taught the company how toadapt its model and platform within underdeveloped infrastructures, such ascustomizing products in the local markets. With that said, Amazon India owns alarger portion of the e-commerce market share in India, taking over thecompetitors such as Flipchart and Snapdeal. (Vishrut Shah 2016) Amazon has clearlyshown an exceptionally low presence in China due to its primary competitorAlibaba, but why has Amazon chose to remain in China, heedlessly?  An analysis of the industry and the market,the current business models/technologies used and the strategies implemented tosurvive the ongoing struggle will be highlighted to demonstrate the company’sdecision and determination to continue to dwell in China.   Amazon China Case AnalysisAmazon.cnAmazon is not the only western company thatstruggled and continues to battle in China’s e-commerce market. Other companieslike Yahoo and and Google have also failed at gainingadequate market share. Amazon entered China’s B2C e-commerce market in 2004 by buyingJoyo.com, however, the company rebrandedit as Amazon.cn in 2011. It observedan immense decrease in sales from 2004 – 2016. (Wang and Ren 2012) Amazoncurrently owns 0.8% of the e-commerce websites market share, it also brought inAmazon Prime, hoping to bump up salesin China, however it remained far behind Chinese e-commerce websites. (JeffDunn 2017) Figure 2: E-commerce websites in China market share (2016). Source: iResearch China, US Department of Commerce (BusinessInsider 2017) The companyintroduced Amazon Prime to China in 2016but appeared to still not go any further, that is because Alibaba’s domination of the e-commerce market was controlled by Tao Bao where cheap brands wereavailable and T-Mall where big westernbrands would launch their digital shops. (Jason Del Rey 2016)Amazon profoundly keeps investing inChina, Dawson (2015) mentioned thatgiven the strong competition in China and regulations, its very questionablefor Amazon.cn to witness a lastingsuccess. On the other hand, Amazon China’s president Doug Gurr (2015) adds that cross-bordere-commerce is the company’s strategy in China. In 2015, the cross-border buyingpower by Chinese consumers has revealed growth, sales records from Amazonshow that the primary users of Amazon China are people with high disposableincomes, educated, and young. (Meng Jing 2015) In my point of view, this canreveal a matter of trust, Amazon’sgeneral image around the world is known to be very positive and constructive,it’s main competitors in China such as TaoBao, T-mall and JD sometimes offer unoriginal andno-brand named goods, but Amazon China seems to be positioning itself as apremium platform offering only genuine and western products. In 2015, thepresident of Amazon China stated that they will continue to tremendously investin the following year of 2016 to make shipping cheaper for customers whenpurchasing items from abroad, and this strategy will eat up more market share.(Jing 2015) By that time, Amazon China was acquiring 1.1% of the market share(see Figure 3), as of now (2017) the strategy does not seem to be working as theyown 0.8% of the share.  The e-commercemarket in China is colossal, so how small is a share of 0.8% in such market? Figure 3: E-commerce market share in China (2015). Source: iResearch (Quartz 2015) The E-Revolution in ChinaOver the past 10 years,China has become a cyber-market, e-commerce has been emerging and third-partypayment systems have made it comfortable for Chinese consumers to purchaseitems online. (Cristiano Rizzi 2013) Distribution channels in China arebecoming exclusively attractive for foreign companies because the population isthriving and Chinese people have shown a preference to consume on onlineplatforms. Rizzi (2013) in his book E-commerce Law in China suggests thatforeign companies that want to expand to China or enter the Chinese market mustconsider adopting traditional methodsof approach and eventually launch an online presence. (Rizzi 2013) Porter Erisman (2012) narrated in hisdocumentary “Crocodile in the Yangtze”, “Imposinga Western model in China doesn’t work.”  EBay’s failurein China can be one of the cases where a Western company missed its chance torecognize and adapt to Chinese e-commerce models. Big data gradually drives e-commerce in China, more companies in China use data and analysis for future outlooks and to understand consumer behaviors. (Helen H. Wang 2016) Tencent, Alibaba, and Baidu maintain the most treasured data sources. Not only it can help them manage and segment their own target markets but also help other multinational companies in China to do so. (Wang 2016) The e-commerce market in China is growing at an incredible rate, doubling in numbers whilst economic performance advances. Due to progressive e-commerce, it has brought more than 700 million people to join the middle-class. China is estimated to overtake the US in becoming the largest retail market in the world with a population of 1.3 billion people and a blossoming number of smartphone and internet users. (Tsendyam Enkhchimeg 2016)Amazon China’s 0.8% current market share may seem very small but lets not forget that it’s a piece of the world’s largest and fastest growing e-commerce market. According to the National Bureau of Statistics in China, 2016, online retail sales reached around $752B. (Frank Tong 2016) However, as China’s e-world continues to grow, Amazon China has not shown to grow in terms of market share, instead it has exposed a loss.      SWOT Analysis and Michael Porter’s Five ForcesStrengths: Amazonis generally a very profitable company, known as the largest online retailer inthe world. Information Technology andCustomer Relationship Management alsoabbreviated as CRM maintain Amazon China’s strategies in business. As mentionedearlier, the company aims at understanding its Chinese customers by recordingdata on consumer behaviors and preferences, it empowers the company to offercertain needs at the right time of year by tracking purchases and clicks (visited items), a concept alsoknown as “re-targeting.”  As the above are the overall strategies ofe-business companies, Amazon China’s current situation is urging them to absorbas much information as possible to deliver more needs to its current customersand understand the potential ones. Financial stability and market orientation canalso be additional strengths; the mother company grossed more than $90B just insales last year (company 2017), this success is driven from a low-cost structure and wide range ofproducts and items. Third party sellers,(a model for sellers within the platform) also push new customers to AmazonChina’s website. All of Amazon’s marketplaces upkeep each other by creatingbenefits, that is one of the reasons it is continuing to survive and hasn’t yetlatched out of China’s e-commerce market. Anotherstrength acknowledged is the brand image of the company overall, it has longbeen a trusted and a dependable platform, Amazon China uses this advantage tooffer Chinese consumers quality goods from abroad, a resilient strategy used byAmazon.cn called cross-border e-commerce.  Weaknesses: AmazonChina has been adding new categories in their selection, Chinese produces anditems, may be useful in diversifying the customer base, however, it risksdamaging the only positive brand advantage they currently have, cross-border buying power. Moreover, thedelivery model has not been clear for both impending Chinese customers andcurrent customers, Amazon China has changed from free-shipping to chargingcustomers for shipping because it projected financial losses. A furtherweakness is the infrastructure and model used are not genuinely suitable forthe Chinese e-commerce market though over the years it has slowly startedadapting to it. As discussed earlier, the use of smartphones is much morecommon than the internet, the company has not yet set up an Amazon China appwhere Chinese people can purchase items on their phones, it also lacks thesocial ecosystem where buyers and third party members can communicate.    Opportunities: E-commerceopportunities in China are vast, not only for Amazon but for many other foreigncompanies as well. As the e-commerce market continues to develop, shippingcosts are decreasing, technology is advancing and the economy is thriving whileChinese household incomes are mounting. At some point, China may observe anentire developed economy and country, whereas Amazon’s stable infrastructuresbuilt for developed countries can come in handy. Foreign brands in Chinarepresent prestige and premium quality, they also have shown quite a demand, thecompany is opening its doors to third party sellers from abroad who can bringthese needs to the fullest.   Threats: Chinese demand andinterest in foreign goods, typically US branded or EU branded has caught theattention of many American and European companies, an e-commerce movement thatseems will cause more competition for Amazon China. For instance, the bigAmerican retail brands such as Macy’s announcedthat it will launch its e-commerce website in China by the end of 2018. Macy’s already has a good reputation andimage in China due to its digital shop on T-mall, this could be a major threatfor Amazon. Joint ventures and mergers in the market may also be of greatthreat to China’s Amazon. Porter’s Five Forces Figure 4: Michael E. Porter’s Five Forces – Amazon China PESTLE AnalysisPolitical/Legalinfluencesaffecting and supporting Amazon’s e-commerce business in China:China’s politicaland legal stability is unclear: (opportunity and threat)Amazon has facedand continues to face many challenges within the Chinese e-commerce landscape. Itis a foreign company facing Chinese born competitors such as Alibaba, thegovernment has shown to ease regulations by supporting the Chinese e-commercecompanies. It continues to threaten Amazon because it may cause more Chinesee-commerce websites to launch. In addition, the Chinese government isrestricting new regulations on cross-border e-commerce activities to securetrade safety and this only limits third-party sellers to join Amazon’s Chineseplatform. Third-party sellers who sell foreign items are also objected to gothrough payments and electronic contracts. On the other hand, the governmenthas shown great support for e-commerce websites in China, both foreign anddomestic, by cultivating business conditions in enhancing cyber security, thebuyer, seller and logistic services can rely on the e-commerce platforms. Economic Factors:China’s economyhas been enjoying e-commerce advantages. As it is still a developing economy,disposable income is on the rise, this opportunity for Amazon is valuedespecially for the long-run as it will surge the company’s revenue. However, aneconomic recession in China is very likely, a threat that would unravelAmazon’s efforts in trying to penetrate the world’s most developing e-commercemarket. Social and socioculturalInfluences:The social factorsare all opportunities the company must take advantage of. China iswitnessing a culture of online consumption, this degree of consumerism on allof the county’s e-commerce platforms must drive Amazon to create socialactivities with the program to enhance the social experience. As social mediacontinues to be a dominant distribution channel, consumers also use thesemedias to make buying decisions on platforms such as WeChat.  Figure 5: WeChat online shopping doubles within a year (McKinsey 2016). Source: McKinsey iConcumer China 2016 SurveyTechnological Factors:Technologicaladvancements within China have directly hit Amazon, new technologies are rapidlyaltering and developing which pressures Amazon to progress its technologicalsystems. However, it is also viewed as an opportunity by the company because itadjusts the business accordingly. Amazon’s investments on IT may increase a competitive advantage and defend itself from new enteringcompetitors in the same e-commerce market. The opportunity to further enhance performanceby increasing the efficiency of informationtechnology must be considered by China’s Amazon in order to exploitproductivity and decrease operational costs. Furthermore, stressing continuousdevelopments in technologies within the Chinese e-commerce market may lead thecompany to stay a step ahead of competition or assist it by not staying behind.Environmental(ecological)Elements: Environmentalawareness is beginning to be become more popular in China. Ecological threatssuch as global warming is driving companies to launch environmental programs, Alibaba for instance is continuously promotingand raising awareness on environmental protection of the country. Due to thegrowing interest in environmental programs, Amazon has sought the opportunityto reduce the amount of paper-made books in the selection and offer e-bookalternatives both on Kindle and desktop.  Business Models and TechnologiesChina’s e-commerce business modelsBusiness-to-Business(B2B)TheB2B model is designed for businesses to sell their products or services toother businesses within an online platform. The B2B segmentbasically launched the development of e-commerce in China. Such model was firstaimed at enhancing the trading channel between Chinese suppliers and US/EUbuyers. Nevertheless, now it is used by millions of buyers and suppliers fromaround the world. China is the worlds leader in the B2B e-commerce sector, dueto Alibaba’s dominance.  Figure 6: China B2B E-commerce market share (2012 & 13). Source: iResearch (CBBC Guide to E-commerce in China 2012) Business-to-Consumer(B2C)TheB2C model generally applies to when a transaction occurs between the company(seller) and the consumer. China’s B2C e-commerce market is conquered by the domestic online retail companies such as T-mall. The penetration of online shopping and internet usage deliver a strong basis for the growth of the online retail industry in China.   Figure 7: B2C E-commerce Market Share China (2013). Source: iResearch (CBBC Guide to E-commerce in China 2012) Consumer-to-Consumer(C2C) Thisbusiness model enables customers to trade between each other.  The C2C e-commercemodel dominated the online retail Chinese market, Alibaba’s e-store Tao Bao is the primary participantcontrolling around 95% of the entire C2C sector. (CBBC 2012)Figure 8: C2C China Market Share 2011. Source: iResearch 2011 Summary: All these modelsrepresent effective channels in which a company can associate with customers orclients at low costs both in China and abroad. However, a foreign company mustunderstand and evaluate the Chinese e-commerce landscape to the maximum beforeit enters the market. For example, Amazon did not fully recognize the obstaclesand opportunities before entering which caused it to perform poorly. EBay’s presence in China was a failurebecause its C2C business model did not suit the market and did not adapt to theenvironment, therefore missed the opportunity to control the worlds largest C2Ce-commerce market. If EBay and Amazon had analyzed the Chineseenvironment and demographics more precisely before entering, they wouldpossibly be leading the Chinese e-commerce market. The figure belowdemonstrates the Chinese E-commerce market growth comparison of B2C and C2C. Figure 9: Chinese E-commerce market growth B2C and C2C (2007 – 2013). Source: Bain and Company 2012 (CBBC Guide to E-commerce in China 2012) Amazon in China operateswithin a B2C business model, it sells products directly to consumers on thesite and allows third-party sellers to join the platform at no charge. Amazondoes not help the third-part sellers succeed, instead the company discovers themost sold items by the sellers and then places them at lower prices, however,it also lets sellers sell the same products as Amazon at lower prices. (Wang2015)  Future Outlooks Chinahas been changing the future of e-commerce. Online spending has been rapidlyincreasing since 2004, the convenience of online shopping continues to expandaround rural areas and small cities which helps e-commerce companies reach newcustomers.  Shopping on mobiles is alsoincreasing at an incredible rate, the convenience of shopping at the tip ofyour fingers, looking at reviewed items, rating products and so on is onlyseeming to become more and more popular in China. The top e-commerce giants ofChina are dominating the m-commerce market by continuing to improve their appsand customer services.Itis reasonably predictable that if China’s Amazon does not partake in them-commerce market it will remain far behind and its market share will continueto drop. It is clear that Chinese people prefer to shop more on mobile ratherthan the internet.      Moreover,Amazon.cn is simply absent to Chinese people, issues such as adapting to theChinese infrastructures and lack of mobile presence are creating barriers toobtaining more market share and profit rather than being a strategy ofdifferentiation. Being cost effective and selling cheaper items is not a costleadership strategy because the competition already masters at that. Amazon.cnis left with one leading strategy to face, to only focus on brandedimported goods. RecommendationsAmazonmay consider the following strategies to win in China’s e-commerce market. Thefirst strategy Amazon China can actupon is building a mobile app that can function as a corresponding tool to thewebsite. An easy-use app where the the shopping experience is enjoyable andpayment methods are easy and secure. Enhance customer service on the appthrough a feedback system, a network where the company and customer cancommunicate.  The second strategy is social networking, Amazon must merge with Weibo and Wechat or create its own in-app social system where consumers can react on products by reviewing the quality of the item, delivery method and quality of customer service. Athird strategy would be advancingdata assembling techniques, it will not only help the company gather enoughinformation on their customers but it will also keep the company updated aboutmarket trends and developments. Furthermore, big data collection will customizethe experience for the targeted consumers.   Thefourth strategy Amazon can stress onis cross-border e-commerce, it is the most powerful tool it currently hasagainst its competitors in China. A lot of Chinese people admire westernproducts, however, Amazon’s competitors such as Tao-Bao and T-Mall have thoseproducts at similar costs but the quality of the good is unreliable. Therefore,Amazon China can offer the western premium goods at lower costs by openingwarehouses in tax free regions around China. Amazonshould customize its model and infrastructure based on Chinese socioculturalenvironment. Marketing strategies such as participating in Singles-Day sales, Chinese new year promotions and so on will bringthe company a step closer to compete with the e-commerce giants of China.However, Amazon must stop investing and focusing too much on China, the simplestrategies above could benefit the company in numerous aspects within thee-commerce market. Like Amazon India, the entire company must continue toexpand to developing countries before Alibaba dominates them.  ConclusionsTosum up, Amazon’s entry to China led the company to build new infrastructure andmodel for developing countries, its experience has helped it understand how toadapt a model in a country where change and growth are boundless. Amazonentered China at the wrong time in the wrong way, the company underestimated theobstacles and opportunities. The company failed to balance betweencustomization and standardization that could shape a new business model. Amazonis still struggling in China left with very few strategies to consider, Amazonhas even opened up its own store on T-Mall in-order to increase morepublicity.  Alibabahas dominated great power of the e-commerce industry, this e-revolution inChina has served the economy in so many ways, creating jobs and an income forpeople in rural areas as well. A country of 1.3 billion people where 90% areonline shoppers and a growing middle class drives Amazon China’s ambition tocontinue to remain in China. Chinese people have shown a demand in overseespremium products especially from the US and Europe, although a rapidly growingmarket and yet a decreasing market share for Amazon, the company believes thatthe long run will have so much to offer. The company must implement new strategies and base itself according toChinese culture, gain a mobile presence, engage in social networking,understand Chinese online consumers to the maximum, and most importantly remainas a premium online service that offers only items and products from abroad.References:Bartels, A. (2000). The difference between e-business and e-commerce. [online] Computerworld. Available at: http://www.computerworld.com/article/2588708/e-commerce/e-commerce-the-difference-between-e-business-and-e-commerce.html [Accessed 12 Apr. 2017].Chong, A., Chang, F. and Ooi, K. (2011). Predicting consumer decisions to adopt mobile commerce: Cross country empirical examination between China and Malaysia. Science Direct. 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