ENTR 313 - Amazon Case (final) PDF PDF

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Javier A. Ayala G. Dr. April Lane ENTR 313 November 8th 2018

Case Analysis #3 Amazon in Emerging Markets

Amazon, the e-commerce giant, has expanded to many markets outside the United States. The company has grown and dominated the so-called developed countries markets, mostly located in the western hemisphere except for Japan. These countries are Canada, France, Spain, the United Kingdom, Italy, Australia, the Netherlands, and Germany. Developing countries, with a growing middle class and disposable income, have always been targeted by Amazon. Its incursion in these markets began with China in 2004, expanding then to India, Brazil, and Mexico. Different strategies have been taken to adapt and take their share of each market. Amazon executives have run into some problems in their expansion, but many of them have given lessons to the company. The expansion in the domestic market is often complicated. Expanding to other countries is a much more difficult task. Buying habits, culture, administrative differences and the economic aspect of the country must be analyzed. Usually, in international expansions, the expanding company will not be the first in the industry. Local companies will mostly control the market. The level of competition and ability to dominate the market is substantially linked to what stage of the market the company went in. Being one of the first in the market represents unique challenges for the company itself. The high costs associated with market research and creating a platform to provide services can quickly turn into a problem. Among these aspects, it is also crucial to get a solid customer base, which is usually not used to online purchases for example. However, being the first also has many long-term benefits. Among these advantages, it is visible

that the company has power over new competition threads. By observing the steady clientele with a large portion of the market share, one may acknowledge that the company has a great competitive advantage. On the other hand, late entrants have a higher influence due to the maturity of the market. Nonetheless, finding one's space in the market share can be complicated due to deep penetration in the early mover industry. Therefore, the success of new entrants lies in finding a niche in the market. Many times, this is detected by differentiating itself in the market or bringing new options. For example, Amazon entering India pushed the entire industry to provide a service similar to one-day delivery. By doing this, late movers can penetrate the market and even overcome local competition. Most of the time, Amazon has been a late entrant since the markets have a certain level of maturity. Its first expansion in emerging markets was in China, 14 years ago. At that moment the Chinese market was already highly saturated and dominated by local companies. Amazon did not want the opportunity to enter that great market with billions of people. A small percentage of this market could represent many more customers and sales than in other countries with less population. The company struggled to penetrate the market, acquiring a local company such as Joyo, giving it a base of infrastructure and clientele. However, low margins and high competitiveness made Amazon’s plan to tremble. This expansion also gave Amazon the base to adapt to a different clientele, as well as tastes, quantity of products and payment method. However, it was a practice of trial and error, leaving substantial knowledge to the corporation. Despite differentiating and delivering options such as free delivery for a moment, it was not enough to penetrate the market on a large scale.

Even so, I consider Amazon's entry into the Chinese market as positive and at a partially correct time. On the other hand, we have later Amazon expansion into the Indian market. The Indian market, was less mature and high rates of growth represented an excellent opportunity for the company. Its development was a bit more organic and structured than the Chinese one. So I believe that past experiences were essential for its success. However, India was not an unknown country for the company as they had thousands of workers there doing customer service jobs. Despite not being involved in the marketplace, this knowledgeable population of the platform gave it a more solid base to start. Once again, Amazon had to adapt to the requirements of the local government. By not offering its products and other of its American site options, Amazon began as a service to connect the buyer with the seller. As in China, adapting to customer requirements was essential for its growth. Actions such as cash payment and creating a different way to locate the final destination of the packages gave them that competitive advantage that Amazon needed. The unique aspect of using landmarks to locate houses or commercial premises was something that had never been offered in any of the Amazon platforms. The company's successful adaption was the outcome of hiring locals and Amit Agrawal as the head of Amazon.in. Only in this way, Amazon could penetrate a large percentage of the Indian market. One that was previously saturated by Flipkart and Snapdeal, the two giants of local e-commerce. Amazon’s expansion to Brazil also represented a big step for the company’s international footprint. These aforementioned countries: China, India, and Brazil have something in common being part of BRICS. The last acronym unites the countries of emerging economies of the world also formed by Russia and South Africa, countries that may be targeted by Amazon in the near future. As in the other countries, in Brazil, there was already a first mover: MercadoLibre

(MercadoLivre in Brazil). This latter company has extensive knowledge in the South American market since it has a presence in all countries except Guyana and Suriname. Taking into account that most Latin American economies are developing, it is a market with great potential and was the right moment to enter. Amazon’s presence in Costa Rica, a central location for the Americas facilitates its operations logistically. The burdensome regulations, high taxes, high import tariffs, and poor infrastructure limited the company a little. However, the previous knowledge to expand leveraged the possible risks and errors that could have been committed. The strategy adopted by Amazon allowed reconciling the high rates and taxes imposed by the Brazilian government. Similarly, the full entry into the market of e-books and alliances with local publishers will guarantee a parallel market to the company. This expansion of expanding its offerings in the Portuguese language will also be beneficial in the long term. These are used for sale in Portugal through amazon.es and guarantee products for Portuguese-speaking countries or regions such as Macao in China, Goa in India, both territories where Amazon is present. In about twenty years, statistics suggest that many African countries will have better infrastructure and a growing middle-class population. Among them is Angola and Mozambique, Portuguese-speaking countries that can represent new opportunities for the corporation. Multinational companies like Amazon can measure the success of their expansion in different ways. Given the nature of the economies and infrastructure of these countries, progress is often not visible in the short term. As in India and Brazil, for the most part, large investments had to be made to create an infrastructure that supports the operations of the company. However, the return on these investments are seen as time passes, and these economies continue to develop. While new entrants try to find a place in the market, companies like Amazon already have a structured network of operations.

This type of success is also accompanied by the capacity for growth in the current market. However, it is not just taking the competitor's clientele through price war or better options for the buyer the way to see the success. The real success is based on what percentage of new customers are captured by the company. Since it has a solid infrastructure and a stable market share, the company must attract new customers. In countries like China or India, attracting half of the original population online in a span of one year represents a whole market like Amazon.it. Therefore, I consider in large part all of the Amazon expansions as positive, since they have been able to capture part of the new customers. Finally, the question falls on how local companies can fight back the entry of multinationals like Amazon. Having a correct answer to this results difficult since many factors are over the table. In the same way, variables such as market maturity, current market share, customer retention, and the size of the local competitor are of the utmost importance. The recognition of the brand plays a great role. The credibility that local companies have created over the years can be crucial for their loyal customers. Also, as Amazon did in Brazil, creating alliances with large clients evoking the nationalism in which they are products or platforms 100% Brazilian, Chinese, or Indian is important. Through these alliances, it is also possible to exploit economies of scale. Although Amazon exploits economies of scale entirely due to its global nature, it does not take into account the local. Since these options are not fully exploited, the other platforms can fight back using local economies of scale starting a price war. Overall, David defeated Goliath not by brute force, but by strategy and using the weapon he knew how to use. David, who seemed insignificant, could beat the giant. In the same way, local companies fight back to the big multinationals: using the resources they know how to use, the local. Using different distribution channels, using 3PLs or unconventional methods, differentiates

between large ones. In general, these large companies follow strict guidelines, therefore they can not be fully adapted. Being locally flexible also gives you an advantage in front of the giant like Amazon....