AMAZON CASE 3

ENTRY MODES
Module: International Business

Group: Cơm tấm

Members:

Full name Student Code

Nguyễn Thiên Nga K214020162

Phạm Quốc Anh K214021474

Trần Tuấn Kha K214021479

Trần Lê Quỳnh Như K214021485

Trịnh Thị Xuân Thủy K214021489

1. What challenges has Amazon encountered when entering emerging markets?

a. INDIA

● Foreign Direct Investment (FDI) Restrictions: India's strict FDI laws, though liberalized in
2012, still limit foreign multi-brand retailers like Amazon to having only up to 51%
ownership. This meant that Amazon could only function as a marketplace, connecting
domestic sellers to buyers, rather than selling its products directly and these regulations
restrict Amazon from fully replicating its US business model in India, where it can only
operate as a marketplace connecting domestic sellers to buyers.

● Competition: Amazon faced stiff competition from domestic and international e-commerce
players in India. Key competitors included Flipkart, Snapdeal, and eBay, which had already
established themselves in the Indian market. These competitors had already captured a
 significant market share and had a head start in understanding the Indian market and
consumer preferences.

● Infrastructure Issues: India's infrastructure posed challenges for Amazon, including poor road
conditions, congestion, and difficulties in addressing and finding locations. Also, a significant
portion of the population lived in remote rural areas with limited access to major highways.
These infrastructure limitations affected the efficiency and cost of product delivery. In
addition, frequent power failures and inadequacies in the electricity infrastructure posed
challenges for Amazon's operations, particularly in fulfillment centers and warehouses.

● Logistic Challenges: Amazon needed to build and adapt its logistics network to meet the
unique distribution demands of India. The company invested heavily in fulfillment centers to
ensure faster delivery times, but it required significant effort to handle the complexity of
Indian logistics.

● Cash Dominance: In India, cash payments were predominant over credit or debit card
payments in day-to-day commerce. This necessitated the adoption of "cash on delivery"
payment options, which added complexity to the payment process and cash flow
management.

● Poverty and Income Disparities: India has a significant impoverished population, with many
people living on less than $1.25 a day. While there's a growing middle class, this income
disparity influenced consumer spending habits and the need for low-cost products and
services. The growth in e-commerce was concentrated in a growing middle class, limiting the
size of the potential customer base for online shopping.

● Addressing the Rural Population: Approximately 70% of India's population lives in remote
rural areas, which presented challenges in providing e-commerce services to these
underserved regions with limited access to major highways.

● Regulatory Environment: India had considerable import duties on certain foreign products,
and it ranked relatively low in trade and FDI openness, making international business
operations more challenging.

● Customization for the Indian Market: Amazon had to tailor its offerings and services to cater
to the preferences and behaviors of Indian consumers, which required significant adaptation
and localization.
 ● Competition for Market Share: While the Indian market held significant potential for growth,
it was still evolving, and market size estimates varied. E-commerce companies in India were
fiercely competing to offer a wide selection of products, low prices, and fast delivery times,
forcing Amazon to continuously innovate to stay competitive.

● Mobile Market: The rapid growth of smartphone users in India presented both an opportunity
and a challenge. Amazon, like its competitors, had to adapt its services and develop
comprehensive mobile apps to cater to this growing segment of customers.

● Cultural and Language Diversity: India's cultural and linguistic diversity added complexity to
marketing and customer engagement strategies. Amazon had to localize its services to cater to
different regions and languages.

b. CHINA

● Intense Local Competition: Amazon entered a market already dominated by established local
competitors like Alibaba, JD.com, and Taobao. These companies had a deep understanding of
the local market, which made it difficult for Amazon to compete effectively.

● Regulatory and Legal Hurdles: Amazon had to navigate complex regulatory and legal
requirements in China, including restrictions on internet content and media-related products.
The requirement for Amazon's website, www.amazon.cn, to be operated by a Chinese-owned
corporation added an additional layer of complexity.

● Cultural and Language Differences: Amazon had to overcome cultural and language barriers
to understand and cater to the unique preferences and behaviors of Chinese consumers.

● Logistics and Last-Mile Delivery Challenges: China's vast and diverse geography posed
logistical challenges. Amazon had to invest significantly in building a distribution network,
including fulfillment centers and delivery centers. The use of bicycles and scooters for
last-mile deliveries was a unique aspect of the Chinese market.

● Payment Preferences: Many Chinese consumers were reluctant to make online payments in
advance using credit cards, which required Amazon to adapt by offering cash-on-delivery as a
payment option.
● Market Fragmentation: China's market was not uniform, with significant variations in
shopping preferences and purchasing decisions across regions. Amazon had to adjust its
strategies and offerings accordingly.

● Competitive Marketing Strategies: Amazon's competitors, such as Taobao and JD.com, used
different marketing strategies, including heavy advertising on major TV channels, while
Amazon relied on its online presence. These differences in marketing approaches had an
impact on customer acquisition.

● Product Recommendations and Pricing Challenges: Understanding and adapting to Chinese

consumer preferences for product recommendations and pricing was crucial. Chinese
consumers had high expectations for fast and efficient delivery. Amazon had to adjust its
offerings and pricing to meet local expectations.

● Brand Loyalty and Market Share: Building brand loyalty and gaining market share in a highly
competitive market like China was a significant challenge. Alibaba, in particular, had a
dominant position.

● Positive Public Relations: Amazon's response to competitive pricing by issuing refunds to

customers for price differences was a unique challenge in terms of managing public relations.
While it gained positive publicity, it was unexpected by customers.

● Rapid Market Growth: China's e-commerce market was growing rapidly, which required
Amazon to keep up with the evolving landscape and consumer demands.

● Mobile Shopping: The significant growth in mobile e-commerce transactions in China

presented both opportunities and challenges for Amazon. Adapting to the mobile shopping
trends was essential for success.

● Market Entry Timing: Amazon entered the Chinese market at a time when it was already
evolving rapidly, which meant facing competition from well-established local players.
c. BRAZIL

● Economic Downturn: Brazil experienced an economic downturn, with a significant decline in

GDP growth rates. Low retail sales and reduced production levels were indicative of this
economic challenge.

● Complex Taxation and Regulations: Brazil's complex tax code, high tax rates, and intricate
consumption tax system made it difficult for companies to navigate and comply. This added a
significant administrative burden and cost for businesses operating in Brazil.

● Labor Laws and Regulations: Labor laws in Brazil were expensive due to requirements for
employers to provide various benefits to employees, including meals, transportation, health
insurance, 30 days of vacation, and mandatory bonuses. These labor-related expenses
increased the cost of doing business in Brazil.

● Infrastructure Challenges: Brazil's transportation infrastructure was inadequate and

inefficient, with many major infrastructure projects left unfinished. Poor road conditions,
narrow roads, and potholes were common, making logistics and transportation challenging.

● Competition from Established Players: Amazon faced stiff competition from established
e-commerce players in Brazil, such as MercadoLibre and Saraiva. MercadoLibre had a strong
presence in the Latin American e-commerce market and was a dominant competitor.

● Political and Economic Instability: Political and economic instability in some of the markets
within Latin America, such as Argentina and Venezuela, affected MercadoLibre, Amazon's
main competitor in the region. This instability could have implications for Amazon's
operations.

● Complex Negotiations with Publishers: Amazon faced negotiations with Brazilian book
publishers to secure contracts for e-books. Publishers wanted control over pricing to prevent
aggressive discounting strategies, which delayed Amazon's entry into the market.

● Price Disparities: High import duties on electronics in Brazil resulted in significantly higher
prices for Amazon's Kindle products compared to the United States. These price disparities
could affect consumer adoption of Amazon's devices.
 ● Cultural and Language Differences: As in other international markets, Amazon needed to
navigate cultural and language differences in Brazil to cater to the unique preferences and
behaviors of Brazilian consumers.

● Infrastructure and Logistics: Amazon initially planned to leave logistics to external partners
in Brazil, which required coordination and integration with local logistics providers. Brazil's
vast size and complex infrastructure added challenges to the efficient distribution of products.

● Payment Plans: Amazon had to adapt to the Brazilian consumer preference for using payment
plans for expensive products. Offering installment payment options was essential to cater to
local buying habits.

2. Did Amazon make sensible choices in emerging markets? Consider location, entry model,
timing of entry, and entry scale.

This is a difficult question to answer, as Amazon’s choices in emerging markets depend on various
factors such as market size, growth potential, competition, regulation, and customer preferences. Here
are some possible points to consider:

With regards to location, Amazon chose to enter China, India, and Brazil, which are three of the
largest and fastest-growing e-commerce markets in the world. These markets offer huge opportunities
for Amazon to expand its customer base and revenue. However, they also pose significant challenges
such as infrastructure, logistics, payment, taxation, and cultural differences. Amazon may have to
adapt its business model and strategy to suit the local conditions and customer needs in each market.

Regarding entry model, Amazon used different kinds of approach for various markets. In China, it
acquired an existing online retailer, Joyo.com, to gain access to the market and leverage its local
knowledge and network. In India, it launched a pure marketplace model, due to the restrictions on
foreign direct investment. In Brazil, it started with its Kindle Store and e-reader, focusing on the
digital book market. These entry models reflect Amazon’s attempts to comply with the local
regulations and compete with the established players in each market.

Time wise, Amazon entered China in 2004, Brazil in 2012, and India in 2013. These entry timings
may have affected Amazon’s competitive position and performance in each market. In China, Amazon
entered relatively early, but faced fierce competition from Alibaba and other domestic players who
had a better understanding of the market and customer preferences. In Brazil and India, Amazon
entered relatively late, after other players such as MercadoLibre, Flipkart, and Snapdeal had already
established their presence and brand recognition. Amazon may have missed some opportunities to
capture the early adopters and gain market share in these markets.

With respect to entry scale, Amazon invested heavily in its logistics and distribution network in
China and India, building fulfillment centers and offering fast and reliable delivery services. It also
expanded its product offerings and categories over time, adding more sellers and products to its
marketplace. In Brazil, however, Amazon started with a small scale operation, offering only e-books
and e-readers. It may have adopted a cautious approach due to the high costs and complexities of
operating in Brazil. However, this may have also limited its growth potential and customer reach in
the Brazilian market.

3. Did Amazon succeed in China? What did the company learn from the Chinese market? [2]

After a decade and a half, in April 2019, Amazon announced its withdrawal from the Chinese market
and effectively shut down operations as a marketplace on Amazon.cn, solely maintaining Amazon
Web Services, Kindle e-books and cross-border operations. Amazon entered the Chinese market in
2004 by acquiring Joyo.com, a popular online seller of books for $75m – during the next decade it
became Amazon China and peaked at a B2C market share of 15.4% in 2008. Meanwhile local
e-commerce saw an enormous growth rate and was further populated with companies that went on to
transform the entire landscape. In 2004 JD.com’s retail platform went online and Alibaba started
Single’s Day in 2008, which ten years later reached $30.8bn in sales and shipped to 230 countries and
regions across the globe. When Amazon exited the market it was left with a market share of 0.6%;
whereas Alibaba’s Tmall occupied 61.5% and JD.com 24.2% in 2018’s final quarter.

Let’s see the lessons learned from this failure:

1. The barriers to entry- China has a restricted law control to protect their domestic firms. Instead of
allowing foreigners to invest in technology businesses, the government would rather support their
local firms as we can see from the fact that Google and Facebook websites have been blocked. In the
case of Apple, there would be major domestic competitors: Oppo, Vivo, Huawei and Xiaomi. For
Amazon, it also has to encounter with the most competitive Giant of China, Alibaba, which owns
various websites such as Taobao.com, 1688.com, aliexpress.com, Tmall.com, JD.com and many
others.

2. The unexceptional strategies- Amazon has a free delivery policy for Amazon Prime members;
however, it is a standard in China because every firm also provides customers with this service. The
fact is that Alibaba and JD.com also have free delivery, not only for the goods made in China but also
for the imported ones. Thus, Amazon cannot use this as a selling point to attract buyers in this
country.

3. The unpleasant promotions- Even if Amazon decreases the membership fee for Amazon Prime to
about $30/ year which is much lower than the membership fee in the U.S. (about $99/year at that
time), it cannot break into the Chinese market because the two Giants have better promotions. Alibaba
and J.D. have special offers for their members. Still, both of them obviously announce that all the
customers will have a right to gain free delivery, not only the members, by simply purchasing
products over $16. In parts of J.D. The customers can unlimitedly access e-book and have no delivery
cost up to five times/ month if they register for the J.D. 's Plus membership which is just $24 a year.

4. The unappealing platform on a mobile phone - most of the Chinese consumers buy products on
smartphones asist accounted for 84% of overall digital platforms in 2017. However, the platform of
Amazon appeared to be unattractive to Chinese users because of the minimal style and plain colors; in
contrast, the competitors, Alibaba and JD, offer colorful platforms with orange and red. These two
colors represent a full of life and energy which can boost their moods to go shopping online. Although
Amazon will be outstanding on the website, the market shares will suddenly be lost if they do not do
well on the mobile phone.
5. The digital ecosystem- China has rapid growth in every part which is developed systematically;
thus, China today has a robust technology ecosystem. Nowadays, Chinese people mostly use WeChat
in daily life that connects every social network: Q.Q., Weibo, rennin, and Youku: and all of them have
advertising systems which suggest products from every Chinese e-commerce platform . Therefore,
everything supports each other as the users can promptly order and pay via WeChat Pay or Alipay
Once Amazon enters, it will become a foreign object of this ecosystem.

In conclusion, for the recommendations, Amazon cannot exist in China’s market since it lacks an
understanding of the culture and nature of Chinese people. To succeed in doing business overseas, it
does not merely rely on the quality of products, technology and price; yet, intercultural
communication is the most crucial factor. Therefore, the firm has to get their insights, not only the
behavior of Chinese people but also the cross-cultural differences.

4. How should companies and investors measure success in emerging markets?

Companies and investors should measure success in emerging markets by looking at both financial
and non-financial metrics.

Financial metrics can include:

● Revenue growth

● Profitability

● Market share

● Customer acquisition costs

● Customer lifetime value

Non-financial metrics can include:

● Brand recognition

● Customer satisfaction

● Employee engagement

● Social impact

It is important to note that the relative importance of financial and non-financial metrics will vary
depending on the company's industry, stage of development, and investment goals. For example, a
startup company in an emerging market may focus more on non-financial metrics such as brand
recognition and customer satisfaction in the early years, as it is building its customer base. Once the
company has established a strong market position, it may focus more on financial metrics such as
profitability and market share.

Here are some specific examples of how companies and investors can measure success in emerging
markets:

Companies
Track revenue growth: Companies should track their revenue growth in emerging markets over time.
This will help them to see how well their business is growing and to identify any areas where they
need to improve.

Measure profitability: Companies should also measure their profitability in emerging markets. This
will help them to ensure that their business is sustainable in the long term.

Track market share: Companies should track their market share in emerging markets. This will help
them to see how well they are competing against their competitors.

Measure customer acquisition costs: Companies should measure their customer acquisition costs in
emerging markets. This will help them to understand how much it costs to acquire a new customer
and to ensure that their marketing and sales efforts are efficient.

Measure customer lifetime value: Companies should measure the customer lifetime value of their
customers in emerging markets. This will help them to understand how much revenue they can expect
to generate from each customer over time.

Investors

Track the company's financial performance: Investors should track the company's financial
performance in emerging markets over time. This will help them to see how well the company is
growing and to identify any areas where they need to be concerned.

Assess the company's management team: Investors should assess the company's management team in
emerging markets. This will help them to ensure that the company has a team in place that is capable
of executing on its strategy.

Understand the company's competitive landscape: Investors should understand the company's
competitive landscape in emerging markets. This will help them to assess the company's chances of
success in the long term.

Consider the company's social impact: Investors may also want to consider the company's social
impact in emerging markets. This is especially important for investors who are focused on ESG
investing (environmental, social, and governance investing).

By tracking both financial and non-financial metrics, companies and investors can get a more
complete picture of their success in emerging markets.

REFERENCES

[1] Amazon in emerging markets. (n.d.). Harvard Business Publishing.

https://hbsp.harvard.edu/product/W94C01-PDF-ENG

[2] Jin, Y. (2023). Analysis of localization strategy of multinational corporations in China.

OAlib, 10(02), 1–7. https://doi.org/10.4236/oalib.1109789