Amazon’s share price recently passed 1,000 USD per share, making founder Jeff Bezos the world’s next richest man. From garage start up to online bookstore Amazon has evolved in to the US retail giant with emerging global ambitions. Amazon’s journey has seen expansion into other retail categories including; food, clothing and electricals and, more recently, has developed a formidable cloud computing service, its own television shows and an electronic personal assistant for people’s homes. In each annual financial report, Bezos reprints the letter he sent to shareholders in 1997, when Amazon floated on the stock market, in which he lays out his approach to business and running Amazon. It pledges to focus on the long-term and being the market leader, “rather than short-term profitability considerations or Wall Street reactions”. Bezos has repeatedly told shareholders, analysts and staff that it is still ‘day one’ for Amazon, despite the fact that it accounts for 43% of all online sales in the US. Vision and innovation have driven expansion in the US market. Even Warren Buffett admitted recently that he had “missed the boat” investing in Amazon as he did not fully understand their business model. Now dominating US retail, where else can Amazon spread its online presence and when? Does it really need to ‘go global’
Amazon’s entry in to SE Asia
SE Asia is an increasingly attractive market for tech companies globally with more than 600 million consumers and with e-commerce set to surge as more people come online and the evolving middle class grows. A 2016 report co-authored by Google estimates that e-commerce spending across the region will reach $88 billion by 2025 thanks to a compound annual growth rate of 32 percent. Amazon has postponed its much-anticipated entry into SE Asia, initially planning to launch local e-commerce services in Singapore during the first quarter of 2017. Details of the Singapore launch have been a well guarded secret not even known to many Amazon staff in the region. The groundwork required to set up the business has, reportedly, taken longer than originally anticipated. Singapore has a number of elements conducive to e-commerce; wide ownership of credit cards, above average internet penetration, well-established logistics and delivery networks and a transparent business environment compared to the rest of SE Asia. Another suitable market is Australia. A recent news report stated that Amazon has hired a team of more than 100 in Sydney to get started. Amazon’s eventual entry to SE Asia will create a new front for competition with Alibaba, which is already battling Amazon in India. Amazon plans to introduce grocery deliveries, among other services, when it finally debuts in Singapore.
Lesson from global expansion
With a proven business model, US market leader positioning and a sustainable business that continues to grow rapidly, does Amazon need to expand in to SE Asia? The heights of Amazon’s aspirations are a major determinant of their overall business strategy, and remember they are already almost at the top of the world. To date Amazon has performed best in wide-open markets where it can leverage its scale advantages. Amazon currently dominates the competition in US, Japan, UK, Germany, France, and increasingly in India. China, not surprisingly, is the exception where their market share has shrunk from 15 percent in 2008 to less than 2 percent today. Distant decision-making centralized in the US may have slowed down operations in China but fierce local competition from Chinese eCommerce giants like Alibaba and JD also contributed to their decline. In the Middle East, Amazon is currently battling to acquire Souq.com which operates across the Gulf Cooperation Council countries, all connected by land with no custom duties between them. Such an acquisition will give Amazon access to 50 million new customers sharing the same language and culture, and fits with its strategy of pursuing large single markets. So what lessons does this provide for Amazon’s entry strategy to the SE Asian market?
Singaporeans are already making significant use of Amazon’s services. Amazon and Singpost are driving improvements in global cross-border logistics to deliver packages from the US to Singapore within three days including priority shipping. That’s the same as the average time for local domestic deliveries inside Indonesia. We can expect even faster deliveries in the future when Amazon expands its own fleet of planes. Could Singapore serve as a distribution hub to expand into the rest of Southeast Asia? Alibaba set up their new SE Asia hub in Malaysia’s new Digital Free Trade Zone because Malaysia is connected to Thailand via land links that also gives it access to Cambodia, Myanmar, and Vietnam. Malaysia is as close to Indonesia, Alibaba’s biggest market in Southeast Asia, as Singapore is. Malaysia is a much bigger eCommerce market than Singapore and has a much bigger overseas Chinese community.
Amazon is hiring in Thailand for Amazon Global Selling and Amazon Web Services (AWB), their global cloud business, but not for local retail. Indonesia also offers a youthful, fast growing population of 250 million but JD has already entered Indonesia in 2015 and has seen steady year-on-year growth besides existing established local ecommerce competitors. Amazon’s best option to enter SE Asia may be to buy its way into the market. Indonesia’s ecommerce space is still developing with plenty of players that could want a global partner like Amazon with more fees from Amazon’s Prime shopping club and media streaming services, as well as fast growing advertising revenues.
Innovation not market entry?
AWS accounts for the majority of Amazon’s operating profit. With a healthy e-commerce core, subscription services and advertising are growing much faster, helping to increase profit margins. Amazon Prime, offers fast shipping and video streaming to members, helped raise the company’s subscription sales 49 percent from a year earlier to $1.9 billion. Sign-ups have been key to Amazon’s strategy because Prime encourages shoppers to buy more goods, more often. Revenue from a co-branded credit card deal and from third-party sellers paying to promote their products on Amazon.com also rose 56 percent to $850 million. Sales from AWS, the company’s fast-growing business, rose 42.7 percent to $3.66 billion. Amazon is working hard to make its voice assistant Alexa, a ubiquitous platform like Windows is. This should create a new revenue stream from shoppers ordering goods by voice. While Alexa devices now allow for this, Amazon is focused more on making the gadgets useful. Monetization does not appear to be a priority right now whereas getting the global strategy right is paramount.
In a rapidly expanding eCommerce world with a massive growing population in SE Asia, Amazon may decide to take their time launching in SE Asia. What are they missing?