I could see this one coming a mile away. I worked with manufacturers overseas for a few years and I would just slap my label on products and mark them up 200%.
Those factories should be able to sell directly to the consumer via the Amazon marketplace, but there's a lot of hurdles for them. And they're certainly not equipped to run their own Shopify store.
If Amazon can reduce this friction (and I think they can) I expect the prices of a lot of commodity types of goods (like salad bowls or bike pumps) to drop significantly.
I would guess language and general cultural barriers, spending much time in SEAsia, many of the (sometimes trivial) things western people expect from services are really hard for locals to "get" without outside (read western) guidance.
Just the tiniest bit of branding/marketing often sets someone miles apart from another otherwise equal local competitor.
> spending much time in SEAsia, many of the (sometimes trivial) things western people expect from services are really hard for locals to "get" without outside (read western) guidance.
Yes, exactly, same applies for many local businesses (shops, restaurants, service providers) not just Alibaba. Hell, a decent sized private hospital here has a nonfunctional website (like not just bad but actually returning 404's).
Another good example is the real-estate rental market. Many places lack furnishing and lose lots of business over similar competitors, and I mean the types of basics a months rent would cover. I was never able to figure out if this was due to lack of liquid funds (even though it would pay for itself fast) or something cultural.
Also, even if they get all those things right, don't underestimate the complexity of simply shipping goods to other continents. We're manufacturing, selling and shipping shoes from europe and while it's easy within the EU it's hell once you try to reach customers in other continents. Just handling returns (which are to be expected frequently with shoes and their sizing) simply renders the option too complicated and expensive for small companies.
Meh, I buy stuff from alibaba from europe, cheap stuff like e15 worth of usb connectors. They seem to manage just fine shipping, for free too, thanks to subsidized china mail. For those low amounts they don't even bother with returns; most are so afraid of bad ratings/open disputes that they'll ship another batch the moment you voice a complaint.
Not saying I disagree with you I guess, it's also about westerners finding alibaba a bit too exotic (and dangerous), but once you get used to the asian style shopping, it's fine.
I've spent 15 years buying stuff off amazon.com (coming from California), and have recently moved to Singapore. The closest version of Amazon (with *insanely good local shipping - sometimes same day by bike courier) is http://www.qoo10.sg. I've been fully satisfied with prices, and delivery on everything there - but, it's still a bit of a culture shock for your average western shopper.
We'll see if I still feel the same way a year from now - but (even ignoring the discovery issue) I can imagine how having Amazon provide an interface for my purchases would have made this way more seamless.
I'm talking from the perspective of the seller and of course I can only talk about our experience. Again, shoes (high priced too) are probably very different from cheap USB connectors. And having to ship a pair of 200,- € shoes back and forth from europe to the USA until the customers found the correct size is not worth the effort in our opinion. It's hard to find a proper return service - you can't leave that task to the customer; if proper export documents are missing we have to collect the return package from the customs. It's a mess.
And if you ship larger amounts you have to register the export with the customs office, which is another complicated process, filling endless forms in some mandatory Java applet system.
Amazon getting rid of all of this for a reasonable price would be very welcome.
That was my initial understanding of TTIP back when the news broke.
And no, I think Zalando can afford and handle that stuff just fine considering their size. We're a small manufacturer, very different from a retailer like Zalando.
I can tell you they will have a difficult time, at least initially, with Amazon's seller policies.
The idea of mandated timelines for shipping, returns/refunds on a customer whim, timely communication with buyers, accurate product pictures + descriptions, accurate inventory levels, etc, will be a shock. I predict lots of interesting new posts in the Amazon seller's forum.
No, that's actually a pretty racist and outdated assumption of China.
It's because of risk.
The full chain of manufacturing, exporting, warehousing, distributing, marketing, selling is a lot of work. Marketing being the last more risky and unprofitable part of the process.
Private labeling products to sell on Amazon and have Amazon handle fulfillment is one of those handful of get rich schemes peddled around often.
It's a good thing if you can get it going but finding the right niche, outcompeting other people doing the same thing, handling the support, and still getting a cut out of it is hard work.
Instead owning a factory, maximizing output, buying more land, building more factories, and letting others worry about making risky profits is a better business proposition.
> Both companies are vying for dominance of the rapidly growing cross-border e-commerce market, which by 2020 is expected to swell into a $1 trillion industry serving 900 million shoppers, according to a June report from Accenture and AliResearch, Alibaba’s research arm.
$1 trillion ecomm market.
> If the logistics business takes hold, financial services could follow, with Amazon giving loans to merchants, processing international payments and consulting its network of sellers on customs and tax matters.
Today, Amazon FBA Merchants get zero help for Sales Tax, as Amazon pushes all liability onto the individual merchants. Why would this be different for cross-border taxes?
One of the reasons I use Aliexpress over Amazon is because Amazon still does not ship electronics and many other goods to my country (east Europe). This has been a restriction ever since Amazon launched and a huge disappointment for me.
I hope that with this move they will also expand their shipping policy. I've used Amazon while I was working in Western Europe and I had a pretty good experience.
It's so bad that "Reshippers" are increadibly popular here (in Australia). They have a US address so you can ship Amazon stuff there, and then either do a bulk shipment of multiple orders to Australia, or else just accept their shipping charges (which are usually 50% of what Amazon charges).
Those type of courier services are very popular throughout Latin America. I always assumed that developed countries like Australia had their own local suppliers and didn't need to buy from US-specific sites. Not enough to justify the existence of such courier services, anyways.
Alibaba suffers from two major problems. 1. It is riddled with scammers. 2. Many of the legitimate businesses don't actually answer queries. Alibaba has not done a good job of filtering scammers or in rating legitimate businesses. Maybe Amazon can do better. There is certainly an opportunity there. I think both American and Chinese businesses would welcome an Alibaba done right but maybe I'm overestimating Chinese company's willingness to accept a Western solution.
The customer service piece will likely work better on Amazon, but there will be some initial pain.
The low prices on Alibaba have a lot to do with sellers that provide zero customer service. For example, order something at the beginning of Chinese New Years. You'll go two straight weeks, or more, no communication, nothing ships. Similar for returns...many just don't support it at all. There's also a fair amount of mispresentation...what ships isn't at all what's pictured.
Amazon, of course, sticks it to sellers that do these sorts of things, so you'll see a cycle where it starts with unbelievable low prices, then the pricing will normalize after Amazon puts the screws to the sellers.
I always sort of assumed that Alibaba benefited from some state sponsored favoritism (as many Chinese companies do in the domestic market). Honestly until reading this article I had no idea they even operated in Western markets.
B2C ecommerce in China is fiercely competitive. Taobao (Alibaba's domestic B2C ecommerce platform) is successful (occupying the place that Amazon's and eBay's third party seller businesses play in the US) , but it's far from the only player.
They do benefit from postal subsidies, on both sides of the shipment. Direct help from China, then indirect help via the Universal Postal Union in the receiving country.
I've seen this line about postal subsidies mentioned several times, but no one I've asked has pointed to any credible original source for these subsidies.
Are you really talking about some specific set of subsidies paid by the Chinese government? Or just the fact that China Post pays a pretty low rate per kg for USPS for delivery to US addresses?
The Universal Postal Union is part of the UN. Certain countries get favorable treatment, based on being designated "transitional" under the current agreements. China is currently "transitional".
I suppose, technically, it's not a subsidy, but it works like one by setting a fixed, unrealistic cap on rates from the receiving country.
It does count as credible, but neither that WaPo article nor the link in your 2nd edit even mention the word 'subsidy'.
(My earlier comment already acknowledged the impact of postal charges. I was asking specifically about the 'subsidies' which I've seen mentioned repeatedly, but without any specifics to lend credence to the claim.)
>>It does count as credible, but neither that WaPo article nor the link in your 2nd edit even mention the word 'subsidy'.
I don't see a remarkable difference between charging someone "less than actual cost" and the word "subsidy".
But, it sounds like you're looking for a credible source specifically on Chinese government subsidies made to Chinese exporters. That would be difficult to find, as it would likely violate treaties...the Chinese government wouldn't talk openly about it.
>> I don't see a remarkable difference between charging someone "less than actual cost" and the word "subsidy".
OK:
- I think we're in agreement that neither of us is aware of a credible source for the 'Direct help from China' you mentioned in your earlier post.
- Although transitional countries pay less in terminal dues than do other countries, I've not seen data to suggest that the amount paid by China Post to USPS is 'less than actual cost' for USPS to deliver said packages. (I'm presuming by 'cost' here you mean 'marginal cost'.)
Maybe now they can stop limiting what they'll ship to Australia. Even with our now-worthless currency there are still some things that are cheaper to buy from Amazon.
They definitely need that. What I find fascinating on Aliexpress is that they can ship a product a whole world away, for the price it costs me to send a letter to my neighbour. They need a way to compete with the zero-margin (negative margin?) ChinaPost service.
It's the Universal Postal Union subsidies. The low prices aren't hurting ChinaPost. Your tax dollars in the receiving country are where the money comes from.
One funny side effect is that the subsidies don't work in the opposite direction. It's not uncommon for the postage cost for a return to significantly exceed the original cost of the item+shipping.
Alibaba: shipping to anywhere in the world, but just from China.
Amazon: shipping goods from all over the world, but just to selected countries (others pay premium delivery rates or can't get the shipment at all).
Maybe there is a place for a third, truly global competitor?
I wondered about this business model for a long time. The cost to ship something Fedex is 3x-5x more than shipping something in a container. I always thought a efulfillment company that would offer a service to buy space in a shipping container to there facility would be a good value add.
I'm surprised you specifically call out Alibaba's 'superior processes'. Are you talking about logistics, warehousing, last-mile delivery? In which set of processes does Alibaba perform better than Amazon?
(disclaimer: used to work at Amazon; frequent customer of both Amazon and Taobao)
What ratio of the most talented developers in the US (and similar markets) do you think want to work for Amazon?
Alibaba is a dream job for the best of the best in China, and to be honest, the developer market in China is a lot bigger than that in the US. In all fairness, Alibaba can probably hire a better dev for 50k USD/year than Amazon could for 150k.
To be fair, best of best Chinese programmers, I see, a considerable of them, come to US for better pay...
But could you elaborate on your claim a little bit? Amazon is not as incompetent as you might think, they have cutting edge logistics and mechanics in terms of delivery, the degree of automation is both futuristic and mind-blowing. Also AWS is definitely the market leading player, Aliyun outside of China has zero chance going against it.
Disclaimer: Ex-Amazon employee, visit the fulfillment center once.
The vast majority of people in China can't come to the US no matter how good of programmers they might be due to immigration reasons. Even if that weren't a barrier, the vast majority of Chinese people don't have the language skills to work in the US. As with many other places, the best coders often aren't the best language students. Think of some of the most well-known and respected programmers in the US. How many of them could function professionally in another language? Very few excluding immigrants.
A lot of the best engineers in the US don't want to work for a huge company. They want to join a start-up or start their own. This isn't usually the case in China. Kaifu Lee has struggled greatly trying to get top talent to consider anything other than a large company like Alibaba or Tencent (or for the government). The Chinese people you meet who are working in the US aren't a very representative segment of the market.
I wasn't speaking specifically of AWS. The territory occupied by Chinese companies is divvied up a bit differently than in the US. Shengda (a gaming company) was a relatively early cloud provider for example, and Alibaba is late to that market. On the other hand, Alibaba also does a variety of things that Amazon doesn't, and its e-commerce is beating Amazon in multiple countries that aren't China.
Alibaba's pace of expansion in developing countries is brisk, they dominate Chinese e-commerce much more thoroughly than Amazon does US e-commerce (80% to ~30%) and most importantly their business model is less capitally intensive than Amazon's. In fact, according to their annual reports, their net margins are clocking it at over 40%!
The one possible caveat that will be interesting to watch is Amazon India. That model is much closer to how Alibaba operates and could be key to winning in other international markets.
Amazon and Alibaba have a lot of of similarities and I don't at all think Amazon is incompetent. Amazon is terrifyingly competent, but just has some problems around reputation amongst prospective employees, partners and pretty much everyone except for customers. Alibaba is also terrifyingly competent, but loved and even leaner and even more efficient.
They're more likely to begin structuring the company as Alphabet has, helping to avoid the risk of disaster.
Logistics/fulfillment, retail, AWS
There are pretty straight-forward division lines. AWS is already a separate corporation for example and will inevitably be spun-off in the distant future as an independent $75-$100 billion company.
Except Google is literary printing money for everybody else in the group. Amazon is cashflow-from-operations positive, but nowhere near Google. More importantly, Amazon attempts to enter HUGE, developed markets, not the non-existent markets (at the time) of internet retail, cloud computing or public information retrieval. The only way for Amazon to enter in those markets is if they make a serious commitment. It is my opinion that if they commit themselves to the new markets they have been eyeing in the past couple of years (b2b commerce AND logistics), investors will become very bearish, leading to a disaster for Amazon, probably even a buyout.
Those factories should be able to sell directly to the consumer via the Amazon marketplace, but there's a lot of hurdles for them. And they're certainly not equipped to run their own Shopify store.
If Amazon can reduce this friction (and I think they can) I expect the prices of a lot of commodity types of goods (like salad bowls or bike pumps) to drop significantly.