Amazon shakes hands with its Chinese rivals

If you cannot beat them, join them. That's what US e-commerce company Amazon.com Inc must have thought when it decided to set up a virtual storefront in competitor Alibaba Group Holding's Tmall website.

It is no secret that Amazon has struggled to expand its business in the world's second-biggest economy, as Chinese consumers continue to make most of the online purchases through local e-marketplace channels like Tmall and Taobao.

"At this point in time, Amazon is not able to compete with Tmall and JD.com. Part of this is related to the fact that the United States headquarters is in charge of all decisions. But even if Amazon China had more autonomy, it will still find it difficult to compete with local players," said Will Tao, technology analyst at iResearch.

The opening of a storefront in Tmall clearly reflects Amazon's intention to extend its market share in the lucrative Chinese market, no matter what it takes.

"Opening an Amazon International Brand Flagship Store on Tmall is one of the efforts to provide additional channels and access to the highquality international products Amazon can bring to Chinese customers," said Brandy Niu, director of international brands at Amazon China.

The storefront, due to be officially launched in April, will offer a wide range of imported products, including footwear, food, drinks and toys, the company announced in a news release.

Amazon's Tmall store will offer more than 1,000 imported products, including some brands sold exclusively in China by Amazon such as Panama Jack and Logan.

One of the main differences between Amazon's business and those of its competitors is that Amazon buys and sells merchandise and operates its own delivery network.

Amazon notes that the company has invested in its own warehouses and logistics in the country to carry out the expansion in China.

"Unlike Amazon, Alibaba does not hold inventory and does not have to invest substantially on property, plants and equipment, which contributes to higher margins" said Ivan Feinseth, an analyst at research firm Tigress Financial.

Amazon China currently offers same-day and next-day delivery services in more than 1,400 cities and counties in China, as well as more than 5,000 self-pickup locations.

This shopfront will be Amazon's second business-to-consumer platform as the Seattle-based company will continue operating its own e-commerce site in China.

The move to cooperate with Tmall is not that surprising given the fact that last year Amazon already started experimenting with the platform to sell its Kindle e-book reader.

Amazon made its first incursion into China in August 2004 through the acquisition of Joyo.com, an online retailer of books, music and videos. In 2011, the website was renamed amazon.cn.

Marketplace Tmall has also attracted several Western retailers, such as Britain's Burberry and ASOS and Spain's Inditex brands, to join the shopping platform to reach more Chinese customers. Tmall and Taobao have 334 million active buyers, according to Alibaba's official blog Alizila.

Burying the hatchet in the Chinese market will allow both companies to improve their strengths. Alibaba mainly sells local brands but it is gradually increasing the number of foreign goods it offers. Meanwhile, Amazon takes pride in itself hosting the largest selection of international brands among the online retailers in China.

"I do not rule out the possibility of Amazon also cooperating in the future with JD.com. But cooperation between these two companies will depend on the development of the domestic market and the partnership with Tmall", said Wang Xiaoxing, an analyst at Analysys International.

"Amazon's launch on Tmall will broaden Tmall's selection of imported brands", said Janet Wang, director of Tmall's international business development.

As Chinese major online retailers, Tmall and JD.com are expected to continue dominating the e-commerce market in the coming years amid efforts in mobile investments and customer services, said consulting firm Forrester Research in January.

China became the world's largest e-commerce market in 2013 with an online spending of $307 billion, said Forrester.