It’s almost one year since China’s first free trade zone (FTZ) in Shanghai was introduced. How successful has it been? While there have been a few successes, such as Microsoft being able to sell its Xbox consoles and the building of China’s first wholly owned foreign hospital, the majority of promised reforms have yet to be implemented. Still, businesses are optimistic. In fact, over 10,000 businesses have registered to operate in the FTZ with about 12% of these foreign businesses.
The FTZ is a great opportunity for many foreign businesses particularly for those targeting Chinese consumers. US-based e-commerce company, Amazon.com, recently announced that it had signed an agreement with the Shanghai FTZ and Shanghai Information Investment Limited to open its cross-border e-commerce platform within the FTZ. While Amazon is a leader in e-commerce in the US and Europe, in China it is a different story. Estimates vary, but on average, Amazon’s market share in China is less than 5.0%. The company will build its logistics and warehousing facility within the zone which will allow Chinese consumers complete access to Amazon’s products from its global supply chain.
It certainly sounds promising for the company however it is competing against the likes of Alibaba which commands a market share of well over 80% and is developing an intricate logistics network throughout the country. Having been in the country for over 10 years, Amazon has established a network of 15 fulfilment centres around China, with 800,000 sq m of warehouse space. Amazon also employs drivers who make deliveries using their own vans, bicycles, motorcycles and scooters. By combining its existing Chinese network with that within the free trade zone will certainly benefit the company but will it be enough to capture market share from the leaders, Alibaba and JD.com?
In addition to worrying about Alibaba, JD.com and other domestic e-commerce favorites, Amazon will be facing interesting competition within the FTZ. Kuajingtong is actually an e-commerce platform managed by state-backed Orient Trade Zone. Products can only be listed on the site after the vendor has been cleared with the General Administration of Customs. As of Feb 2014, Kuajingtong hosted more than 50 foreign companies selling nearly 500 products directly to Chinese consumers.
Of course, the successful implementation of e-commerce requires a strong logistics network and as cross-border e-commerce continues to grow, focus on strengthening logistics networks – domestic and international will be very important. According to China E-Commerce Research Center, Chinese online shoppers’ overseas purchases reached RMB74.4bn (US$12.5bn) in 2013 from RMB12bn in 2010, and it’s estimated that it will reach RMB 140bn (US$22.68bn) in 2014. Amazon’s move into the Shanghai FTZ will certainly benefit these shoppers but how well it succeeds in linking its domestic and international logistics networks will be important in determining the level of its success.