E-commerce giant Amazon has experienced soaring profits at home in recent years while consistently losing money internationally. This is counterintuitive, since the smaller business in expansion markets should have more room for growth.
I’ve recently spent time in Mexico and India – two countries where Amazon is surviving but not thriving.
Amazon’s journey in both is a good reminder that while the U.S. sets the pace for retail around much of the globe, companies also have to evolve (sometimes dramatically) to succeed in diverse markets.
Amazon learned this the hard way in China, where efforts to establish American practices did not end successfully. This makes strong performance in growth markets like India and Mexico even more important. India is the largest underdeveloped ecommerce market in the world, and Mexico is not far behind. With mushrooming middle classes and rapidly expanding access to broadband, both countries represent huge potential. However, there are also unique challenges since both are predominantly cash societies, where online commerce is not yet the cultural norm.
Amazon has had to actively customize their business model to survive in both, while contending with the fact that local players sometimes set the agenda.
In India, Amazon’s performance is still second to local player Flipkart (which owns 43% of the market). The Seattle-based giant is still investing heavily, to the tune of $1B per year, to build infrastructure and win trial and loyalty. A big part of their strategy has been finding ways to “localize” by adding cash-on-delivery payment options similar to those of competitors, a “Chai Cart” program to connect with small vendors over cups of tea, and a “seller university” to help small traders learn how to get online and growth their business.
In Mexico, Amazon has grown modestly since their 2015 launch, paralleling slow growth in online retail overall in the country. Here too, they have had to adapt to fit the local market.
Like in India, this has included following the lead of regional players like MercadoLibre and accepting cash-on-delivery payments. And, in a uniquely Mexican modification, Amazon accepting gift cards purchased from Mexico’s network of Oxxo c-stores. No doubt, Amazon would prefer their own offering but shoppers in Mexico’s largely cash economy have thus far preferred the already-trusted Oxxo name.
In both India and Mexico, Amazon has had to invest heavily in infrastructure to support fulfillment. Notably, this has included building warehouse locations to support Prime and same-day delivery. Despite their differences, international consumers across markets share a high level of expectations. All expect the same fast and free delivery now globally ubiquitous with the Amazon brand name.
Amazon has also had to contend in both markets with the fact that the cultural default is still brick-and-mortar shopping. (In Mexico, for example, 98% of retail sales still happen in physical stores).
The Amazon response has been two-pronged. First, the retailer has invested heavily in advertising to assuage concerns about the authenticity and quality of products ordered online. They have also created options that allow shoppers to pick up merchandise at the location of trusted brick and mortar retailers. This has created an interesting hybrid type of commerce, and it will be interesting to see how this might develop.
These modifications, and in fact Amazon’s very assertion that it is going to win new markets through “a lot more local market customization” underscore the magnitude to which cultural nuances still matter.
While it is very possible for global players like Amazon to succeed in international growth markets, they will need to find ways to stay carefully attuned to thinking global while acting local.