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Amazon Out of China-Government Interventionsreadessay.com/amazon-out-of-china-government-interventions

Government Interventions (Amazon Out of China)

Introduction

Government intervention is a practice followed mostly in mixed and planned economies.

It basically means that market decisions regarding output, prices and other production-

related factors are made by the government instead of the private owners. It often makes

it difficult for businesses to aim at maximizing their profits and if situations get worse, the

business might even be forced out of the market.

Amazon entered China in 2004 with high hopes of dominating the market. The entry

strategies implemented by Amazon were well planned out and for quite some while,

amazon enjoyed high market shares and good revenues in the Chinese market. Overtime

however, the competition faced by Amazon increased and it was evident that the Chinese

customer base was more relevant to the rival firms such as Alibaba and JD.com. In July

2018 Amazon announced that it will be leaving the market of China and customers will

have to order stuff from other international sites of Amazon. “We are notifying sellers we

will no longer operate a marketplace on Amazon.cn and we will no longer be providing

seller services on Amazon.cn effective July 18,” the company gave the statement to

financial times. (Kharpal, 2019)

Besides tough competition, Amazon was also facing issues due to extreme government

intervention in the Chinese Market. China practices a socialist approach for its businesses

and some of the government interventions that drove Amazon out are as follows:

Trade Tariffs

Chinese government places high taxes on imports from international markets, especially

USA. (Gallagher, 2019) mentions that in 2019, China placed a total tax of $75 billion on

US goods. This increased the risks for Amazon’s goods and the total sales turnover of the

company was affected. Due to the taxes imposed on the goods by the Chinese government,

the competition faced by Amazon increased significantly. Alibaba and other rivals such as

JD.com were providing cheaper goods to the customers and therefore were attracting

more customers, decreasing Amazon’s total customer base. Amazon could not enter into a

set tax agreement with the Chinese government due to the socialism. According to (Lori,

2014) import prices of similar product when shipped from USA cost around $15, while

when exporting a similar product to USA, it was only $1.5.. Overtime, the competition

increased to an extent that it became impossible for Amazon to fight back and gain

market domination. It even made an even lower sales turnover in China compared to that

in Japan, which was the smallest market for Amazon. This compelled the company to exit

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the Chinese market in 2018 as reported by (Gallagher, 2019). (Kirby, 2016) states that

Uber was also forced to leave the Chinese market due to extreme competition from the

rival local company DiDi, which eventually took over Uber China.

State Capitalism (Subsidies)

(Kirby, 2016) states that Chinese government favours local businesses and provides huge

subsidies to help them grow and establish dominance in the market. Uber China also

entered the market through a huge autonomous subsidy but then faced huge competition

by the local business DiDi and was forced to exit the market; this was reported by (Kirby,

2016). Industrial subsidies in key Chinese manufacturing industries exceed thirty percent

of industrial output (Haley, 2013).This helps the local businesses in China to grow and

gain maximum market share. Amazon was facing problems with customer preference

and adjusting to the different policies of the Chinese Market; such as ban on certain

products, advertisement rules, taxes and so on. Furthermore, with the added pressure of

cost based competition, Amazon lost the market share and its Chinese market share

dropped from 15.4 percent in 2008 to 0.6 percent (Beijing Review, 2019). According to

(Hadjiyski, 2019) local competition was attracting most of the customer base and in order

to compete with them, amazon had no other choice but to decrease prices. This however

was not a successful strategy as the burden was falling back on the profits of the company.

High costs and low profits drove amazon out of china.

REFERENCES (Harvard Referencing, Australia)

Beijing Review, 2019. The Truth About Amazon China. [Online] Available at:

http://www.bjreview.com/Opinion/201904/t20190427_800166339.html.

Gallagher, K., 2019. CHINA AND AMAZON.

Hadjiyski, L., 2019. Making It Big in China. Business Today Online Journal.

Haley, G.T., 2013. Subsidies to Chinese Industry: State Capitalism, Business Strategy,

and Trade Policy.

Kharpal, A., 2019. Amazon is shutting down its China marketplace business. Here’s why it

has struggled.

Kirby, W.C., 2016. The Real Reason Uber Is Giving Up in China. Harvard Business

Review Home.

Lori, K., 2014. Chinese Sellers Pay NO Taxes – Why? [Online] Available at:

https://sellercentral.amazon.com/forums/t/chinese-sellers-pay-no-taxes-why/231221.