Amazon has made a massive move to challenge China’s AlibabaGroup for global e-commerce dominance, court Chinese consumers and brands, and compete with FedEx and UPS, in one fell swoop. Its new venture “Supply Chain by Amazon” (SCBA) is now a reality, with a launch date set for this year. At stake is a projected $1 trillion in cross border e-commerce revenue by 2020.
According to sources close to Amazon that I have spoken with in recent weeks, the plan for the last three years (code named “Dragon Boat”) has been to build a system that will allow Amazon to ensure that companies and individuals can sell from anywhere, to anywhere in the world, with minimal, to free shipping, in three days or less. That is cross border commerce writ large. Alibaba has a similar goal and it helps answer a question from a column I wrote last year “Are Amazon and Alibaba Frenemies”? No, now they are just enemies.
“Cross Border Commerce” “Chinese Consumers” “Supply Chain” and “Globalization 2.0″ are the four big ideas I have focused on in the three years I’ve been writing this column for FORBES, with good reason.
Globalization 2.0, as explained in my 2014 book “China’s Super Consumers” is the culmination of the mega-trends of Globalization 1.0, coalescing into a new global mercantile paradigm. It is the world where Chinese consumers, global logistics, cross border commerce, and international retail have made it imperative that most companies re-set their make-it, move-it, sell-it strategies for an industrial revolution sized shift in business, technology, culture and commerce.
Amazon and Alibaba are in a Cold War-like race to become the world’s first truly global e-commerce company. What many people often get wrong about Amazon is that their primary goal is to be the “everything store.” The reality is that Amazon wants to be the “everything company/world’s biggest commercial enterprise.” Alibaba has the same goal, they are not satisfied just being the biggest e-commerce company in China. The companies have differing approaches to victory in the unfolding battle, but their end game is the same.
Alibaba has invested heavily in global logistics and supply chain services and infrastructure and is rapidly expanding its marketplaces (Tmall, Tao Bao, AliExpress, Tmall Global) to every continent. They have also invested heavily in technology, cloud computing, streaming services and payment systems (Alipay) and even have a banking and credit arm. In many ways Amazon has had to play catch up.
Here are some of the reasons why SCBA is a game changer:
Amazon, despite what they would have you believe, is not focused only on retail. They are a technology company first, a logistics company second, and a retailer last. They already dominate e-commerce sales and logistics domestically, and the SCBA network is designed to expand the model globally.
Amazon had tried for ten years to compete directly with Alibaba in China, but to no avail. So this year, it connected with Chinese consumers who started buying from Amazon.com AMZN -1.75%, rather than Amazon.cn. They did so for selection, price, safety and convenience. The SCBA will supersize this new market for Amazon.
Amazon will now be a fully integrated and vertically efficient sales machine. They are a retailer, a marketplace, a distributor, a private label brand, a 3PL (third party logistics provider) ocean freight operator and now, perhaps the next major global courier service, about to disrupt UPS and FedEx domestically and globally.
Amazon has had a complicated and often contradictory relationship with brands, retailers, manufacturers, 3PLs and the big two courier companies. This move could fundamentally change the dynamics of all those relationships in the coming years (whether positively or negatively remains to be seen).
Text: Forbes Asia, by Michael Zakkour 09-02-2016