Chinese Competition and the New Normal for Amazon FBA Sellers
The introduction of international selling on third-party marketplaces like Amazon and Walmart has led to an influx of Chinese sellers. Here’s what western brands should know.
Researchers at Marketplace Pulse estimate that over 40 percent of all Amazon sellers are based in China.
Walmart, which only introduced its Marketplace in 2019 and enabled cross-border sales in March last year, added 5,000 sellers from China in the first 8 months, 10 percent of new sellers.
There are multiple currents of change for eCommerce that are running east to west. When the cover of The Economist ran a powerful headline in January 2021, “Why retailers everywhere should look to China,” the trend observed was the blistering pace of innovation that is happening within China, the world’s largest market for online sales.
The take-away: Western firms can learn a lot from Chinese tech companies “blending e-commerce, social media and razzmatazz.”. But that’s hardly the only China-trend worth paying attention to. Much closer to home, Chinese sellers have been flooding western marketplaces for years. It looks as if they are here to stay.
Here’s the story.
In the mid-2000s on the heels of a failed attempt to establish a significant foothold selling in China, Amazon debuted a new strategy. Already, the domestic third-party marketplace had proven to be a big bet that was paying off and the company realized there was an opportunity to improve the marketplace even further by introducing sellers from abroad, including China. This was not an unfamiliar themed strategy. For the past 20 years, Walmart used factories in China to make stuff for western markets.
But the idea of a sizable cross-border eCommerce trade was new. Around this time Amazon opened up its platform and began to woo businesses in China to give it a try. It was slow to gain traction, at least at first. The Wall Street Journal describes a Shenzhen trade fair in early 2013 where no one had even heard of Amazon. But with the right push, things started to take off.
Cross-border eCommerce has since become a dominant and significant part of China’s foreign trade. Output has grown almost tenfold in the past five years, and when eCommerce boomed during Covid-19 lockdowns, cross-border sales from China grew 30 percent in 2020.
Third-party sales are significant for Amazon. In a 2019 letter to shareholders, Jeff Bezos said that they constituted 58 percent of Amazon’s gross merchandise sales. Those sales as opposed to direct sales further benefit profitability because Amazon doesn’t take on risks with the inventory.
"When I order on Amazon, I hardly ever check where the seller is based. My default mode assumption is: Private label seller in the west, manufactured in Asia. But that’s changing, fast."
Amazon opened itself up to sellers from anywhere in the world, however most of the volume has been from China. A reasonable question to ask is, why is the western market so appealing to Chinese sellers if China is already the largest market for online sales?
First, the western market is larger and less penetrated by online sales, and consumers’ pockets are deeper than China. On top of this the eCommerce market in China is ultra-competitive. One of the reasons for the innovation has been fierce competition. Finally, the US government added $5.2 trillion dollars in stimulus to the economy, padding the pockets of consumers. It’s no wonder Chinese businesses are eager to sell their wares in western markets.
But Amazon’s China strategy hasn’t been without problems. The rapid uptick in international sellers has coincided with rampant issues of copycat products and fake product reviews on the platform. In 2019, a Wall Street Journal investigation team revealed a goose-down duvet from a Chinese seller was fake, and made the argument that Amazon’s heavy recruitment of Chinese sellers put consumers at risk. In 2021, responding to such claims, Amazon terminated more than 50,000 China-based accounts for rules violations.
Even with the Amazon purge, the influx of sellers from China has not abated. Late to the party but hardly missing the boom, Walmart Marketplace shifted to a similar strategy in 2021, opening the platform and wooing Chinese sellers. Its marketplace even benefited from Amazon cracking down on China sellers receiving some of them with open arms.