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Amazon Shifts China E-Commerce Strategy With Rumored NetEase Deal

Amazon’s dominance in American retail belies its struggles abroad, where operations in India have been thrown into chaos while it has yet to make meaningful inroads into a notoriously competitive Chinese landscape.

But that all could be changing amid reports that the company run by the world’s richest man is in negotiations to merge with Kaola, the Chinese imports-focused e-commerce company run by NetEase, an Internet giant on par with the likes of Tencent, which owns e-comm rival

Merging with Kaola, which sells beauty products, electronics, clothing, shoes and other goods from more than 5,000 global brands out of 80 countries, would help Amazon’s Chinese joint venture build on its less than 1 percent market share in China, per 2018 eMarketer data, far behind the twin titans of Alibaba-owned Tmall (58.2 percent) and (16.3 percent). Kaola leads Chinese cross-border e-commerce, with 26.2 market share, according to an August 2018 report from iiMedia Research Group.

Overall, China’s cross-border e-commerce market is expected to hit $157.7 billion in sales by 2010, eMarketer forecast in 2017, driven by rising consumption levels from a rapidly growing middle class. Estimates indicate that China will import $400 trillion in U.S. goods over the next 15 years, NetEase CFO Charles Yang shared during firm’s earnings call to discuss 2018 third-quarter results.

NetEase shares rose 4 percent in pre-market trading Tuesday. The company’s e-commerce division posted 67 percent growth from the year prior, Yang noted, describing Kaola as the platform for “Chinese consumers who are looking for quality and authenticity in their purchases.”

China has been rocked by one consumer-product scandal after another; according to the book “Law and Corporate” behavior, China spawned 1,459 products safety alerts in 2013, multiples more than the U.S.’s 47. Everything from infant formula and pet food to car parts and cough syrup has been contaminated or counterfeited in China, prompting Chinese consumers to put their trust in overseas brands.

Kaola purchases inventory directly from international brand producers and handles cross-border logistics, warehousing, e-commerce operations and after-sales services itself.