How do Amazon and Alibaba compete

What does the cooperation between Amazon and Alibaba mean?

Some people see Amazon's online store opening on Alibaba's Tmall as a sign of defeat. But while both companies could benefit, the importance is likely to be relatively minor.

Citigroup in a letter to its customers: "The company [Amazon] has not had the kind of success in this market [China] that Amazon investors are used to."

Amazon receives 60% of sales outside of the United States and is a leader in many countries except China. Here it only has a market share of 1.3%. With the opening of an online shop on Tmall (market share of 57.6%), Amazon will have to pay commission to Alibaba in order to be able to sell its products there.

Doing business with competitors is nothing new to Amazon. But in every other market the roles are distributed differently: Smaller retailers list their products on Amazon and compete with similar and sometimes the same products in terms of prices, shipping and service.

According to Citigroup, Amazon describes the Tmall Shop as a pilot program. But Amazon is focused on success: Amazon is launching initiatives to offer Chinese consumers access to products on Amazon websites outside of China. Amazon is cutting prices for Chinese consumers and is working on shorter delivery times.

At the moment, Amazon's unique selling point in China is the 25% share of its products, which the company sells exclusively in China. Amazon cannot yet compete with the Alibaba sales channels on price as the internet giant does in other countries. Alibaba benefits from Amazon by selling legitimate luxury goods on its platform. Then there is the commission.

However, the two companies are fundamentally different. Amazon is not a pure technology company, Alibaba is. Amazon owns a variety of warehouses around the world and employs legions of people. Alibaba doesn't. If Amazon does not succeed in expanding its storage system in China and competing with the Tmall offers on price, the chances of success are slim.

While Amazon is still active in China, many other western companies with a bloody nose and black eye have already left the nation. Companies that were considered very competitive and innovative in the West, including eBay, neglected the preferences of Chinese consumers. eBay couldn't have the right payment and communication systems and was forced to shut down in China. Home Depot hadn't realized that the Chinese weren't home improvement, and Google had a big problem with the regime's censorship.

Alibaba had the advantage of being a pioneering company, a so-called "first mover". At the time, there was no technically comparable competitor product to match this new product, Alibaba. With Alibaba's pioneering strategy, through an early market launch in China, the group was able to achieve a competitive advantage and is now very difficult to displace.

Baidu, the Chinese equivalent of Google, attracted its users by offering them access to pirated content, which Google could never have done.

And on the other hand, there is not a single success story of a Chinese company that has built its operations from scratch in the Western Hemisphere. In fact, there aren't many examples where they've tried either. Chinese companies in the West only grew through acquisitions - however, there is a lack of Chinese companies so far the innovation and also the local knowledge they need to get their feet on the ground.

Alibaba is trying to use the capabilities of Microsoft and Amazon in the US to build something. But so far this attempt with 300 employees on site has only been very limited. Nevertheless, there are indications that Alibaba is actually trying to force the fight in the near future to gain a foothold outside of China.