|
|
ONLINE FEATURES
Book Reviews
BW Video
Columnists
Interactive Gallery
Newsletters
Past Covers
Philanthropy
Podcasts
Special Reports
BLOGS
Auto Beat
Bangalore Tigers
Blogspotting
Brand New Day
Byte of the Apple
Economics Unbound
Eye on Asia
Fine On Media
Green Biz
Hot Property
Investing Insights
Management IQ
NEXT: Innovation
NussbaumOnDesign
Tech Beat
Working Parents
TECHNOLOGY
J.D. Power Ratings
Product Reviews
Tech Stats
Wildstrom: Tech Maven
AUTOS
Home Page
Auto Reviews
Classic Cars
Car Care & Safety
Hybrids
INNOVATION
& DESIGN Home Page Architecture Brand Equity Auto Design Game Room SMALLBIZ Smart Answers Success Stories Today's Tip INVESTING Investing: Europe Annual Reports BW 50 S&P Picks & Pans Stock Screeners Free S&P Stock Report SCOREBOARDS Hot Growth 100 Mutual Funds Info Tech 100 S&P 500 B-SCHOOLS Undergrad Programs MBA Blogs MBA Profiles MBA Rankings Who's Hiring Grads | |
AUGUST 20, 2004
By Rob Hof Amazon Hops On the Orient Express Its purchase of Joyo.com, China's top e-tailer, could prove to be a key to future growth -- at least, eventually It was only a matter of time. On Aug. 19, Amazon.com (AMZN ) finally jumped into the e-commerce market in mainland China, joining an online party that has been raging for a couple of years now. The largest U.S. Web retailer said it'll pay $75 million, mostly cash, for four-year-old Joyo.com, China's biggest online retailer. And while it won't bolster Amazon's bottom line anytime soon, the deal makes it clear that the Seattle-based company intends to capture a sizable chunk of what's sure to become the largest Internet market in the world. Amazon will hardly be alone. Joyo is at least the third acquisition or stake taken in a Chinese Internet company by a major U.S. player in the past two years. On June 21, search giant Google (GOOG ) bought a piece of Baidu, one of China's biggest search engines. Last November, Yahoo! (YHOO ) acquired Chinese search outfit 3721 for $120 million. And eBay (EBAY ), which nabbed Chinese auction site Eachnet in 2002, has put an especially deep stake in the ground, partly because it had to exit the large Japanese market several years ago after failing to catch up with pioneer Yahoo! Japan. At eBay's annual meeting in late June, Chief Executive Margaret C. Whitman vowed: "We refuse to leave China." SECOND SHOT. This fast-growing but still nascent market may prove especially important for Amazon, however, because investors have been questioning where its future growth will come from. The second quarter's 26% sales growth disappointed investors. And although international revenues have been a relative bright spot, with second-quarter sales rising 50%, to $595 million, that was a significant slowdown from the first quarter's 80% growth. As Amazon Chief Executive Jeffrey P. Bezos put it in a recent conference call: "We hope to have the same kind of success overseas as in the U.S." Clearly, Bezos thinks China is a crucial place to be, since Joyo is Amazon's second bid at establishing a beachhead there. Joyo rival Dangdang.com said recently that it rejected an Amazon bid of as much as $150 million after nearly six months of negotiation, with talks sticking on Amazon's insistence on buying a majority stake. Amazon declined to comment. WEB EXPLOSION. Still, at least one analyst praises the Joyo deal. "This is a very positive move for Amazon and could reignite the growth of e-commerce in China," Piper Jaffray & Co. analyst Safa Raschtchy wrote in an Aug. 19 research. Joyo, with several hundred employees, already has a distribution system set up, with three fulfillment centers that feed small, local delivery centers. It's no wonder Amazon is especially interested in China, which will become the seventh country in which it operates when the deal closes before the end of September. Everything Internet is booming there as the number of Chinese on the Web has rocketed to 80 million people, up 40% from 2002. Analysts expect China to boast the largest Web population within five years. However, even though Joyo's annual sales have been doubling, Amazon won't get a quick lift from China. Joyo is expected to hit just $35 million in revenues this year. What's more, only 21% of China's residents buy online, vs. 38% in the U.S., according to the Center for Communication Policy at the University of California at Los Angeles. MORE MOVES COMING. A host of obstacles has kept a damper on Chinese e-commerce so far, including primitive credit and payment systems, poorly developed transportation, and, of course, relatively low income levels. Although those disadvantages are easing, both foreign investment and the Internet itself are highly regulated and subject to unpredictable changes in how Chinese laws are interpreted, as Amazon itself noted in a Securities & Exchange Commission filing on Aug. 19. None of that, of course, was enough to keep Amazon from making its move. And China won't be the last stop for Bezos & Co.'s international expansion. Chief Financial Officer Tom Szkutak told analysts recently: "You should expect that we will expand into new countries over time." China, however, will be a prime focus for years to come.  Hof is BusinessWeek's Silicon Valley bureau chief
BW MALL
SPONSORED LINKS
Buy a link now!Get BusinessWeek directly on your desktop with our RSS feeds.  Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | |
 Copyright 2004, by The McGraw-Hill Companies Inc. All rights reserved.Terms of Use | Privacy Notice |
Printer-Friendly Version
