Analysis of Amazon's Failure in China Due to Cultural Differences

This report investigates the reasons behind Amazon's failure in the Chinese market. It identifies cultural differences and the company's business model as primary factors. The analysis explores cultural gaps from both Western and Eastern perspectives, including Hofstede's cultural dimensions and concepts like Guanxi and Mianzi. The report details Amazon's missteps in adapting to the Chinese market, emphasizing the importance of understanding local consumer behavior and values. Recommendations are provided on how Amazon could have approached the market differently, considering the unique aspects of Chinese culture and business practices. The report highlights the impact of these factors on Amazon's performance and offers insights into the challenges of global expansion.

Running head: Global Culture 1
Managing Across Global Culture

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Executive summary
The main aim of this report is to describe the reasons behind failure of Amazon in the market of
China. It has been identified that the major reason behind failure of Amazon is culture difference
and lack of understanding about the culture of China. Initially, the issue regarding adoption of
business model has been defined in the context of company as Amazon adopted global
businessmodel before analysingthe culture of China. The cultural gap between the United States
and China has been demonstrated by keeping consideration of western perspectivesand eastern
perspective. Furthermore, the exploration has been continued to know where Amazon failed to
fill the gaps of culture from the perspective of eastern. The recommendations are given to show
how Amazon could have taken different steps to get succeed in the market of China.

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Contents
Executive summary.........................................................................................................................2
Introduction......................................................................................................................................4
The case...........................................................................................................................................5
Analysis...........................................................................................................................................6
The business model......................................................................................................................6
Cultural gaps................................................................................................................................7
Comparison from a western viewpoint....................................................................................7
Comparison from an eastern viewpoint....................................................................................8
Amazon failed to fill the gaps..................................................................................................9
Conclusion.....................................................................................................................................10
Recommendations..........................................................................................................................10
References......................................................................................................................................11
Appendix........................................................................................................................................13

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Introduction
The market of China is huge as it provides a number of products and services with the latest
innovation at lower price. It is more populated country all over the world with 1.3 billion. Due to
rapid growth in the economic condition of the country and huge market, a large company of
foreign country has failed in China entailing the Amazon Electronic Commerce Company. The
purpose of this paper is to define the reason behind failing of Amazon in the new market that is
China. The brief overview of the case will be demonstrated to make understanding of how
Amazon thinks to expand its business in the market of China. The two major reasons behind
failing of American company Amazon in China is business model and the cultural gaps from
both an eastern and western perspectives. At last, recommendation will be given what Amazon
could have done in different manner to get success in eastern countries.

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The case
Like other company such as Wal-mart, Amazon also has the long story of expansion in the
market of China. It began in 2004 with $75 million acquisition of the Chinese online book
retailer Joyo.com. At that, the market share of the company was around1-3% in China (Jacobs,
2017). People of China visited the website of the company without making a purchase. Probable
cause of users simply browsing without making purchasing could be that there are significant
two markets in China. People prefer them to buy goods and Amazon does not keep consideration
of these markets. There are white labels items in those markets which have the feature of
extreme inexpensive and demonstrated branded items which are more expensive in comparison
to ordinary products. Alibaba is only e-commerce Company that attack both companies. One of
the reasons behind the failure of Amazon Company in China is lack of understanding about
theculture of China (Li, et. al., 2015). The business model of America did not follow by the
company in the market of China that being the major cause of failure. Along with that Amazon
was not able to find out the preferences of people regarding products and services.

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Analysis
This section will analyze the reason of failure of Amazon in China from a cultural perspective.
The two subjects will be considered by this company in which one is referred to the adoption of
business model. It has been argued by many researchers that it is one of the major reasons for
Amazon’s failure in Chinese market. Another subject referred to the cultural gaps between china
and the United Statesby taking consideration of perspective of both western and eastern.
The business model
The major reason behind failure of Amazon in China was lack of adapting the business model of
America in the Chinese market. It is the nation that adopts the statement of a ‘do-it-for-me’
rather than a ‘do-it-yourself’ nation. The cost of labor is low that discourage people to buy things
online due to less awareness how to order things online. Moreover, a lot of customers are
dependent on street shopping and store shopping. Thus, Amazon’s basic model of business was
not sufficient to enter the growing market of China. However, people of China are purchasing
the products and services from two major online markets which mean that a people are not aware
of Amazon. They are passionate about learning, but the requirement help and motivation.
Alibaba has successes in the market of China due to having 80% market share and Amazon had
only 1-3%, which is quiet low (Ritala,Golnamand Wegmann, 2014). However, the existing
strategy of Amazon is an independent online store was not booming in China as the market of
Alibaba has dominant behavior that discourages the new players in the space of customers. Thus,
it has been decided by Amazon to initiate a store on a platform of Alibaba’s Tmall for attaining
more contact to the accumulation market and the wide clientele of shoppers. However, the

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existence of Amazon in the market of China was still in doubt as Tmall was soaked platform
with a number of retailers and the well-known brand name.
Amazon did not take consideration of Chinese value of economic at the time of entering the
market of China. According to Flanagan (2011), it has been found that the women of China were
looking for those items that bargaining can be done in an efficient manner. There is a lot of
customers in China that trust on their relatives in purchasing something for him or others as they
have trust that known shoppers will facilitate them in good pricing. It has been found that the
relationship is a major factor in the market of China as there is a lot of importance of culture
(Crane and Matten, 2016). There is another crucial factor of failure of Amazon made when they
involved in the market of China as it adopted the same model of business throughout China.
There is not a homogenous market in China, but a continent with a number of countries and
various cultures (Lasserre, 2017). The key difference in the subculture of China is between the
coastal region and in the land region. The development factors are more in coastal region in
comparison ofin-land regions. One of the key causes for the difference in culture in China is the
industrialization that happened before the revolute communist in 1949 (Zhan, Tan, Ji, Chung and
Chiu, 2018). Shanghai and Guangzhou are the largest city in the coastal region of China which
were industrialised before 1949. Moreover, the coastal regions have number of advantages from
the latest reformation of economies of China in comparison of in land regions have (Moran,
Abramson and Moran, 2014). The markets of coastal markets of China are attaining huge
advantages in superior tax treatments and achieved more resources in comparison of in land
markets. It has become the major reason for the investor of foreign countries to invest in the
coastal region preferably.

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In summary, Amazon was unable to maintain the standards of the company in the market of
China due to adopt of business model inefficiently. The basic of the company was failed due to
lower labor coast where most of the people were unaware about Amazon and most of them had
not efficient amount to purchase online along with that they had nota belief on online services.
The Chinese value of thrift was not considered by Amazon sufficiently which creates the
Chinese very aware of the price (Binder, 2016). The importance of relationship had not been
considered by Amazon.
Cultural Gaps
The culture will be evaluated by comparison of western perspective and eastern perspective of
the culture significantly.
Comparison from a western viewpoint
The comparison will be done with the help of Greet Hofstede’sdimension regarding culture in
which four factors of it will be taken such as power distance (PDI), individualism versus
collectivism (IDV), masculinity versus femininity (MAS), and uncertainty avoidance (UAI). The
dimensions of Greet have not congregated analysis for being chosen and universal; in such
context, it has been assumed that the selected dimensions had evenly importance across cultures.
It has been ignored by the dimensions that it is the fact that various cultures are kept different
value and things (Horak and Taube, 2016). According to this dimensions, the values of culture
should be separated as per to the influence they have on culture.

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Figure 1: Hofstede’s Dimension
Source: (Hofstede Insights, 2018).
Power Distance (PDI)
According to the PDI, it has been observed that China has a higher score in comparison tothe
US, which refers that China’s power distance is higher with 80. Individuals are impacted by the
formal authority. The authorities should be challenged or questioned. Due to a higher rate of this
person of that place is thought that they are born into the correct place.
Individualism vs. Collectivism (IDV)
There is a huge difference between the United States and China in the relation of this factor. The
United States is an individualistic country in comparison to China. Employment relations are
considered as the most aspect in the viewpoint of United States. The large family is a concern for
the Chinese as they have less employee commitment to the organization.
Masculinity vs. Femininity (MAS)

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At 62 USAand 66, China isa Masculine society that is considered as the success oriented. The
people of both countries give preference to work in a comparison of the family that makes the
country more effective in term of business. People leave their house for job, studies,and business
for attaining growth in both countries.
Uncertainty Avoidance (UAI)
It has been found that in this dimension the score of China is 30 whereas the score of USA is 46.
The dimension defines that how a culture bears uncertainty for the future. China is unable to bear
the uncertainty in the future due to low score in this dimension. Laws are having the feature of
flexible in China but they are more comfort regarding ambiguity.
Comparison from an eastern viewpoint
It has been found that three factors that distinguish western culture from easternculture such as
interpretation of the world, guanxi and minanzi.Interpretation of the world refers that how people
understand and percept their surroundings. Holistic perception is perceived by Asian cultures on
the other hand westerners have the analytical perception. As per Fang, (2010), Asian cultures are
remembering contexts and relationship while westerners remember only those aspects which are
considerable. People of Asian country tend to live in interdependent and complex societies while
westerners tend to live in independent. Amazon should focus on those factors that are related to
the environment because it is considered as the basic foundation of a culture.
The concept of guanxi is the major difference between eastern and western cultures. There is no
definition existing of guanxi in the culture of Western world and that is why there is no accurate
definition available in the view of Westerners. Guanxi is considered as the effective connections
or relationships that connect the included person by reciprocal liabilities of exchanging loyalty,

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obligations and mutual commitment to sustainingan effective relationship (Wang, 2007). The
word Guanxi entails two words with different meaning such as Guan refers the relationship while
Xi refers connection. The relationship with seniors in China is liable to extend the network of
person to the subordinates of the senior. Amazon did not aware of that because the culture of US
is entirely different from the culture of China because US is linked to money or occupation
(Beauchamp and Bowie, 2014).
The network of Guanxi has the positive as well as the negative impact on the through the
behavior of every connection in which the negative one can make the entire network loose
‘mianzi’. It has been found that the concept of Mianzi is having in both cultures. Mianzi is
considered as the prestige that achieved by the external influences (Masson, Sánchez and Celhay,
2017). In the context of the culture of United States, Mianzi refers to the social images that are
presented by people to their surroundings. Mianzi is entailed culture, trust, honor, credibility and
status for both countries.
Amazon failed to fill the gaps
As per Khwaja, (2016), the market research had been done by Amazon before entering into the
market of China. However, there were unable to manage the activities due to less understanding
about the way business is done in the country of China. It has been found that Alibaba has 80%
market share in China that were the biggest reason in a price sensitive Chinese market (Jung,
Ugboma and Liow, 2015). There were different models used in the market of China in which
Alibaba had the efficient mall platform which perform as a web based shopping centre. On the
other hand, the business model of Amazon has been the one it holds globally. It is an established
online store operator. It purchased huge range of products from several suppliers in bulk. These
stocks were sold by it directly to customers by its online site (Ambler, Witzel& Xi, 2009). It was

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the major reason that being the cause of failure in expanding business in the market of China.
Along with that Amazon Company does not have a global grip of optimistic shareholders.
Amazon did not understand the eastern way of interpreting the world and while buying the
products Chinese always prefer mianzi. Alibaba explored the business of China in an efficient
manner that is why it has introduces online selling earlier. The major point of failure is that
Amazon did not follow the aggressive strategy in china that being the cause of missing
opportunities. Taoboa online site was more acceptable by China in comparison of Amazon
(Khwaja, 2016). However, they tried to fill the gap by opening its store in the platform of
Alibaba’s Tmall but it was failed to express people. It has been analyzed that Amazon is forcing
over its flaws and competing in efficient way to stay in the competition.