Is JD.com expanding west and if so, what must it do?
Recent news announcements from JD.com about opening offices in Europe prove that the ecommerce giant is gearing up to make its move on the Western market with the company’s chief announcing that it will be ready to challenge Amazon in Europe as early as 2019.
A few weeks ago, Amazon reported record earnings with an overall growth of 30%. Amazon continues to expand its reach into the east, with the launch of Amazon Prime in Singapore, as well as launching Amazon in a number of other markets in the region. Amazon realises that this region is going to be a challenge and over the past few weeks there have been a number of announcements that show that western tech giants are now having to take note of these companies. Google has even paired with Tencent to share copyright information about the products they are designing.
However, in its home territory Amazon is hard to beat, and and competitors will have to accept the challenge of trying to pull customers away from a well-respected brand, while also battling the wariness surrounding Chinese websites and brands in the West. But, JD.com will present a challenge, and can a company that is so unknown in the West challenge tech titan Amazon?
The Fashion Centre of Europe
JD.com has made two major announcements in recent weeks, indicating that it will be increasing its presence in Europe massively over the next few years.
Just last month it announced that it was launching an office in Paris to build relationships with French luxury, fashion, food and wine brands. The appointment of Florent Courau as Managing Director - with experience in management positions for LVMH Group - shows just how seriously they are taking this move.
However, luxury fashion is going to be a challenging market for JD.com in the West and it is doubtful that it will be able to offer a service that is appropriate for these brands. Luxury brands are loath to offer their products even on Amazon which, unlike JD.com already has an existing reputation in the West.
Importance of AI
The other investment in Europe is through the creation of the first European AI research centre which will be in Cambridge in the UK. Their main explanation for this is that the cost to hire tech talent specialising in AI was lower in Europe than in the US and China. There has been a vast debate over whether the UK underpays its tech workers and are under valuing the tech talent in the UK but for JD.com this seems a far more strategic move.
It’s all about logistics
JD.com and Amazon are very similar when it comes to business model. Both realise the importance of logistics to ensure that consumers get their products as quickly as possible. This is going to be a major challenge for JD.com in Europe, as Amazon has an unrivaled logistics network and Amazon Prime, offering same-day or next-day delivery.
Setting up offices in London and Paris so early is a sensible move. It has the opportunity to build its network and ensure that it can compete with Amazon. This will be the major challenge for JD.com as it expands into the region. Amazon’s existing customer service offering is amazingly efficient, and JD.com will need to offer a similar project in order to compete, there will also be challenges around JD.com’s awareness of cultural differences.
Can JD.com compete?
The main question on people’s mind is going to be if JD.com can actually compete in Europe and then globally. If it is going to compete then it will need to quickly set up the infrastructure that makes Amazon so convenient in Europe, with a product that could compete with Amazon Prime. If it unable to compete with the logistics, then it’s unlikely to have a huge impact. Amazon isn't disappearing anywhere overnight, but it’s interesting to see that Eastern tech is now expanding into the region, and I believe that this will be the first of many over the next few years. JD.com will have to make a significant investment in the region and accept the cultural challenges to allow them to compete, but it is still unlikely to pull customers away from their relationship with Amazon.
Hannes Ben is chief international officer at Forward3D Group