One Of Amazon's Biggest Challenges For The New Year
John Rossman, a former Amazon employee and "disruption expert" at the consulting firm Alvarez & Marsal, told Business Insider that one of the biggest question marks he hasn't seen Amazon answer is about international growth.
"Internationally, what are they learning?" Rossman said. "How are they having to adjust relative to local markets? What's working in international and what's not working in international?"
Based on its 2014 Q3 earnings, nearly 40% of Amazon's sales come from international markets, thanks to its success in geographies like Germany, the UK, and Japan. However, Amazon has its sights and investments set on emerging, potentially lucrative markets like India and China.
Flipkart, an Indian e-commerce company built by two Amazon alumni, raised $1 billion in July 2014. One day after it announced its raise, Amazon said it planned to spend $2 billion in India. Snapdeal, which has eBay backing, and Jabong are also significant local competitors. India has the third greatest number of internet users in the world, after China and the United States.
But adapting business to the cultures of new markets is very important and not always easy. For example, in India, fewer than 12% of people have credit or debit cards, so Amazon has had to adapt to a "Cash on Delivery" model, which isn't yet available in all areas.
China, too, has its own set of challenges. One of the big reasons that Alibaba beat out a better-established eBay in China in the early 2000s was because CEO Jack Ma understood Chinese culture and paid close attention to what appealed to people.
Last year, Alibaba had the biggest initial public offering in history and Amazon's market share still trails far behind Alibaba's e-commerce 80% marketshare.
Amazon reported relatively disappointing international growth in 2014. Its year-over-year international revenue growth declined to 13% in the third quarter of 2014, from 20% in the third quarter of 2013.
"I continue to scratch my head a little bit over their international growth and why that isn't larger as a year-over-year percentage standpoint," Rossman says. That will be one of Amazon's biggest challenges in 2015: Growing its international revenues.
In a recent Piper Jaffray note, analyst Gene Munster pinpointed expansion into new geographic markets as one of Amazon's top five priorities in 2015.
"Amazon is actively investing in fulfillment center and distribution infrastructure in each of these countries, with significant capacity build-out relative to existing demand," the note reads. "We believe that Amazon's strategy is to build out capacity so that demand can be met with a seamless experience."
Here's a look at Amazon's international fulfillment centers, from Piper Jaffray:
