When it comes to e-commerce across the globe, I've noticed a very interesting trend. Every new market I look at seems to have an Amazon-style copycat — a website that looks, functions, and sells products a lot like a well-known online retailer. If imitation is the greatest form of flattery, Amazon should be blushing.
In India there's Flipkart, in Russia there's Ozon, and in Thailand, Indonesia, and other South East Asia markets there's Lazada. Amazon has no local presence in these countries except in India. Even in India, though, Amazon's activity is severely limited due to foreign direct investment restrictions.
As the builder of a thriving online business in the U.S., Amazon must be tired seeing others rip it off. I know about this kind of thing first-hand. At eBay in the 2000s we experienced this same situation. Frustration came quickly when we couldn't launch localized country sites or hire teams fast enough to stay in front of the international imitators. We were unable to capitalize on first mover advantage. Moving slowly meant losing markets and, later, having to buy our way back in.
But first mover advantage is a simplistic tenet of global strategy. It is based on the idea that a business model can readily be transported from one country to another. In some cases this is true. eBay thrived early on in English-speaking markets like the UK, Canada, and Australia. Amazon is strong today in a number of countries including the US, Germany, and Japan. At some point, though, directly applying a US e-commerce model to foreign markets meets trouble. In countries like India, Russia, and Indonesia, even with the vast rise in the middle class consumers, the evolution of e-commerce is not at all obvious.
E-retailers in these emerging markets are today confronting a number of fundamental issues, a large one being trust. Low credit card penetration and fraud concerns make plastic payments, so common in the US, a tertiary payment method in many countries. Fully 80% of payments made on Russia's dominant Ozon are Cash on Delivery (COD). Additionally, the national postal systems in India and Russia are distrusted, unreliable, and slow. The web of third party logistics companies is complex and performance is spotty. Does this mean you have to build your own logistics infrastructure, as Flipkart and Ozon are, to effectively deliver to customers? How much can you rely on partners to raise their standards?
And the fact that these markets are "emerging" presents more limitations, including the harsh reality of low spending power: GDP per capita in India is $3,900 and in Indonesia is $5,000 (compared to the US at $49,800). Fixed line telephone and broadband infrastructure are also very limited in these countries. Telephony is skipping copper and going directly mobile, which means the site experience must be adapted to important mobile buyers.
With limited purchasing power, low credit card usage, and poor delivery networks, it's clear that the approach for e-commerce in developing markets has to be different than in the U.S. A hybrid approach has to be developed — one that takes good elements from the U.S. model and adapts it for local customer needs.
U.S.-based companies have a couple of options for developing this hybrid: One is to do it themselves — they can bring their homegrown models, often with American employees, and figure out how to adapt to local needs. In countries similar to a company's home market, this can work well. In countries with significant market and cultural differences, this do-it-yourself option often fails.
A different option is to look to local businesses that are approaching the challenge from the opposite direction. These entrepreneurs start from the local perspective of customer needs and behavior. They look to the proven business models from the U.S. and take the best elements for their country.
These are the so-called copycats, the Amazon imitators I mentioned above. The job of the copycats is a valuable one. They are not just taking business models, but tailoring them for success. They are figuring out the mix of local and global that will work in their country. They often do this more effectively than the incumbents and they do it with others' capital.
Ozon, now Russia's leading e-commerce company, is a prime example. The company freely uses best practices it finds abroad. From Zappos, it copied the ideas of putting its telephone number on every page (to build trust) and having employees work three days in call centers (to better understand customer issues). In Russia, though, it has to overcome customer reluctance to use credit cards and poor logistics infrastructure. It offers COD payments, a difficult to manage payment method, and built its O-Courier delivery platform which Ozon believes is a key differentiator. It has moved into other product categories such as travel with Ozon.travel. Ozon raised $100 million in 2011 from a consortium of investors, including the Japanese e-commerce giant Rakuten, to continue to build out infrastructure and expand into new categories.
Once a copycat succeeds, U.S. firms should jump on acquiring the business, the know-how, and the teams. eBay, for example, rapidly built leading positions in its core marketplace business from acquisitions in Germany (Alando in 1999), much of continental Europe (iBazar in 2001), South Korea (Internet Auction Co., also in 2001) and India (Bazee in 2004).
Upon acquisition, eBay moved quickly to merge the local business and users on to its global trading platform. eBay was trying to achieve two things. On one hand, it wanted to preserve the vital elements of local sites — the features, the marketing approaches, the management teams. On the other hand, eBay wanted to confer advantage from its global codebase and international presence — new site functionality was rolled out to all countries every two weeks and, very importantly, local sellers' items were given exposure to buyers all around the world.
Through acquisition, eBay had gained the knowledge and skill to meet local needs. This was hard to for other global players to match. At the same time, eBay brought its system capabilities and worldwide customer exposure to these new-market businesses. This was hard for local players to match. For each market, they had developed a hybrid approach that, at the time, was hard to beat.
As companies look to expand overseas and develop their own hard-to-beat product offerings, they can take different paths. For the complex international markets, though, sufficiently adapting US products to local needs is tough. Taking advantage of the local copycats, for many, is the best way forward.