Amazon’s (AMZN, Financial) international expansion has been rapid in the last several years as the company moved into 13 countries with plans to add more to the list. Amazon has so far kept its focus on countries with large economies, knocking one big economy after the other. Amazon is operational in all the top 10 economies of the world and a few more, but the last two countries where Amazon is entering shows a significant change in Amazon’s international strategy, and it will benefit the company’s overseas operations in a big way.
Amazon is in the process of setting up its operations in Australia, the 12th-largest economy in the world according to world bank's 2015 data. While that makes a lot of sense because Australia is a big country with a population of 24 million to reach out to, the next two moves by Amazon, to enter Singapore and the Middle East, are interesting.
Singapore is one of the smallest countries in the world with a population of 5.6 million spread over 277.6 square miles. In terms of size and population it is smaller than New York City. Amazon also bought Souq, an e-commerce company with operations in the Middle East. The Dubai-headquartered Souq covers United Arab Emirates, Egypt, Saudi and Kuwait. (Dubai) United Arab Emirates and Kuwait have small populations to address.
But there are two other metrics that are common to both Singapore and Dubai: high per capita gross domestic product (GDP) and high internet penetration, apart from the shared characteristics of small populations to serve. If you are an e-commerce company, potential customer base and internet penetration are the parameters you will be looking for. And if all your potential customers live in a small area, that is even better.
Amazon has now clearly made a shift from covering countries to covering specific cities that qualify on these criteria. It is a smart move by Amazon because the company does not want to spread itself thin by moving into country after country, where building logistics and supply chains alone will take time.
By targeting smaller yet strong geographies, Amazon can not only address those markets effectively, but also make sure that international revenues keep moving north.
Although operating loss in international markets expanded from $699 million to $1.283 billion between full-fiscals 2015 and 2016, net sales for the segment grew from $35.418 billion to $43.983 billion during the same period.
That growth is now being ably supported by Amazon’s new international expansion strategy as they move into high GDP markets like the United Arab Emirates and Singapore.
Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.
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