Amazon's international ambitions may be thwarted

Amazon needs to heed the lessons of Walmart's experience with international expansion

This essay is not about AI. It’s an exploration of whether it makes sense for Amazon to expand internationally, beyond the countries it already operates in, and the pitfalls it will want to avoid if it chooses to do so.

I saw a tweet recently, which I now can’t find, which pointed out that something like 27% of Amazon’s revenue is international, meaning that it’s not generated in the United States. And, indeed, if we look at a map of Amazon’s global revenue, we can see that the vast majority of its revenue is generated in the United States. Surely this must mean that there are huge growth opportunities outside the United States.

Not so fast. Amazon is a household name in the United States. Can it replicate its success abroad? Or will it encounter obstacles that limit its impact in highly competitive international regions? We can look to historical precedents for answers—most notably, Walmart’s troubled attempts at global expansion—and examine how business structure plays a critical role in cross-border scalability.

Walmart’s Global Struggles: A Historical Precedent

At the turn of the century, Walmart set its sights on global domination. The logic seemed unassailable: Walmart’s low-cost, high-efficiency model had conquered the US, so why couldn’t it do the same abroad? Unfortunately, Walmart’s ventures into regions like Germany and South Korea were disastrous, ultimately leading to market exits after suffering financial losses and dealing with culture clashes. Walmart’s strategy hinged on exporting a business model that was fine-tuned for American consumer behavior but ill-suited to the nuances of other countries’ markets.

Walmart’s struggles highlight the dangers of over-relying on a formula that works in one context but which fails in others. German and South Korean consumer preferences, regulatory environments, and competitive landscapes are significantly different from those in the United States. These differences made it impossible for Walmart to apply the same operational playbook that it ran with such great success in the United States. It also demonstrated that consumer behavior is often deeply tied to cultural and societal norms. And these norms are not easily understood by foreign companies.

Thus, Amazon faces the question: Can it export its centralized, standardized model to markets with vastly different consumer behaviors, regulatory frameworks, and entrenched local competitors?

The Centralization Problem

Amazon, like Walmart, is a famously centralized company, with headquarters in Seattle, Washington, and Bentonville, Arkansas, respectively. Centralization has allowed them to standardize their operations, operate efficiently, and scale effectively in the US. One issue that arises with highly centralized companies is that the executives at the company’s headquarters tend to intrude on regional operators’ attempts to establish operations in non-US markets. Decisions made at headquarters often overlook nuances of local markets, leading to inefficiencies and missteps. Regional managers might have insights into local consumer preferences or logistical challenges that require tailored solutions. Executives back at headquarters may disregard these suggestions, which in turn stifles the ability of local teams to innovate and adapt quickly.

Further, centralization creates bottlenecks when decisions need to be approved by senior executives. This slows down response time, which is crucial in competitive markets. Amazon’s Seattle executives may focus on maintaining Amazon’s operational standards and brand image, but this comes at the cost of flexibility. Local managers, more attuned to cultural differences and market dynamics, can be limited in their ability to respond effectively to local challenges as they have dictates from Amazon HQ to abide by.

The Advantages of Decentralized Models

In contrast, companies that thrive globally often adopt decentralized models that allow them to adapt to local market conditions. Coca-Cola is a prime example. Coca-Cola designed its bottling system such that bottlers are independent operations which license Coca-Cola’s product, manufacture it, bottle it, and distribute it locally. This allowed Coca-Cola to adapt to local tastes, distribution channels, and regulatory environments fare more effectively than a centrally controlled operation could.

A decentralized approach allows for a more nuanced understanding of the local market and the flexibility to make adjustments on the fly. Obviously, selling soda is a much less complicated business than is Amazon’s. For Amazon, adopting a similarly decentralized model would involve significant changes in logistics, customer service, and even web interfaces. For example, Amazon’s logistics network might need to be restructured to account for local infrastructure variations, and customer service scripts may need to be localized to reflect cultural sensitivities. Furthermore, the web interface itself may need to reflect different shopping habits and product preferences. While Coca-Cola deals with a physical product—beverages—Amazon’s decentralized adaptation would require a more complex web of changes, but the underlying principle remains: companies that adapt to local conditions succeed globally, while those that rigidly stick to a one-size-fits-all strategy tend to falter.

Amazon’s International Challenges

Amazon’s relatively modest global growth isn’t for lack of trying. The company has made significant inroads in Europe and parts of Asia, particularly India. Yet, the competitive dynamics in these markets present substantial challenges.

In the Asia-Pacific region, Amazon faces formidable local competitors like Alibaba in China and Flipkart in India (now owned by Walmart). These companies have a deep understanding of local consumer behavior, regulatory landscapes, and logistical challenges, often surpassing Amazon’s capabilities in these areas. Many local competitors have built comprehensive ecosystems that extend beyond e-commerce, integrating fintech, digital services, and local partnerships in ways that Amazon has yet to fully match.

Alibaba, for instance, has created an interconnected ecosystem that encompasses online shopping, digital payments, cloud computing, and even entertainment services. This integration gives Alibaba an inherent advantage, as it is able to offer a seamless user experience that goes beyond simple e-commerce. Amazon, by contrast, is largely perceived as an outsider in these markets and lacks the local partnerships that would allow it to provide a similarly comprehensive experience. Additionally, Alibaba’s understanding of Chinese consumer behavior—such as a preference for mobile-first platforms—enables it to cater to its customer base in a way Amazon has struggled to match.

Moreover, regulatory environments outside North America are often more restrictive. In Europe, data privacy regulations such as the General Data Protection Regulation (GDPR) impose stringent requirements on companies like Amazon that heavily rely on consumer data. These regulations add an extra layer of complexity that Amazon must navigate if it hopes to expand its influence. Compliance with GDPR is not just about adding cookie notices; it involves rethinking how consumer data is collected, processed, and stored, which can significantly impact operational efficiency. In China, regulations around data localization require foreign companies to store data within the country, which complicates Amazon’s usual centralized data management model.

Different labor laws, tax regimes, and local content regulations in various countries also create obstacles that hinder seamless expansion. In regions like the European Union, labor laws are much stricter compared to the United States, particularly when it comes to worker rights and benefits. These differences mean that Amazon's highly efficient warehouse operations may not translate directly, as adaptations need to be made to comply with local labor standards. For instance, European laws around worker breaks, hours, and union activities are more robust, adding layers of complexity to Amazon’s fulfillment operations.

Cultural and Consumer Behavior Differences

Walmart’s failed international ventures underscore the importance of understanding local consumer behavior. In Germany, for instance, Walmart misunderstood the preferences of German shoppers, who favored efficient, no-frills grocery shopping. Walmart’s friendly customer service, which worked well in the U.S., was perceived as intrusive by German consumers, contributing to its eventual withdrawal.

Similarly, Amazon must navigate significant differences in consumer behavior across international markets. In Japan, for example, consumers may prioritize fast delivery over low prices, whereas in developing markets like India, price sensitivity might be more crucial. In India, the concept of shopping as a social activity, where entire families make purchase decisions together, contrasts starkly with Amazon’s more individualistic, convenience-focused North American approach. Similarly, payment preferences vary—while digital payments are the norm in developed economies, cash-on-delivery remains popular in India, posing logistical challenges for Amazon's payment systems.

Another cultural aspect that Amazon must contend with is consumer trust. In North America, Amazon has built trust through a combination of fast shipping, easy returns, and reliable customer service. However, in markets like India, where consumers may be less accustomed to online shopping, trust needs to be earned differently. Cash-on-delivery has been an important mechanism for building trust, but this approach is less efficient and poses additional challenges for inventory management and returns. Furthermore, consumer expectations around customer service can differ dramatically. In Japan, the focus on detail and service quality means that even minor issues can lead to customer dissatisfaction if not handled appropriately.

The Path Forward for Amazon

If Amazon wants to grow its international revenue substantially, it must learn from Walmart’s missteps and adapt its strategy. Localization involves more than translating the website into different languages—it means rethinking operations, logistics, and even product offerings to suit the local market.

To compete effectively with established local players, Amazon will need to embrace more decentralized elements in its international operations. This might mean establishing region-specific supply chains, forming strategic partnerships with local companies, and adapting its services to cater to local tastes and preferences. This could involve investing in localized warehousing, optimizing last-mile delivery based on local infrastructure, or offering payment options more aligned with regional habits, like cash on delivery in parts of Southeast Asia.

Moreover, Amazon needs to consider regional partnerships as a key strategy for accelerating its international growth. In markets like India, where Walmart partnered with Flipkart, Amazon could benefit from forming alliances with local logistics providers, fintech startups, or even government entities to build goodwill and enhance its operational capabilities. These partnerships could help Amazon overcome regulatory hurdles, gain market insights, and establish a more localized presence that would be difficult to achieve independently.

Cultural understanding will also be crucial. While the Amazon brand is known for efficiency and innovation, it will need to adjust its service models to align with regional expectations, recognizing that consumer behavior can vary widely between countries. It will be critical for Amazon to recruit local talent with a deep understanding of these markets and to empower them to make decisions without excessive interference from Seattle. By adopting a more decentralized decision-making structure, Amazon can create a more flexible and responsive operation that is capable of addressing the unique challenges of each market.

Technology can also play a role in Amazon’s international growth. Leveraging artificial intelligence to better understand local consumer preferences, optimize logistics, and personalize marketing can provide Amazon with a significant competitive edge. AI-driven insights could help Amazon customize its product recommendations, optimize inventory based on regional demand, and even adjust pricing dynamically to match local buying power and preferences. However, for AI to be effective, Amazon must first collect accurate and culturally relevant data—a task that may require significant adaptation of its existing data collection practices.

Conclusion

Amazon’s future growth depends heavily on its ability to navigate the complexities of international markets, where it must contend with local competition, regulatory challenges, and varying consumer preferences. The company would be wise to heed Walmart’s lessons and understand that a centralized, U.S.-centric approach may not be effective globally. By adopting a more decentralized and adaptive strategy—similar to Coca-Cola’s—Amazon could unlock significant growth opportunities. However, this will require fundamental changes in how the company operates, invests, and innovates outside North America.

The path to global dominance is neither simple nor guaranteed, but adaptability will be the key to success. Amazon must be willing to decentralize decision-making, build meaningful local partnerships, and truly understand the cultural nuances that drive consumer behavior in each market. By embracing a more flexible and region-specific approach, Amazon can position itself not just as a dominant player in North America, but as a truly global retail powerhouse capable of capturing market share in some of the world’s most dynamic and challenging regions.