NetEase’s cross-border e-commerce site Kaola reportedly discussing merger with Amazon

NetEase’s cross-border e-commerce site Kaola and US e-commerce giant Amazon reportedly have been in talks over a possible merger, according to Chinese media outlet Caijing (in Chinese).

According to the report, the companies signed a deal to combine China cross-border businesses in a stock-for-stock merger in late 2018. But, the negotiation process, initiated by NetEase, has been very difficult, according to a person close to the matter cited by Caijing.

TechNode reached out to Kaola for confirmation of the deal but the company did not immediately provide comment.

Launched in 2015, NetEase’s Kaola is the largest cross-border import retail e-commerce platform in China with a 26% market share in 2018, surpassing Alibaba’s Tmall Global and JD.com’s JD Worldwide, according to iiMedia Research. Kaola accounts for the majority of NetEase’s e-commerce sales.

Ker Zheng, marketing specialist at Azoya, a Shenzhen-based e-commerce solution provider that works with Kaola, told TechNode that the merger makes sense because “Kaola needs to procure a wider range of foreign branded inventory, and it needs help from Amazon.”

Although Kaola holds a dominant position in the market, it is a standalone site without the halo of big-named e-commerce sites like Alibaba’s Tmall Global. Zheng noted that because Tmall Global shares traffic with Tmall, in order to compete, Kaola needs a wider range of products and more inventory to fill up the site to attract traffic.

The merger could increase sales and exposure for Amazon in China, yet the impact on Amazon’s overall business remains unclear.

The US tech titan Amazon has found the Chinese market to be a tough battleground, mostly because of high competition from Chinese online retailers. According to iResearch, Amazon has less than 2% of the e-commerce market in China.

Kaola recently announced plans to open 15 new brick-and-mortar stores in 2019. Zheng of Azoya noted that if the company decides to further expand its offline retail business, the deal could have a bigger impact on Amazon’s business in China.