Amazon.com (AMZN 0.45%) has bulldozed the market this year as share have more than doubled on the strength of its booming cloud computing unit and strong growth in retail sales at home.
Lost in the excitement is the third component of Amazon's business, its international division, where growth has slowed on currency translation but huge potential remains. Thus far this year, international sales have only grown 3%, though they are up 24% excluding the effects of currency exchange. The segment makes up a third of the company's sales, but that may fall in the near term as AWS gets bigger.
Still, there are several reasons why Amazon is just beginning to tap foreign markets and why they could explode in the next decade.
The tip of the iceberg
Though Amazon has a global reach, it only fully operates its website in 13 other countries outside of the U.S. Those include most of the world's major economies such China, Japan, UK, and Germany, but there are some notable exceptions. And in many of the world's biggest markets, Amazon's presence is only in its infancy.
It wasn't until this summer, for instance, that Amazon launched full-scale retail operations in Mexico, the world's largest Spanish-speaking country, with a population of 110 million strong and just a hop, step, and a jump from Amazon's home country. Previously, Amazon had offered its own Kindle e-books south of the border, but it wasn't until just a few months ago that it made its usual panoply of products open to Mexican shoppers. In addition, it's made its platform open to third-party vendors and is providing its fulfillment by Amazon service to provide shipping.
Mexico's economy isn't as developed the U.S.'s so Amazon will face a different set of challenges, but e-commerce is growing at an annual rate of 34%. The number of online shoppers is also expected to more than double from 2013 to 2018, hitting 18 million.
In Asia, meanwhile, Amazon has shifted its focus form China to India, ceding China to e-tailers already established there. The Indian market still represents a huge prize with over 1 billion people and an economy that's expected to be the third largest within a decade. However, Amazon only launched in India two years ago. India's e-commerce market is expected to hit $8.5 billion from just $2 billion in 2013, a growth rate of about 70%.
The leapfrog effect
The proliferation of smartphones around the world has made connecting with one another and surfing the web as simple as touching an app, obviating technologies like landline telephones and personal computers, which were not always common in developing countries.
Similarly, the rise of mobile technology has eliminated the need for large-scale physical retail in countries in which it had hardly existed in the first place as company make almost product accessible at the click of a button. That makes the e-commerce market abroad even more appealing than in the U.S, and the growth rates back it up. In China, e-commerce spending was up 35% last year, and worldwide it was up 25%. Many consumers in these countries are shopping with their phones instead of their computers as smartphone adoption rates have soared.
Amazon's Fire phone launch was a disaster in the U.S., but such a product could serve as a prototype for a downscale phone sold in the developing world that would easily allow consumers to shop on Amazon and access its media, giving the company yet another advantage.
Though Amazon has only about 7% of global e-commerce share, that number could easily grow as the company makes inroads into developing countries. Currently, its three largest international markets are Germany, U.K., and Japan, all developed countries, a sign that the company has not fully focused on emerging markets. The opportunity remains in countries like Mexico, India, and Brazil, all of which it has entered in just the last few years, and if the experience of dominant American brands like Coca-Cola, Procter & Gamble, and McDonald's is an indicator, all of which generate a significant majority of sales abroad, Amazon should one day do the same. Its formula for success -- low prices, fast delivery, and perks for Prime members -- has brought to its knees even Wal-Mart Stores (WMT 3.75%), which with its renewed attention on e-commerce has made several moves to essentially copy Amazon's strategy.
If Amazon can translate its domestic success into those markets, the company's seemingly never-ending growth streak may truly be limitless.
