Amazon (AMZN) is in talks to merge a portion of its business with China e-commerce site Kaola, as it struggles to make headway competing in the world’s second-largest economy, it was reported Tuesday.

Chinese magazine Caijing said Amazon is looking to merge its China-based import business with Kaola. Owned by China gaming company NetEase (NTES), Kaola is a cross-border shopping platform.

Kaola sells apparel, household appliances, luxury goods and other products. The Amazon China unit that would merge with Kaola is an internet portal called Haiwaigou.

NetEase initiated the discussion, according to Caijing. It said a preliminary stock-swap agreement was reached near the end of 2018. Talks have faltered since then. Amazon and NetEase both declined to comment.

Despite roughly four years of trying, Amazon has captured only a small e-commerce market share in China.

Amazon China Continues To Struggle

As of mid-2018, Amazon held less than a 1% e-commerce market share in China, according to research firm eMarketer. Alibaba (BABA) led the market with a 58% share, followed by local rival JD.com (JD) at 23%. Amazon was a distant seventh.

Amazon is not alone struggling to break into China. Facebook (FB), eBay (EBAY), Twitter (TWTR) and Alphabet (GOOGL) also have struggled to break into China. Government restrictions are part of the challenge. Another is understanding the psyche of China’s consumers and businesses and how best to reach them.

Amazon initially entered China through the acquisition of e-commerce site Joyo in 2014, for $75 million. In addition, Amazon has an online storefront on Tmall, a venture run by Alibaba. Tmall is China’s largest business-to-consumer platform.

Amazon has pumped billions of dollars into developing markets including China and India. Amazon reported an international operating loss of $642 million in the fourth quarter, on sales of $20.8 billion. In the year-ago quarter, Amazon showed an operating loss on international operations of $919 million.

Amazon stock rose 1.2% to close at 1,627.58 on the stock market today. NetEase stock edged up 0.9% to close at 229.64. Alibaba climbed 2.4%, closing at 170.18. (Source: investors.com)

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