Date
19 May 2019
JD.com’s huge delivery team has created mounting cost pressure and operating losses. Photo: Reuters
JD.com’s huge delivery team has created mounting cost pressure and operating losses. Photo: Reuters

Why Amazon can afford a pay rise while JD.com is cutting jobs

Amazon, eBay, Alibaba, JD.com and Pingduoduo are all e-commerce companies, but their business models vary a lot – so is the performance. A most recent example is Amazon’s move to raise staff wages and JD.com’s pay cut decision.

Amazon has announced it will raise the minimum wage of its employees in the United States to US$15 per hour, up 36 percent from US$11 previously. The new rate will cover all of its 350,000 US employees, including full-time, part-time, temporary and seasonal workers.

“We’re excited about this change and encourage our competitors and other large employers to join us.” Bezos said.

In addition to committing to higher minimum pay, Amazon says it will push US policymakers for a higher federal minimum wage.

Amazon is now the world’s second most valuable listed firm behind Apple. Its founder Jeff Bezos remains the world’s richest man even after a costly divorce.

Meanwhile, JD.com continues to struggle. Its sales revenue growth has moderated to 27.5 percent last year, the first time it was below 30 percent. That lags far behind Alibaba’s 58 percent and Pingduoduo’s 652 percent.

Worse, JD.com racked up a net loss of 4.8 billion yuan (US$715.54 million) last year, more than four times that of the previous year.

JD.com always views its logistics network as a core competitive edge over its leading rivals. Ironically, the logistics unit suffered a loss of 2.8 billion yuan last year, making it the biggest drag on the company’s overall performance.

Founder Richard Liu said in an internal email that the logistics unit’s funds on hand can only last two years. Currently, JD.com hires nearly 140,000 delivery and warehouse workers, out of a total staff of 180,000.

Under tremendous cost pressure, JD.com has launched various measures including cutting base pay and benefits, as well as job cuts that could hit up to 8 percent of its employees. 

Amazon and JD.com both started out with a business-to-customer focus.

Amazon now has a market value of about US$916 billion, compared with JD.com’s US$43.3 billion. Why the big difference?

There is no simple answer, but one important factor is Amazon’s ability to create other highly profitable businesses from its core e-commerce operations, such as its cloud services, while JD.com is still just an e-commerce platform.

Compared with its Chinese rival Alibaba, JD.com is also falling further behind.

Alibaba has adopted a light asset model since the beginning. While JD.com insists on running its own logistics operations, Alibaba largely uses outside partners for the heavy lifting part and focuses on logistics data technology to exert its influence over its partners.

Also, rather than building its own delivery infrastructure, Alibaba has opted to own stakes in a number of leading express delivery players.

In fact, Alibaba’s founder Jack Ma warned in 2014 that JD.com would get into trouble in the long run because of the heavy burden of managing a huge delivery staff.

It may not be appropriate to conclude JD.com has made a strategic error. But with a much smaller staff size of 100,000, Alibaba is now more than 10 times bigger than JD.com in market value.

This article appeared in the Hong Kong Economic Journal on April 18

Translation by Julie Zhu

[Chinese version 中文版]

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RT/CG

Hong Kong Economic Journal columnist

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