Amazon's China unit is reportedly considering a merger. That's 'too little too late,' expert says

  • Amazon is reportedly in talks to merge its China unit with local e-commerce firm Kaola.
  • Anthony Chukumba, managing director of Chicago-based firm Loop Capital, said any deal is likely to be "too little too late" for the American e-commerce giant's China goals.
  • Chukumba said Amazon only has about 1 percent market share in China and is thought of as "a has-been" and "kind of a never-was."
Amazon.com founder and CEO Jeff Bezos.
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Amazon.com founder and CEO Jeff Bezos.

Amazon is reportedly in talks to merge its China unit with a local e-commerce firm, but one expert said any deal is likely to be "too little too late" for the American e-commerce giant's ambitions in Asia's largest economy.

Business magazine Caijing reported on Tuesday that Amazon's Chinese joint venture is talking with Kaola, a local player owned by Nasdaq-listed NetEase, about a potential merger. That news raised questions about Amazon's plans for the country, where it has historically struggled to gain market share.

Responding to an inquiry about the Caijing report, Amazon told Reuters it did not comment on market speculation. NetEase declined to comment to the news wire.

Anthony Chukumba, managing director of Chicago-based firm Loop Capital, said he's not very optimistic about any potential union.

"To some extent, it is too little too late," he told CNBC's "Squawk Box" on Thursday. "Amazon has been in China for 15 years, it's not like they just got there last year. So if it hasn't worked in 15 years, I am not really sure that merging with Kaola is going to make all that much of a difference."

Chukumba said Amazon only has about 1 percent market share in China and is thought of as "a has-been" and "kind of a never-was" — which stands in stark contrast to its estimated 40 percent of the online market in the U.S. Local Chinese competitors meanwhile, including Alibaba and JD.com, dominate the market in the country.

Still, there is some rationale to a tie up between Amazon and Kaola, Chukumba said.

"Certainly this acquisition will help from a scale perspective, it also should provide them some local expertise and local relationships, particularly with the Chinese government, which i think would be a good thing," he said, emphasizing that it still wouldn't "level the playing field" against the likes of Alibaba.

In fact, according to Chukumba, the best case scenario for Amazon's China business, would be for single-digit-percentage gains in market share.

That's in part due to the relatively small size of Kaola in China, but it's not like Amazon could have been aiming for bigger merger partners, the Chicago-based expert said.

"I just don't think the big boys would have them, I'm not really sure what it does for the big boys at this point," Chukumba said.

That said, pursuing a Kaola deal has little risk for Amazon's overall business.

"I don't really think that the company and, quite frankly, investors are ascribing much of the value of Amazon to what they're doing in China," Chukumba told CNBC. "So, to some extent, they just have nothing to lose."

But if Amazon has few viable prospects in China, the question arises of why devote resources to the country at all. For Chukumba, it comes down to the philosophy of the company's founder and CEO.

"I think that, if you are Jeff Bezos, your goal is world domination," he said. "The larger your total addressable market at the end of the day, the larger your potential valuation, so I don't think that Amazon can just say, you know, 'We are just going to be a North American-centric business.'"

—Reuters contributed to this report.