Great question.

My best advice would be to not try and fight this Gorilla but instead find ways to work with it.

The best way for a small business to do so is join their FBA program (Fulfillment By Amazon) which no doubt will be available either at launch or shortly after.

As a matter of fact, they are already accepting EOIs from Australian businesses through this form.

Another option is the new marketplace which was opened recently by the Catch group (formerly catch of the day).

Aishah,  Amazon has already started in Australia,  Kindle has been here for close to twelve months already.

My advice is to just ignore them and go about building your own brand. Amazon are all about low prices and quick sales. You can't compete with them on that arena so don't even try.

Find your own differentiator and promote that instead.

If you can't beat them, join them.

I absolutely agree with Michael recommendation. 

If you want to compete, you can still do that but you need to employ inbound marketing for it. It takes time but it is a surefire way to combat with big players in the industry,

Amazon is already in Australia. There are a lot of dodgy traders out there that will be in trouble, however they should be. So many people buying from Amazon and ebay then reselling with a massive mark-up. A few years ago I caught out Wow sight and sound doing this and a number of other companies. 

In reality if you are selling your own products there are no issues. If you are reselling products with massive mark-ups you should be worried.

Amazon isn't a company people should worry about. They are not the biggest threat to online business. You can buy the products Amazon sell direct from the factories if you wanted to compete with them. There is no reason why any online business can't do the same as Amazon.

I believe the biggest issue is import tax and internet. Australia is too far behind the rest of the world when it comes to this space. The internet in Australia is too slow. The NBN is not true fibre, and even if you get Fibre you're not getting the real deal. Your getting a massively restricted product that you have to pay extra just to get a half decent speed. 

So the real issue is, if you want to setup an online business that has any hope of expanding you need to be offshore. Australia does not have the infrastructure to accommodate. NZ, Thailand, Philippines, China, Russia, US, UK and most of Europe are all up to standards or well above. Australia, too far behind and there are no plans for attempting to keep up. 

Making money on the internet is easy. Scaling that up to compete with Amazon just takes time, and time is something a lot of people are not willing to spend. A lot of people just want to have a massive online business now.