Two days after the third anniversary of beginning operations in India, Jeff Bezos, the Founder & CEO of Amazon.com, announced his decision to pump in another $3 billion in the Indian market. He made the announcement at a meeting of business leaders on Tuesday with the Indian Prime Minister Narendra Modi in Washington while revealing that India is now the global giant’s fastest-growing market and that Amazon sees “huge potential in the Indian economy.”
Amazon’s decision to pour in more funds into India is being seen by experts as an affirmation of faith in the Indian economy after the Indian Prime Minister Narendra Modi presented the US-India Business Council’s global leadership awards to Jeff Bezos and Sun Pharmaceuticals founder Dilip Shanghvi.
“I can assure you it’s only the beginning and as we say in Amazon, it’s only day one,” said a hugely optimistic Bezos after receiving USIBC’s Global Leadership Awards.
“Our Amazon.in team is surpassing even our most ambitious planned milestones, and I’m pleased to announce today that we’ll invest an additional US $3 billion on top of the $2 billion that we announced in 2014, bringing our total investment in India to over US $5 billion,” he added.
No details, however, have been given as to the time frame over which the funds will be allocated or the areas in which they will be invested.
Besides that whopping investment, Amazon is looking to open a Web Services Cloud Region in India this year. Additionally, it has a software engineering and development centre coming up in Hyderabad which will be the largest of its kind outside the US.
The Indian E-commerce Market Scenario
There is no denying that the Indian e-commerce scene is bustling with activity at the moment. As internet usage in the country is increasing and the mindset of the people is changing, buyers are beginning to shed their inhibitions and looking beyond brick and mortar stores for making purchases. Online buying in India, according to Morgan Stanley, has risen to $16 billion in 2015, up from $6.3 billion the previous year.
The online retail market in the country which is witnessing phenomenal growth is expected to touch $119 billion by 2020. A recent report by Google Inc. and AT Kearney Inc. suggests that online retail in India will constitute 25 percent of the total retail sales by 2020, with as many as 175 million shoppers buying online.
The move to inject more funds into the Indian market comes at a time when the two homegrown biggies, Flipkart and Snapdeal, are going through a rough patch and struggling to raise fresh funds. Not only have their ‘prize catches’ from Silicon Valley been forced to quit, they have been marred by controversies which haven’t really helped them improve their credibility in spite of aggressive marketing campaigns. The fact that they have both been through painful pangs of devaluation at the hands of investors makes the scenario all the grimmer for them, after being valued at $15 billion and $5 billion by the Wall Street Journal in June 2015. In the recent months, Flipkart’s valuation has been marked down from $15 billion to $9 billion, while Snapdeal also suffered the loss.
The recent controversy where Flipkart had to defer the joining dates of IIM graduates by six months without offering them adequate compensation has added to their already overflowing cup of woes as detractors have begun to question their viability. Major players who were earlier burning huge dollars every month to win over customers by offering them huge discounts have also had to cut down on the discounts, lay-off employees and, in extreme cases, shut down operations.
Compare this to the global e-commerce behemoth Amazon; Though raking in profits in its own home, North America, it has struggled outside its home territory. The Seattle-based e-tailing giant reported a profit of $2.75 billion in North America but lost nearly $91 million across the globe. It is also beset with a low growth rate in all markets outside its North American home base. The rate of growth of overseas sales has been only 5.7% as compared to a robust 25% in North America.
Key to Survival in India: Adapting to Indian conditions
Amazon has had its share of bad luck on the Asian soil. Forced to pull out of the most populous country due to the stranglehold of Alibaba and smaller sites like Tmall and Taobao, it is now eyeing the second biggest market, India.
Forced to operate in India at a marketplace model due to local direct investment rules, Amazon only sells goods offered via its website through third parties though it has its own warehouses. After burning its fingers in China where they didn’t adapt themselves to local preferences and were forced to exit, Amazon is making sure the same doesn’t happen in India.
“One of the top-level lessons is that we have done much more local market customization in India than we did in China,” Bezos said at a Recode conference last week.
“In China we did some local market customization but we mostly tried to roll out what had worked well for us in Japan, Germany, U.K., Spain, France, Italy, the U.S., etc., and it needed more local market customization.”
To adapt to the Indian conditions, Amazon has lots of smaller warehouses than other markets here. Unlike relying primarily on the US Postal Service and United Parcel Service for delivering their parcels in the United States, Amazon is delivering to the customer’s doorsteps in India. Rightly so – When in Rome, do as the Romans do!
According to a report from Bloomberg, Amazon is working on connecting factories in Asia with buyers in U.S. and Europe. The etailing titan is doing so by expanding its Fulfillment by Amazon service and developing it into a global logistics network. Needless to add, a strong foothold in India will be vital for fulfilling that long-term vision.
This latest round of funds will surely put Amazon head and shoulders above their two nearest rivals, Flipkart and Snapdeal who have henceforth raised $3.15 billion and $1.7 billion respectively, giving the former a formidable edge. That does not mean Amazon can trample over other big players like Flipkart who have a 45% market share in terms of gross merchandise value (GMV) and Snapdeal (26% share). Amazon comes a distant third with 12%, according to Morgan Stanley.
“The added investment reflects the success to-date of Amazon in India, as well as a bright outlook for the e-commerce market in the region,” said Colin Sebastian, an analyst at Robert W. Baird & Co. “It’s really down to a two or maybe three-horse race, and Amazon clearly would like to be the winner.”
All said and done, competition is intense. Though the market is huge and holds tremendous potential, making the right moves at the right time can make all the difference. Who knows this huge fresh investment by Amazon might prove to be a proverbial nail in the coffin for many struggling Indian startups!