How Amazon is Tackling India

Amazon India

Amazon is hard at work trying to establish a presence in India. The company is determined to not repeat the mistakes made in China.

Amazon is now in total investing $5 billion in India. India has the world’s second-largest internet population but, for example, e-commerce penetration is still very low compared to other markets. Techinsider:

On top of that, online shoppers in India account for only 3% of the total population, a tiny fraction compared to other developed markets like the US, UK, and Germany, which all enjoy an over 60% e-commerce penetration rate. (…)
The $5 billion investment also outpaces the amount of funding its two main competitors, Flipkart ($3.15 billion) and Snapdeal ($1.54 billion), have received so far, it noted.

Amazon is building up an independent business in India that is very distinct to what Amazon looks like in Western markets. Fortune ran a feature story back in January on Amazon’s India endeavour which is still quite illuminating. Some choice quotes:

On the size of the market, and thus the opportunity:

“The size of opportunity is so large it will be measured in trillions, not billions—trillions of dollars, that is, not rupees,” says Diego Piacentini, Amazon’s senior vice president for international retail, who oversees operations in Asia and Europe and who is Amazon’s biggest employee shareholder after Bezos. (…)

India’s population of 1.25 billion is four times as big as the U.S.’s and more than double Europe’s. And since the median age is 27—a full decade younger than Americans’—the trajectory will be steep. India will overtake China as the world’s most populous country in just seven years, according to the UN. (…)

Barely one-quarter of India’s population has access to the Internet at home, whether on a smartphone or computer, and only a small fraction of those have ever shopped online. For e-commerce, that means explosive room for growth. Morgan Stanley estimates that revenue could soar to $137 billion by 2020, more than 10 times the 2013 level of $11 billion. That is partly thanks to plummeting prices for smartphones (there are cut-rate deals online for Chinese models like OnePlus and Xiaomi), which about 350 million Indians now own.

The competition is fierce. Tata, for sake for a simplistic comparison the Walmart of India, is rolling out its own e-commerce operation, putting thousands of stores to good use (more on why what matters in a second) and Flipkart, No. 1 in India, is far bigger than Amazon:

Flipkart, valued at about $15 billion, is now India’s biggest e-commerce company, with 44% of the market—nearly triple Amazon’s 15%

​In China, Amazon has about 1.1% market share. Amazon is as driven by this failure as by the opportunity that is India.

Amazon is forced by local laws do operate differently in India:

a law forbidding foreign companies from selling products directly to Indians. That law effectively renders Amazon India a platform for vendors—akin to its “fulfillment by Amazon” program in the U.S.

​But the local circumstances might be even more challenging, leading to completely different approaches. Fortune is reporting from New Delhi:

Down a side alley sits a warehouse that serves as one of the 4,000 motorbike delivery centers in the country—the first such service in Amazon’s 20-year history. There was a frenzy of action inside as each bike rider filled a large black backpack with packages, grabbed a list of addresses, and raced out the door. Straddling on the back of one of the bikes, I clung to the sides as we weaved through rush-hour traffic, dodging cars and rickshaws, women in saris, and the occasional cow. Experts in their districts, the riders are essential to Amazon’s ability to make speedy deliveries, since the country has an arcane address system, patched together haphazardly over the decades, with many addresses containing descriptions reading something like “behind the mosque, across from the stadium.” (…)

Amazon faces a far bigger logistical hurdle than addresses, however: getting paid. Barely 60% of Indians have bank accounts, and only a fraction of those have credit cards. So Amazon’s payment systems in India are drastically different from any the company has attempted before and involve the kind of hand-holding that would be unimaginable to U.S. customers. About half the customers pay cash only when their purchases are delivered. Amazon has partnered with thousands of small shop owners across the country to act as pickup points in exchange for receiving a small commission per package. (…)

For now, Amazon’s strategy is to persuade Indian stores to sell their products through the company, even if it currently costs Amazon more money than it makes on the transactions. That could be inevitable right now, since its U.S. revenue model—buying in huge bulk at wholesale prices, then selling retail online—is not an option in India, whose laws forbid foreign companies, Amazon included, from direct sales to Indians. (…)

One afternoon we watched an Amazon team set up lights and cameras in a small furniture store in Bengaluru so they could photograph a few leather couches and upload them to the site. The store owner tells me he doubted he would sell a single item on Amazon, but decided he “might as well” post his high-end furniture on the site. It was, after all, free. (…)

Amazon will even pick up items from sellers and deliver them—something the company does only in India. Another practice unique to its subcontinent operations: Amazon takes telephone orders for goods from sellers across India, packs the products into bags with Amazon logos, and delivers them straight from the sellers’ stores on Amazon motorbikes.

There is more at stake than “just” India with Amazon’s separate Indian business and its aggressive attempt to build up a new, separate and unique business:

For Amazon to succeed in India, it will have to straddle those two worlds: the wealthy few and the poor masses. If it does, it could have a shot at something else too: helping to create a new model for other emerging markets. If e-commerce takes off across India, the industry could replicate its model for India in other vast developing countries, such as Indonesia and Nigeria. Then, says Sinha, the tech industry would have two global centers: Silicon Valley and Bengaluru. “Just like the U.S. is the economic hub and innovation engine for the top 1 billion people on the planet, India is going to be the innovation hub for the next 5 or 6 billion people,” he says.

The story about India will be interesting to watch. It may well tell us wether Amazon can be truly a global company. (as opposed to ‘just’ a Western company)

So if you haven’t already, make sure to read the Fortune story about Amazon India.

From a global market perspective, India also looks to become the ground of a proxy war. Last year I wrote about Alibaba’s investments:

In August of this year Alibaba invested in India’s Snapdeal which is directly competing with Amazon in India. It is likely for Alibaba to give more money to Snapdeal and others who are competing with Amazon in local markets. The enemy of my enemy gets my money, seems to be an investment thesis for Alibaba. Alibaba invested in Amazon challenger Alibaba has also invested in Chinese Uber rival Didi Kuaidi.

In May of this year Alibaba took part in an investment round in Snapchat. In September Alibaba invested in Indian payments startup Paytm.

All this money getting poured into the Indian e-commerce market fuels the move to online even further.

And like China, India, in the process, is leapfrogging an industrial brick-and-mortar retail landscape.

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