Can Amazon Conquer India?
n any country there are e-commerce firms that want to be the “Amazon” of that country. Ironically it’s also what Amazon wants to be outside the US!
But in three of the largest and fastest growing emerging market e-commerce economies — China, Russia and Brazil — the leading online retailer is not Amazon. It is not even present in Russia and Brazil. “The Amazons” of China, Russia and Brazil are 360buy, Ozon.ru and MercadoLibre, respectively.
Will India be any different?
What Amazon Can Do
There are lots of news and rumours regarding Amazon’s India entry. Amazon did not respond to repeated Forbes India queries on this story. However, multiple media reports and e-commerce entrepreneurs say that Amazon is hiring employees and renting warehouses for an India launch.
That’s surprising because the current retail FDI regulations do not permit Amazon to set up a majority-owned Indian subsidiary. And that is why it needs a local partner.
“There’s not much local knowledge involved in selling standard products like books, mobile phones or home appliances. That comes from categories like food, groceries or apparel,” says Raghav Gupta, a retail consultant with Booz & Company.
Which means Amazon can replicate most of those using its own resources in a relatively short while. “Amazon has global relationships with many multinational vendors, so it may get better prices from them even in India. That is an advantage,” says K. Vaitheeswaran, co-founder and COO of Indiaplaza, at 12 years the oldest e-commerce site in India.
R. Sriram, co-founder of consulting firm Next Practice Retail and ex-CEO of Crossword Bookstores, says, “If Amazon’s goal is to be the dominant online business covering every possible category then what ‘Step One’ is does not matter in the medium or long run. Their customer traffic from India is already four times that of the top online Indian retailer.”
Given that Amazon is not the leader in China, and is not present in Brazil or Russia, the assimilation of local knowledge may not be a trivial matter. So, Amazon will do well to get a local partner on board. And most likely the partner would not be a conventional retailer because none of the large retail groups have been approached by it yet. It will also not be the local e-commerce darling Flipkart because buying a chunk of Flipkart would be very expensive. Flipkart is angling for a valuation of $500 million to $1 billion (CEO Sachin Bansal refused to admit it) on a monthly revenue run-rate of $10 million (which Bansal says will be crossed in September).
“I would almost bet Amazon won’t spend anywhere near a billion dollars on an India acquisition,” says Kartik Hosanagar, an associate professor at the Wharton School of Business. It will most likely be a less expensive e-commerce company.
Emerging Market Lessons
Once the local partnership is in place, Amazon could do with remembering its China experience. In 2004, Joyo was China’s largest e-commerce player before Amazon acquired it. Today, that title belongs to 360buy.com, that started in 2004 and is planning a US IPO worth $4billion to $5 billion, the largest ever. Amazon China and Dangdang, a smaller competitor to Joyo in 2004, which wisely refused a buyout offer from Amazon for a reported $150 million, are both one-third the size of 360buy. The other big player is Taobao Mall, part of the Alibaba Group.
In two of the other leading emerging markets, Russia and Brazil, Amazon is missing in action.
That leaves India as the only large emerging market where Amazon still has a good chance of becoming a market leader. But for that to happen, it’ll have to unlearn a lot.
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