Clearly signalling that outside of the US, India is the market which would drive its growth, the world’s largest online retailer Amazon has committed another $3 billion investment into its operations in the country, thus taking its committed investment to over $5 billion and identifying India as the fastest growing region for its business comes at a time when its competitors have been struggling to raise fresh funds in the country.
This also comes after Amazon’s foray into China did not meet with the desired results.
Amazon chief executive Jeff Bezos made the announcement about pumping in the additional investment during an event in Washington on Tuesday that was attended by Prime Minister Narendra Modi.
“I can assure you it’s only the beginning and as we say in Amazon, it’s only day one,” Bezos said, adding that the investments would help start-ups in India and accelerate the country’s role as a hub for innovation and digital entrepreneurship. He said Amazon would open a web services cloud region in India this year and the country would soon become home to the company’s largest software engineering and development centre outside of the US, located in Hyderabad.
Amazon had committed an investment of $2 billion for India in 2014.
The renewed focus comes at a time when its principal rival in the country, the home-grown Flipkart, is facing lowered valuations of its business by some of its key investors like Morgan Stanley and T Rowe Price and which now stands at $9.3 billion from its peak of $15 billion. According to market observers, Flipkart has been in the market to raise funds to the tune of $600 million but investors are unwilling to come in at its valuation of $15 billion.
The $26-billion domestic e-commerce industry has seen a change in fortunes with Amazon, which launched its India operations three years ago, topping with 26 million unique visitors according to comScore, compared with Flipkart’s 21 million as of March 2016. Anil Kumar, CEO of consulting firm RedSeer Consulting, told FE, “Except Amazon, all the key players have reduced their marketing budgets and are seeing a downward trend in market share. Amazon has realised that this is a good time for them to invest and they are using this opportunity to gain maximum (market) share.” According to a Morgan Stanley report, based on GMV figures for 2015, Flipkart had 45% market share, followed by Snapdeal at 26% and Amazon at 12%.
Amazon has not been able to take on Alibaba in the Chinese market and Bezos is keen to make sure that sort of thing will not happen in India.
“One of the top-level lessons is that we have done much more local market customisation in India than we did in China,” he told a conference recently. “In China, we did some local market customisations but we mostly tried to roll out what had worked for us in Japan, Germany, UK, US, etc. It needed more local customisation,” he had said.
According to a report by Deloitte, the e-commerce market in India is expected to cross $100 billion by 2020, which will be a sixfold growth from 2015. Talking to FE, Amazon India vice-president and country manager Amit Agarwal said, “If things go according to plan, India can become our second largest market outside of US. We are focused right from the beginning of Amazon’s operations in India on the three things that we believe customers care about most — massive collection of items, low prices and fast and reliable delivery.” Amazon India, which has around 45,000 employees, has 21 fulfilment centres taking up 5 million cubic feet of storage space.
Besides competition from the Indian players, Amazon is gearing up for the impending entry of Alibaba into India. The Chinese e-commerce company, which is a key investor in Snapdeal and payments company Paytm, has been readying its India plans for some time. However, there is no clarity on whether it will foray independently or through Snapdeal. Amazon will also have to face competition from Japanese online retailer Rakuten, which is also reported to have plans to enter India.
According to a recent report released by Google and AT Kearney, it is estimated that e-tailing will drive 25% of the total organised retail sale in India by 2020 at $60 billion. The report predicts that the total number of online shoppers will grow to 175 million by 2020 from the current 50 million, and that one-third of customers will drive two-thirds of total online shopping spends. The consumer electronics segment that dominates the Indian e-commerce at present will be overtaken by fashion and lifestyle segment as the largest e-tail category, generating about 35% of the overall GMV by 2020, it said.
‘Range, price and service are key drivers for local market’
Amazon’s e-commerce operations India head Amit Agarwal is focused on meeting customer expectations by providing a wide assortment of goods at consistently low prices and reliable, quick service. The industry, projected to cross $100 billion by 2020, may eventually see India becoming the second largest market for Amazon after the US, he says in an interview with Darlington Jose Hector and PP Thimmaya. The India operations posted 150% growth in the first quarter this year. Without divulging how he is planning to spend the $3-billion corpus released by the headquarters, he said this will help him take on competition in India.