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Can Amazon Succeed In India?

Apr 07, 2020
The buzz over the location of Amazon's second headquarters has died down, but the e-commerce giant just opened its largest office building yet. This one, however, is not in the U.S. The new campus is in Hyderabad, India. It covers 9.5 acres with 1.8 million square feet of office space, making it Amazon's largest building by total area. It has the capacity to house about 15,000 workers. Even its headquarters, individual buildings in its hometown of Seattle, can't fit that many people in a single building. Building the new campus in India is just another sign of how committed Amazon is to the market, how aggressively they plan to invest in the market, how much commitment they are making to India.
can amazon succeed in india
India is seen as one of the last big growth markets for the retail giant. Amazon started its retail operations in India in 2013. Since then, the company has invested more than $5 billion in the country. Now, the reason Amazon is so interested in this market is because it represents huge untapped potential. At present, e-commerce accounts for only 3 per cent of total consumption in India. While India's population has grown to 1.3 billion people, less than half are online. The country recently launched its 4G network and as internet penetration rates continue to rise, Amazon hopes to surpass local and international competitors.
can amazon succeed in india

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They are investing a lot of money in India because the projections are crazy. I mean, analysts say this is a market that will be worth $100 billion in 2022. However, Amazon faces stiff competition from Walmart, which completed its $16 billion acquisition of domestic e-commerce company Flipkart In 2018, Flipkart controlled approximately 40 percent of India's e-commerce market, driven by its fashion and apparel brands. Now Amazon and Walmart are locked in a tough competition for market share. However, despite their growing influence, about 90 percent of India's retail market is still controlled by small mom-and-pop stores. These local retailers wield a lot of political power, which has led to updated e-commerce regulations that make it much more difficult for multinational corporations to take on national competitors.
can amazon succeed in india
Direct-to-consumer sales were already prohibited for foreign-owned retailers, prompting Amazon and Walmart to establish a network of affiliated companies that allowed them to continue selling their own products. But after Walmart's acquisition of Flipkart, the Indian government banned foreign e-commerce companies from selling products through subsidiaries in which they owned a majority stake and from negotiating exclusive deals with sellers. Amazon has a lot of its own private label products like Echo, like batteries, like many things, and also groceries, which it is trying to sell in the Indian market. So when the government introduced regulations saying you couldn't even sell your own products through merchants you had a stake in, that led to Amazon removing thousands of products from its website.
can amazon succeed in india
The New York Times estimated that Amazon would have to recall about 400,000 items in total, representing almost a third of its sales in the country. However, these regulations could only be a short-term setback. Some analysts say it's only a matter of time before Amazon finds smart ways to reconfigure its business models and partnerships to deliver. Amazon is investing a lot of money in the country. Could all of that be stifled by these regulations? That's a great question. I think Amazon will probably find a way around the regulatory hurdles. They have a reasonable track record of adequate execution despite some obstacles, whether economic, cultural, logistical or regulatory.
Amazon is already taking significant steps to adapt by expanding its physical presence in the country. In August, it signed a deal to buy a minority stake in Future Retail, which operates more than 900 stores and owns several major supermarket brands. With this investment, Amazon is truly embracing this hybrid retail approach. By combining physical facilities, the location of an Indian partner and its own e-commerce experience, that is what Amazon believes will lead to success in this market. The company is also expanding its online grocery business, AmazonFresh. Now, grocery deliveries will be available in some parts of Bengaluru and eventually in other cities as well.
Food and grocery is by far the largest retail segment in India. It is the largest market in India. Almost 55 to 60 percent of household spending is still on groceries. So without that, it is very difficult for Amazon to capture the market. Amazon also hopes to learn from past mistakes. The company closed its e-commerce operations in China this summer after failing to make headway in the market. They faced deep-rooted competition from companies that did a much better job tailoring their products and services to that market. And then we're talking about JD.com and of course Alibaba. In India, it is taking a different strategy.
There is more emphasis on rural customers. In fact, 80 percent of Amazon customers currently in India live outside the country's largest cities. In fact, Amazon has created these kinds of really small stores in rural areas so that Indian customers can come in and learn how to buy and order things on their smartphones. Now, Amazon even offers an alternative version of its app designed to run on budget smartphones with spotty Internet access. It also launched its website in Hindi last year and hopes to add a variety of regional languages ​​soon. But whether designing new apps, setting up small retail stores, or building huge new campuses, these long-term investments don't come cheap.
And it may take some time before these efforts are reflected in profits. Look, it's going to be a very expensive market and I think they're willing to take losses in that market for a long period of time, I'd say 10 years. So I think we still have several years of losses left. Amazon's international e-commerce unit consistently operates at a loss. But as growth slows in North America, the company hopes that India could eventually become another source of revenue. When you think about Amazon opening a campus for 15,000 employees anywhere else, it couldn't fill it. I mean, Amazon's international business may be doing well in Europe and Australia, but it needs a big market like India for its future growth.

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