Competition in India’s E-Commerce Market Intensifies Amidst Elections

Posted by

Online retail giant Amazon.com has announced it is now selling clothing and accessories on its India website alongside the introduction of new streamlined delivery initiatives, raising the stakes for other online retailers vying to capture a larger share of India’s growing e-commerce market.

“With a vast selection of fashion, jewelry, watches, beauty products, handbags, clutches, shoes and now ethnic wear and sunglasses, Amazon.in offers a compelling fashion and lifestyle shopping destination for women,” Amazon said in a statement.

While India permits 100 percent foreign direct investment (FDI) in business-to-business (B2B) e-commerce, FDI in business-to-consumer (B2C) e-commerce remains strictly prohibited and bound by FDI restrictions on the retail sector more generally. Because of this, many foreign e-retailers such as Amazon and eBay have established a “marketplace model,” whereby local independent merchants sell goods directly to consumers, and the platform earns commission from those merchants.

Since launching its marketplace platform in India last June, Amazon India has expanded its product line from books and video content to toys, music and now clothing, apparel, shoes and accessories. With over 12,000 contemporary and traditional styles from more than 90 apparel brands in Amazon’s new clothing & accessories department, the firm is now well placed to give other online retailers a run for their money.

Amazon’s foray into apparel and accessories will place the firm in direct competition with Jabong and Myntra – India’s largest apparel e-retailers – and increase competition with existing rivals Flipkart and Snapdeal, which have sought to enhance their apparel selection in recent months.

Streamlining

As Amazon.in slowly but surely increases the product categories available on its marketplace, the firm is also investing in efforts to facilitate delivery and increase its seller base in India with the launch of Self Service Registration (SSR) and Amazon Easy Ship.

“SSR provides sellers an accelerated and friction-free path to selling on Amazon and with Amazon Easy Ship. Sellers can leverage Amazon’s investments in logistics to have their orders on Amazon.in shipped straight from their own warehouses. The initiatives will help sellers improve their delivery experience and to scale and grow their online business cost effectively and profitably,” the company said in a statement on Wednesday.

“With SSR and Amazon Easy Ship in addition to Selling on Amazon and Fulfillment by Amazon, sellers can now not only tap into [the] online channel easily and quickly, but also offer the customers a delightful experience. Initial response to Amazon Easy Ship has been extremely encouraging. Within two weeks of adopting the service, our sellers have seen an average 30 percent growth in sales,” said Amazon India GM and Director Amit Deshpande.

To increase its competitive edge in product delivery – a constant challenge for many online retailers dealing with India’s underdeveloped logistics and transportation infrastructure – Amazon also introduced a new delivery scheme rolled out last month with kiranas, or small neighborhood convenience stores.

With this delivery scheme, customers will soon be able to pick up orders from local kiranas in the case of failed delivery, or if a customer opts for the delivery of goods to a kirana collection point rather than a home address.

“We are continually innovating to find solutions that enhance convenience and experience for our customers. We are running a pilot for in-store pick-up in Bangalore. We have intensified and trained staff at small kiosks and stores, run by individual entrepreneurs, to be our shipment pick-up points. Depending on the results, we will take a call on how and what we want to roll out nationally at the appropriate time,” Amazon India country director Amit Agarwal said.

“The India operation is one of the fastest build-outs for Amazon globally – in terms of selection, sellers, traffic and even mass media advertising,” he added.

The Waiting Game

To anyone familiar with India’s rapidly growing online retail sector, the release of Amazon’s new streamlined delivery scheme and rollout of expanded product categories during national elections is no coincidence. While the frontrunner BJP has explicitly expressed opposition to liberalizing FDI restrictions in India’s retail sector, many analysts view retail FDI caps as more of a “wait-and-see” issue.

India’s existing FDI cap on multi-brand retail trading (which also applies to e-commerce) limits FDI to 51 percent with prior government approval. Changes made in 2013 further clarify that at least 50 percent for the first US$100 million invested must be in ‘back end infrastructure.’

Despite this cap, multi-brand retail heavyweights are making big moves towards the Indian market in anticipation of possible post-election changes.

In addition to Amazon repositioning itself to rapidly expand its India operations if FDI restrictions are lifted, Walmart is also reportedly preparing to enter the country with a similar marketplace model and British retailer Tesco recently entered a joint venture with Trent Ltd (part of Tata Group) by purchasing a 50 percent stake in Trent Hypermarket Ltd for US$142.8 million.

One thing is for certain, however: as competition heats up in India’s e-commerce industry, Indian consumers will soon reap the benefits of the inevitable price wars, discounts and promotions these retail rivalries will generate.

Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email india@dezshira.com or visit www.dezshira.com.

Stay up to date with the latest business and investment trends in Asia by subscribing to our complimentary update service featuring news, commentary and regulatory insight.

Related Reading

E-Commerce Across Asia: Trends and Developments 2014
In this issue of Asia Briefing Magazine, we provide a comprehensive overview of e-commerce trends across the Asia-Pacific region with a focus on developing markets in Southeast Asia. In addition to analyzing macro-level economic and development indicators that signal the potential for region-wide growth, we explore several rapidly growing markets in-depth while highlighting opportunities for investment in each.

An Introduction to India’s Audit Process
In this edition of India Briefing Magazine, we provide readers with an overview of India’s annual audit process and offer important tips for the smooth navigation of the country’s audit regulations and accounting standards.

E-Commerce on the Rise in India

Leave a Reply

Your email address will not be published. Required fields are marked *