Should Amazon Worry About India’s E-marketplace?

by Sohini Bagchi    May 26, 2014

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While India holds a huge growth opportunity for e-commerce giant Amazon, which is currently spreading its wings in the Indian terrain, the $75-billion e-commerce giant is also facing some serious challenges owing to lack of foreign direct investment (FDI) in retail and local consolidation. Analysts believe that the going may be tough for the stalwart unless it invests aggressively over the long term and are keep raising the bar for the online shopping experience in India.

The challenges ahead

Despite being a strong brand globally, including India, having both the financial muscle and expertise to create a formidable presence in the region, the absence of FDI in retail in the country will bound to restrict its control over logistics. This is where global competitors will have an edge, as a result of which the online major may have to continue its marketplace.

The other concern is the recent consolidations that are taking place in the country’s e-commerce space. As India’s largest e-commerce company Flipkart recently acquired online fashion retailer Myntra to keep foreign giants such as Amazon at bay, industry watchers predict a boom time for the domestic online retail space for the foreseeable future where they expect more such consolidations. This may prove to be challenging for the US-based online retailer.

Read more: Flipkart Acquires Myntra To Keep Amazon At Bay

Nascent but strong

Despite being a nascent market, the country has a strong potential for e-commerce growth. India Has Strong Potential For E-Commerce Growth, It’s Still A Nascent Market. McKinsey predicts the country’s online retail market to grow rapidly in the coming years to reach $2 billion by 2015.

Amazon entered the Indian market in June of last year and has invested actively with expansion into more than 20 categories including fashion and lifestyle products.

Some however believes that Amazon would obviously want to be a part of this vibrant e-commerce marketplace. So, while local players are getting wary about the new standards for delivery and quality Amazon is setting in the Indian market, it seems to be fine when seen as the retailer’s broader strategy of focusing on cash profit growth rather than margins.

Hiring activities up

Analysts see with foreign and domestic e-retail majors such as Amazon and Flipkart expand their businesses aggressively, there’s an increase in the hiring activities in this sector, which is expected to grow by over 30%. Consultant Randstad India predicts a creation of nearly 50,000 jobs in the next 2-3 years in the country

Amazon recently said in a statement, “the industry is growing rapidly and there is still a huge potential for growth” referring to the fact that despite the spurt of acquisition in the country, there is room for foreign players to thrive. It added that “We have grown exponentially over the last 11 months and will continue to see growth. Our hiring will continue to match this pace and grow accordingly.” 

Read: Why Everyone Wants An E-Commerce Pie?

“We work the customer backwards. Hence we pick up a particular customer segment and try to solve all needs before moving to the next,” Vikas Purohit, a senior executive at Amazon India, told Financial Express. “We believe there is room for multiple formats and players, and most importantly for innovation.”

The company has been consolidating its position in India since June 2013 and has launched two new capabilities to allow domestic traders self-register on the marketplace. Purohit also stated that the company is relentlessly focusing on expanding brands on its platform apart from innovating on customer touch points.  

While Indian e-commerce players are striving for a greater consolidation to beat Amazon, which in turn is acting aggressively to capture a large pie, analysts see both will coexist in the Indian marketplace, As an analyst with Forrester points out as Amazon scales up… much faster than expected, it will force everyone from retailers to investors in the e-commerce space to re-think, innovate. And in the long run, this will ensure a stronger growth in the country’s online retailing space.