Amazon Intensifies Battle in Indian E-commerce Space

To pump in additional investments of $3 billion in Indian arm

India is fast emerging as the investment hotspot for e-commerce companies, given its rapid economic growth and increased consumer spending. Sensing huge potential in the Indian economy, e-commerce juggernaut Inc. (NASDAQ: AMZN) believes that the country is evolving as a critical growth area for its global operations. Jeff Bezos, Chief Executive Officer of Amazon, announced that the Company plans to invest an additional $3 billion in India, at a meeting of business leaders on Tuesday, June 7th, 2016, with the Indian Prime Minister, Narendra Modi, in Washington, as reported by The Wall Street Journal. Read on to know more about Amazon’s investments.

Source: Company's Website
Source: Company’s Website

Amazon, which operates in India under the name Amazon Seller Services Pvt. Ltd, had infused $2 billion into its Indian arm in 2014. With the recent announcement, the total planned investment in India amounts to $5 billion. Amazon’s bullishness with regard to the Indian market comes after its operations in China, dominated by local giants like Alibaba, did not take off quite as expected. Having created some 45,000 jobs in India in its three years of operations, Amazon is continuing with its localization drive in the sub-continent in a bid to become the biggest online store in India.

Amazon’s additional investment will be channeled towards spending on discounts, advertising, logistics and other things, keeping with its game plan of becoming the largest e-commerce company in India. Apart from its marketplace business, Amazon will also invest in building out its web services unit in India. The Company also plans to open a data center in India to serve millions of customers.

Competition from Snapdeal and Flipkart

In India, Amazon faces rivalry from Flipkart Internet Pvt. Ltd., which was valued at $15 billion as of June 2015, and, with a valuation of about a third of that, according to Wall Street Journal. Amazon’s investment will be focused on warding off competition from Flipkart and Snapdeal at a time when investors are wary about putting their money on India-based e-commerce firms. In recent months, many Indian startups have bitten the dust after burning millions of dollars every month to funding deep discounts on various categories of products. In response, local e-commerce companies have been cutting back on discounts and trimming their workforce to break even.

Amazon’s planned investment assumes significance to India’s largely untapped, but rapidly growing online shopping market. Indians bought $16 billion worth of goods online in 2015, up from $6.3 billion in 2014, according to Morgan Stanley estimates and as reported by The Wall Street Journal.

Localization drive

Source: Press Trust of India
Source: Press Trust of India

Adhering to rules in India, Amazon operates a pure marketplace, selling only goods offered through its website by third parties. However, it has put in place warehouse and delivery technologies there that are customized to the local market. Amazon does most of its own deliveries to customers’ doors in India, in contrast to the U.S. where it relies heavily on third parties for delivery of goods.

Slow growth of international segment

Amazon’s international segment, which includes all markets outside North America, is seen to be growing at a much slower pace than its North America segment. According to the Company’s data, in 2015, sales of its International segment grew only by 5.7% to $35.4 billion, compared with a whopping 25% growth in North America to $63.7 billion. In the same year, Amazon also logged a $91 million operating loss in the International segment, compared with a $2.75 billion operating profit in its home market. Looking at the bigger picture, Amazon’s recent investment is aimed at driving revenues in some of its key markets for its International segment.

Solid Q1 FY16 results

A3Amazon, which announced its Q1 FY16 results on April 28th, 2016, has managed to beat estimates and announced a huge jump in earnings amidst tough market conditions and intense market competition. With massive investments in logistics and technology for faster delivery, Amazon has been steadily expanding into new categories like groceries and fashion. Its $99-a-year Prime program has signed up more than 50 million members worldwide. Amazon has also been expanding its own grocery-delivery service, AmazonFresh, across major U.S. cities. The e-commerce giant announced adjusted earnings per share of $0.77 on $29.1 billion in revenues, in contrast to analyst expectations of $0.58 per share on $28 billion revenues. Estimated sales for the second quarter are expected at $28-30.5 billion while analysts are expecting $28.3 billion, according to the company’s release.

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