As of today, Amazon India has an authorized capital of a whopping 16,000 crore INR which roughly translates to $2.5 Billion. Keeping up with and out-doing Jeff-Bezos’ promise in July 2014 that Amazon will invest $2 billion in India, (which was further increased to $5 billion) Amazon has made quite the headline news.
At a time when Indian start-ups like Flipkart and Snap deal are struggling to raise capital, this announcement from Amazon comes as a huge blow. By using the money for marketing, logistics, customer support and offering discounts to buyers, Amazon has made it clear that it wants to completely wipe away all domestic competition from the Indian market.
And why does amazon seem so desperate? Well, in the world of retail, the amount of profits made is directly proportional to the market size. Which in simple words means that more the number of people buying in a market, more are the profits.
Having said that, it doesn’t take much time to realize that the most profitable retail markets in the world are China and India, the two highest populated countries on Earth. Amazon has already lost the battle in China to Jack Ma’s Alibaba. And therefore Amazon is putting a lot of effort into capturing the Indian market.
Amazon’s announcement to pump huge amount of capital into it’s Indian wing comes at a time when Indian companies like Flipkart and SnapDeal are facing a tough time raising capital and staying profitable. Being a huge multinational with business located in almost every continent, it Is very easy for companies like Amazon to raise huge capital in a short period of time. Amazon is bent on making the most out of this advantage by out-spending and out-investing their rivals.
The prize too seems big. According to them Boston Consulting Group and Retailers Association of India, the country’s retail market is expected to grow to $40-50 billion in 2020 from the current size of $8-12 Billion.
On the flip-side however, suffering an uncertain fate are the traditional brick and mortar shops. By employing economies-of-scale like strategies in their retail businesses, online retailers or ‘e-tailors’ have gained huge advantages. From quality customer experience to huge discounts and a wide-range of products, E-tailers have out-performed the traditional retailers in many ways.
But all hope isn’t lost as the government has a introduced a few regulations recently in hopes of levelling the playing field. The most important one perhaps is the new rule which disallows companies like amazon, Flipkart and snapdeal from offering huge discounts. The control over discount now lies only on the seller and not the company( Flipkart, amazon etc). The government wants e-tailers to have the same level of disengagement as in the case of a physical marketplace, such as a mall, where the operator has no interaction with the consumer.
Indeed some bad news for customers. The days of billion day sales and online dhamaka offers might soon come to an end. But as the Indian economy and population both grow, India’s marketplaces will become prized playgrounds for businesses. The e-retail market is only one such segment where the next few years will play a detrimental rope in deciding who will rule the markets 10 or 15 years from now.