Amazon Woos India With $3 Billion; What Will It Impact?

Last updated 26 Sep 2016 . 4 min read

E-commerce giant Amazon has announced a $3 billion dollar investment in India this financial year. Chief executive Jeff Bezos announced this moments after receiving an award from prime minister Narendra Modi, who is attending the United States-India Business Council’s 41st Annual Leadership Summit at Washington.

This is Amazon’s second big investment in India, after the $2 billion invested in 2014. India is the one of the fastest expanding markets for internet users worldwide. The number of people who use the internet in India has increased 40% over a year--to more than 250 million--according to a report by the Internet and Mobile Association of India.

Many venture capitalists have said that India is a safe market for Amazon to invest in. Perhaps Jeff Bezos is also using lessons learnt from the challenges Amazon faced in China, where they made an unsuccessful attempt to overtake the Alibaba Group.

India can be Amazon’s much-needed sweet spot. According to a business forecast by Morgan, Stanley India is likely to clock $137 billion in e-commerce sales, compared to the $11 billion in 2013.

It is not just Amazon that sees potential in the Indian online market; other technology, and e-commerce giants have also been wooing their target audiences here. Apple Chief Tim Cook has also said that India will become a major player in the tech market. Apple’s sales in India have increased unlike its record in China where the iPhone’s demand is shrinking.

Amazon’s strategy has been different for the Indian market, Bezos feels that they have understood the market well and their efforts of local market customisation have worked in India--a strategy Bezos feels they should have adopted for the Chinese markets as well.

Since their launch in India in 2013, Amazon has already created 45,000 jobs and hopes to double the number in the near future.

What does this mean for Indian e-commerce companies?

Amazon has not exactly had a smooth ride in India; it still faces tough competition from Indian e-commerce companies such as Flipkart and Snapdeal. Flipkart still has a 45% market share in terms of gross merchandise value (GMV), Snapdeal has 26% while Amazon is still at a mere 12%. But there is a crunch in the market and the competition is tough. A lot of Indian e-commerce companies might have been heavily overvalued because of foreign funding which they had received last year.

Flipkart and Snapdeal have realised that they face tough competition. Flipkart has begun to overhaul its business strategy while Snapdeal might have some difficulties since its capital reserves are small, say experts.

In the past couple of months, a number of Indian startups have either closed down or have had a number of rounds of layoffs. Snapdeal has put 200 employees on notice, Purple Squirrel Eduventures has shut shop, Zomato too has asked several employees to leave.  

With huge investments like this one by Amazon, the e-commerce--or online shopping--ecosphere is sure to feel some aftershocks. Many Indian companies are facing difficult times, and investors aren’t too happy with the way Indian e-commerce organizations are managing their finances; competition is increasing and those at the helm of things have a lot of firefighting to do.

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