Should Amazon and Walmart worry about India?

Amazon and Walmart face additional challenges that threaten their expansion objectives in India. On Monday, January 13, the Competition Commission of India (CCI) launched a probe into whether Amazon and Walmart’s Flipkart have violated competition laws by promoting “preferred sellers” on their platforms, which may have hurt smaller rivals.

The complaints against the companies were filed by a group representing small and medium-sized businesses, which argued that “preferred sellers” promoted on the platforms were owned by or affiliated with Amazon and Flipkart. Other anti-competitive practices including exclusively launching mobile phones, some discounting practices, and promoting some listings over others will also be investigated by the CCI. Amazon is facing a similar investigation in the United States and Europe.

Small online retailers in India believe they are hurt by customer searches and more specifically preferred sellers — such as Cloudtail and Appario Retail for Amazon and OmniTech Retail India for Flipkart — and their heavily discounted offerings. The Competition Commission’s study stated: “The price points at which these sellers sell the products on the marketplace platforms are in many instances lower than the cost price for the brick-and-mortar retailers. These retailers maintain that, therefore, they either have to match the online discounts at a significant loss or the online market would be foreclosed for them. This was pointed out to be a particularly pressing concern in the case of mobile phones, where online markets constitute around 40% of the total sales in the country.”

This isn’t the first roadblock the US giants have faced in India. In December 2018, India introduced new e-commerce rules which prevented foreign-owned e-commerce companies from selling products through affiliated companies they own a significant stake in, or from offering special discounts and exclusive deals in the country. Basically, the new rules barred foreign-owned e-commerce companies from holding stock products and selling them on their own, which means they can only act as neutral marketplaces for Indian vendors. Prior to this, rules barred foreign companies from holding their own online inventory and selling it direct to customers, but Amazon worked around those regulations by selling products through subsidiaries of companies in which it owned stakes. As a result, the new rule had a significant impact on Amazon’s and Flipkart’s operations in the country, with the former pulling an estimated 400,000 items from its shelves once the new rules were introduced, while Flipkart removed thousands of products from its platform.

Both, the e-commerce rules introduced in 2018 and the latest anti-trust case are designed to help local retailers better compete against foreign-owned giants like Amazon and Walmart. Small mom-and-pop stores in India have significant political influence and they have been successful in restraining the entrance of foreign retailers in the country (e.g. the above mentioned introduction of the 2018 e-commerce rules). On top of that, during his last visit in India on Wednesday, January 15, Amazon’s CEO, Jeff Bezos, faced public rallies organized by a large trade organization representing millions of small brick-and-mortar stores. The shopkeepers alleged Amazon is engaged in predatory pricing which will “destroy small retailers”.

Nonetheless, these headwinds don’t seem to deter Amazon. During his visit in India this week, Bezos announced that Amazon would be investing $1bn in India, helping small business owners digitize their operations. It’s the company’s latest move in its battle to grab a share in the vast economy and goes to show how important the Indian market is for Amazon.

Overall, the latest anti-trust case is unlikely to severely disrupt Amazon or Flipkart’s operations in the country because the final consumer isn’t complaining. Ultimately, the final consumer would rather receive a bigger discount on a product than ask why it is sold exclusively online. Also, in closing, the CCI just asks the industry to police itself and adopt self-regulatory measures by working on things like describing search-ranking parameters “in plain and intelligible language.”

But the US e-commerce giants will continue to face the ire of small shopkeepers in India. These have a great political power in the country, and no government wants to upset them. They represent a core constituency for the ruling party, BJP, so any move to make operations easier for big foreign-owned e-commerce players could cost the ruling party crucial votes and funds. What is more, Indian politicians don’t seem to be convinced by the benefits of free trade as they fear, amongst things, an increasing unemployment rate. And last but not least, probably the biggest obstacle for Amazon and Walmart’s Flipkart in India will be JioMart. The Indian business conglomerate Reliance Industries launched JioMart in January 2020. JioMart promises to sell more than 50,000 grocery products and provide free home delivery, as well as a hassle-free returns policy and is set to shake up online shopping sector in India. Being a domestic business, Reliance JioMart will have a major advantage over Amazon and Walmart as it won’t be constrained by some of the protectionist regulations aimed at protecting Indian firms. Having said that, Amazon and Walmart are likely to continue to face difficult times in the country. But given the potential of the Indian e-commerce market (it is estimated to be worth $71.94bn by 2022 according to eMarketer), they aren’t likely to step back,  not after having made such significant investments in the country.

Source: Transport Intelligence, January 17, 2019

Author: Violeta Keckarovska