It’s bye to China, from Amazon. The world’s largest e-commerce player has finally decided to shut shop in the world’s most populous country – and the second-largest consumer economy.
So, what’s up next? Logic suggests the US giant would focus on India, which is tipped to be the third-largest consumer market valued at $6 trillion by 2030, from $1.5 trillion in 2018. More so because Amazon is already the largest e-commerce firm in India, which is home to 1.3 billion people, the second largest in the world.
What really forced Amazon’s hand in China?
First, there is intense competition from local Chinese players such as Alibaba and JD. Second, Amazon could not cope with China’s protectionist regulatory policy that favoured domestic firms and restricted access to global companies, something the communist country has been practising for decades.
Will India prove to be Amazon’s lucky mascot? The e-commerce policy, which is in the works, hints at a similar approach to China though. In February, India notified the draft e-commerce policy that takes a protectionist view.
India believes that data is a “national asset” if generated within the country and wants foreign-funded e-tailers to have computing facilities and data centres within domestic borders. It has also put restrictions on cross-border data flows and sought “disclosure of source code”.
The e-commerce companies in question have also been barred from operating inventory-led model, apart from other curbs.
The policy is yet to see the light of day. In case it gets finalised in the current form, that may slam brakes on the designs of Amazon and Walmart-Flipkart – the top two in one of India’s fastest growing sectors.
Despite its fast growth in India, Amazon has expressed its concerns about the regulatory environment both in India and China. In a filing to the SEC (Securities and Exchange Commission) in September 2014, the US e-retailer said: “Our Chinese and Indian businesses and operations may be unable to… operate if we or our affiliates can’t access sufficient funding or in China enforce contractual relationships with respect to management and control of such businesses… if interpretations of those laws and regulations were to change, our businesses in those countries could be subject to fines and other financial penalties, have licenses revoked, or be forced to shut down entirely.”
Amazon’s worst fears came true for China. As for India, it’s too early to predict. No doubt, Amazon will try its best to make India a success story, but that’s far from easy.
Regardless of how India’s e-commerce policy shapes up, home-grown retailers are investing heavily in building their own online presence to compete with Amazon. To fight all of them, the US behemoth will need to invest a lot more in India.
The good news is the China exit has freed some cash in Amazon’s books which may find its way to India.
In any case, India is relatively new market for Amazon which entered the country in 2012-13. In comparison, it stepped into China in 2004 by acquiring Joyo which was rebranded Amazon China in 2011. So, it took 15 years for the US player to finally call it quits in China.
No matter how unfavourable India’s regulatory landscape can get, one thing is clear: Amazon will try to dig in because it already has tasted success in India where e-commerce accounts for just around 2 percent of the country’s total retail sales whereas the global average is around 15-20 percent.
Plus, India’s e-commerce industry is projected to cross $200 billion by 2026, from $38 billion in 2017. India is also arguably the largest market for Amazon outside its home base, which is the US, with the largest chunk of Prime subscribers.
Looking at the sheer growth potential, India remains a vital cog for Amazon, which will use every trick in the book to make it tick.―Money Control