Amazon’s plans to dominate India’s online retail landscape have been scuttled by Prime Minister Narendra Modi’s political priorities heading into a tightening election.
The vote, which must be held by May, has increased the influence of local retailers that lobbied for growth-crimping curbs on the US e-commerce giant. On cue, India this month rolled out constraints on foreign e-commerce players including Amazon and Walmart-owned Flipkart, which together control 70 per cent of its online shopping. The tighter rules, aimed at protecting small traders, may end up benefiting the country’s richest man, Mukesh Ambani, who is building a home-grown competitor.
The rules now bar Amazon and Flipkart Online Services from owning inventory, and require them to treat all vendors equally, throttling discounts and exclusives - a huge advantage to homegrown companies including Mr Ambani’s new venture. His Reliance Industries, which owns India’s largest retail chain and third-biggest telecom network, has the potential to evolve into a local version of Amazon or Alibaba Group, UBS said last month.
“Whether serendipitous or not, India’s tightened regulatory regime for online retailers is a huge win for Reliance with its new retail ambitions,” said Sanchit Vir Gogia, chief executive officer of consultancy Greyhound Research told Blooomberg. “This could be a field leveler for them.”
As the field levels in India, Amazon is turning to the Middle East for growth.
Nearly two years after buying Souq, the region's biggest online marketplace, Amazon is downplaying its UAE brand and preparing to launch its own platform in the region, according to a report from US broadcaster CNBC.
Amazon is telling some of its largest sellers in North America to make sales to Middle East customers through its main website instead of on Souq.com. It is promoting a single e-commerce brand and back-end system for Amazon in the region, while also encouraging more US-based sellers to expand in the UAE and Saudi Arabia.
When contacted by The National Amazon Middle East said: "We have no comment, as we do not comment on rumours or speculation". Ronaldo Mouchawar, chief executive of Souq, also declined to comment.
The Middle East represents a huge potential market for Amazon – an opportunity it grabbed onto when it made its largest-ever international acquisition with its purchase of Souq for $580 million (Dh2.13 billion) in March 2017.
The region’s e-commerce sector is growing at the fastest pace globally, with online sales expected to double to $48.8bn by 2021, according to a report by Fitch Solutions Macro Research. E-commerce spending in the UAE is expected to increase by 170 per cent to $27.1bn in 2022, from $9.7bn in 2017.
Amazon certainly has room to grow in its international markets. While it dominates in the United States – where it accounted for about one in two e-commerce transactions last year and more than two-thirds of the company's revenue – it has struggled to find a successful formula in countries abroad. Excluding the US and Canada, Amazon is loss-making.
Losses from its international operations were $642m in the fourth quarter of 2018, the e-commerce giant said last week when it reported its earnings. Though its international operating loss shrunk from $919m a year earlier, according to Reuters, the new regulations in India, where the company had plans its biggest international expansion, are changing to favour local e-commerce sellers over those that are foreign-owned. Amazon will have to look elsewhere for international growth.
It is still unclear whether Amazon plans to close Souq or is attempting to funnel traffic and sales to its main website.
Back home, Mr Bezos is getting help from Washington officials who are advocating on Amazon's behalf for Mr Modi's government to think twice before hitting Amazon too hard with its new regulations.
Citi Research estimated that Amazon's total India market was worth $16bn, with the company committing up to $5bn to fuel growth - increasing both investment and employee headcount in the emerging market.
But between India's new regulations and Mr Ambani's ambitions, Mr Bezos confronts a massive challenge.
The Indian billionaire wants his consumer offerings - covering telecom, fibre-to-home broadband, media and entertainment and retail - to contribute nearly as much to the Reliance conglomerate’s overall earnings as its bread-and-butter energy and petrochemicals businesses.
He’s fresh from disrupting the nation’s telecom sector, which he entered in 2016 with services so cheap that rivals have quit, merged or gone bankrupt, including a carrier controlled by his younger brother.
On the back of that success, he last year unveiled plans to create a model that combines Reliance’s consumer offerings into a “hybrid, online-to-offline new commerce platform”.
Analysts at UBS predict Reliance can gain market share in new-age retail given its starting point of 280 million telecom subscribers, a broadband offering, extensive content and a web of 10,000 stores nation-wide. The company also wants to partner with India’s 12 million mom-and-pop shops to create distribution and delivery centres.
Reliance resembles Alibaba in its ability to offer bundled services in a fast-growing, fragmented market with low online penetration, according to UBS.
“In retail/e-commerce, despite competition from well-funded global companies, Reliance’s wide footprint of physical stores along with its omni-channel focus, subscriber reach and regulations governing foreign e-commerce entities,” could help it gain market share, analysts including Mumbai-based Amit Rustagi wrote in a January 24 report.
Reliance will probably use the opportunity posed by the government’s tighter rules to make a “grand entry” into e-commerce, said Praveen Khandelwal, national secretary general for the Confederation of All India Traders, a lobbying group that had threatened political repercussions if the February 1 rollout was delayed.
Mr Ambani had last month mapped out the beginnings of his strategy, rolling out a shopping platform to 1.2 million store-owners in western India. As the initiative expands, the company will enlist more neighbourhood shops as distribution and delivery centres for products that will be available on its mobile platform, sources said at the time.
An integrated platform will probably be launched within 18 months, they said.
“Our agenda is to ensure a level playing field,” Mr Khandelwal said. “Players such as Amazon and Walmart are in a major fix post the new guidelines and they will take time to restructure their operations."