In India, Amazon is taking the unusual stance of the aggrieved party, possibly filling its American competitors with some very German ‘Schadenfreude’
Amazon entered the country in 2016 to great fanfare, with commitments of massive investments ($5.5 billion, raised by an additional $1 billion in 2020)
Overreach, apparently blind implementation of its business model - mixing market place features with direct sales of products commanding low prices and huge volume commitments - and considerable logistical constraints in India have all played their part in creating a dark outlook
Armchair critics may be tempted to downplay the challenge of e-commerce in India: the achievement of the company to get the venture up and running (approx. 30% market share of a nascent distribution channel) is in fact exceptional
Unfortunately, if Amazon's logistical achievements must be saluted, the roll-out of its 'one-size-fits-all' global distribution model looks disjointed in emerging and developing markets
- Amazon, the platform, facilitating domestic business transactions, means progress for local economies, a welcome innovation
- Amazon, the bulk buyer for resale on its own account, outcompeting core retail businesses, will be waging a losing battle with too much at stake to be tolerated for long
Amazon still has not accepted the 'market place' terms of access on offer in any emerging markets, foremost in India but around the developing world as well
How long it will take to come to a decision will weigh in no small measure on the company's growth targets for years to come
India’s decision to open the country to foreign-owned e-commerce ventures in 2016 was – and remains – focused on market place platforms, broadening distribution opportunities of manufacturers, and especially domestic businesses, able to tout their wares over the Internet
The direct ‘business-to-consumer’ (B2C) model, with its variant ‘consumer-to-consumer' (C2C), has been adopted by Alibaba in China with the Taobao platform and the model remains key to its success
To maintain in the long run the viability of the millions of Indian small shops, which usually support the entire family, e-commerce needed to be encouraged as a vector of modernization, and obviously not as a factor of disruption
While Amazon must have been fully aware of the stakes central to the 'market place' rule, the firm has persisted in the implementation of its global strategy, mixing market place features with direct sales of products commanding low prices and huge volume commitments
As detailed in the report ‘Amazon’s Indian winter’, the firm’s game of cat-and-mouse with the Indian authorities has been going on and on, from direct sales (forbidden) to sales by subsidiaries (forbidden) to sales by proxy third parties (forbidden) ….to say nothing of the iterations revealed by a February ’21 Reuters investigation (based on internal Amazon emails)
And a second Reuters investigation, dated Oct.13, 2021, added more fuel to the fire with documents detailing Amazon's aggressive distribution of knockoff goods, manufactured to order in fine details and in large volume, and boosted by manipulated search results - pratices Amazon denied engaging in
Surely aware of the commitment of India’s authorities to traditional distribution patterns, a bedrock of society, one may wonder why Amazon has maintained its aggressive posture
The most obvious explanation seems also the most probable
- the investment in logistics has been considerable, e-commerce remains relatively small and the average consumer basket desultory (when compared to Chinese consumer habits)
- losses, hidden from the public eye in Amazon’s accounts under an international header including profitable ventures in developed markets, especially in Japan and Germany, might become too large to be sustainable in the long run…
Broadening the scope, Amazon’s conflicted strategy might betray a more fundamental flaw in the American firm's wildly successful business strategy
- with the Internet, globalization has altered the nature of global firms, even though the firms still have the usual worldwide reach and dominance of international trade
- by deeply embedding themselves in transnational supply chains and by reaching out simultaneously to the individual consumer, their social impact has become unmoored from the public interest
- tolerated – and even encouraged under the guise of creative destruction – in advanced (post-industrial) economies, the assault on service networks which is Amazon’s signature achievement, is bound to be rejected wholesale (India) or brought firmly under control (China) when social cohesion is at stake in developing countries
Unsurprisingly, the Internet may actually offer a very different reading of opportunities in developing countries by putting the accent on
- foremost, communication in countries where costly telecom networks limited the opportunities to keep in touch and exchange information, a very human demand
- entertainment, in countries where there was very beyond standard television fare
- access to public administrations, bypassing often corrupt intermediaries
We will argue in a follow-up report how Reliance Industries, India’s challenger of American e-commerce, Amazon but also of Walmart’s Flipkart, is playing a winning hand
Official – and unofficial – support of the Indian firm helps to a large extent but, more importantly, its strategy is precisely aligned with the expectations of India’s society
A viewpoint Amazon’s new CEO may have to consider