Amazon’s Foray in India

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PROJECT WORK: AMAZON’S FORAY IN INDIA

Contents

Introduction        1

Amazon’s Entry in India        3

Challenges        3

The FDI Challenge        3

Business Model Innovation        4

Amazon’s Performance in India        7

Factors Contributing to its Performance        9

Suggestions to improvise the strategy        11

References        12

Introduction

In US, Amazon.com started as an online bookstore in 1994. It adopted an e-commerce business model, where it sourced books from wholesalers and publishers and sold them directly to consumers on the then growing internet. It developed a highly user-friendly website, which enabled it to attract one million customers by 1997. With this successful business model, Amazon added more products on its website, and in the process, it developed an ecosystem, blurring the lines between wholesale and retail sale. The Amazon ecosystem involved bulk purchases, warehousing, logistics, packaging and most importantly, use of the ever-evolving technology.

Parallelly, during the decade of 2000 to 2010, as Amazon was growing in US, India was experiencing a rapid penetration of internet and a systemic development of IT talent and infrastructure. This development of Indian IT industry can be clearly seen now, about 5 to 7 years after 2010. India, with its billion-plus people, largely young population, growing internet penetration, large IT talent pool, largely untapped e-commerce market, was a clear case of high potential market for Amazon. Thereby, with a strategic backdrop of a successful business model in the US and a huge market potential, Amazon.in launched in India in 2013.  

Amazon’s Entry in India

Challenges

Amazon faced the following challenges during their entry in India:

• Large Rural Population: Though India has a billion plus population, 67% of the population lives in rural areas characterized by an underdeveloped infrastructure.
• Limited, though Growing Internet Connectivity: Only about 35% of India’s population is connected to the internet.
• Cash Transaction: Unlike US, where Credit cards dominate transactions, retail transactions in India are predominantly done by cash, not credit cards or net-banking.
• FDI Regulations: With a view to protect home-grown companies, India had a rigid FDI policy restricting foreign multi-brand retailers from selling directly to consumers online.

The FDI Challenge

While all other challenges were market driven, the FDI challenge was a regulatory block and if not addressed, could have completely stopped Amazon’s India entry.

The FDI regulation prevented foreign multi-brand retailers from selling directly to consumers online. Hence, Amazon started in India as an e-marketplace. It became like a third-party seller, merely offering an online marketplace for small sellers to sell their goods. Along with the online market place, Amazon also introduced its entire ecosystem – data centers, logistics, warehousing, etc. With this business model, Amazon was fully compliant with the FDI regulations and thus it could enter India and establish its business here.

Business Model Innovation

After the regulatory hurdle was passed, came the market challenges. Faced by the market challenges, like, large rural population, limited internet connectivity, cash transactions, and a new business model of a third-party market place, Amazon required to deviate from their successful business model and innovate to suit Indian conditions.

As part of its business model innovation to suit Indian markets, Amazon had to innovate on the following aspects:

• Seller Network
• Warehousing
• Delivery
• Rural and Cash Economy
• Limited Internet Connectivity
• Customers

To respond to these challenges, after launching its Indian website in 2013, Amazon developed a program to recruit suppliers in India. It convinced them about its trustworthiness and assured them that it could help them increase their market. Amazon started a program called Amazon Chai Cart: mobile tea carts that navigated city streets, serving refreshments to small-business owners while teaching them the virtues of e-commerce.

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The Chai Cart team reportedly traveled more than 9,400 miles across 31 cities and engaged with more than 10,000 sellers. To help these sellers get online quickly and address their objections to e-commerce, Amazon created Amazon Tatkal, a self-described “studio on wheels” that provides a suite of launch services, such as registration, imaging, cataloging, and sales training. These initiatives enabled Amazon to attract a lot of sellers to its website, thereby building its product offering.

With the product offering in its place, Amazon now had to adapt warehousing and delivery. In the U.S., Amazon uses a centralized shipping platform, which it calls Fulfillment by Amazon (FBA), to store and distribute the products it sells. Sellers send their goods to Amazon’s fulfillment centers and pay a fee for the corporation to store, pick, pack, and ship their wares. Amazon implemented FBA in India as well, and to date has built nearly two dozen warehouses, the largest one in Kothur in Telangana.

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The company also localized its fulfillment platform in India by introducing Easy Ship and Seller Flex. With the former, Amazon couriers pick up packaged goods from a seller’s place of business and deliver them to consumers. With the latter, vendors designate a section of their own warehouses for products to be sold on Amazon.in, and Amazon coordinates the delivery logistics. These initiatives developed a robust warehousing network for Amazon.

With the product and warehousing in place, Amazon had to address the delivery challenge next. For this, Amazon has contracts with several major delivery services in the country, including India Post and cargo airline Blue Dart. Last year it set up a subsidiary, Amazon Transportation Services Private Limited, to augment delivery. And it utilizes bicycle and motorbike couriers for last-mile deliveries in both urban and rural regions.