Amazon Places a $3 Billion Bet on India

The E-Commerce Market on the Subcontinent is Getting Tight

Amazon announced it will invest an additional $3 billion in India, which is emerging as a critical growth market for the company. This will bring Amazon’s total planned investment in India to $5 billion, since it announced a $2 billion infusion in 2014.

Amazon’s CEO, Jeff Bezos, announced the infusion on Tuesday at the US-India Business Council’s Leadership Summit in Washington in the presence of Indian Prime Minister Narendra Modi. Mr Bezos said Amazon sees “huge potential in the Indian economy”.

Amazon launched its Indian division in June 2013 and it emerged as a tough competitor to established local players. It offers more than 55 million products from 85,000 sellers, a majority of them being traditional Indian retailers. The greatest strength of Amazon in India has been its focus on adapting to local tastes. Owing to local rules, Amazon India operates a pure marketplace, selling only items from third parties. Local competition includes start-ups Flipkart, a company which was valued at $15 billion in 2015, and Snapdeal, with a $5 billion valuation.

Other investments Amazon is making in India include the planned launch of Amazon Web Services this year, and the opening of its software engineering and development centre in Hyderabad — the largest outside of the US. The Hyderabad centre is expected to create jobs and career development opportunities for thousands of people.

Amazon is injecting the $3 billion into its Indian division at a time when local rivals are having difficulty raising more cash for expansion. Flipkart and Snapdeal have been burning through millions of dollars each month, essentially subsidising deep discounted prices. But as funding is drying up, the Indian e-commerce companies have been forced to rein back on discounts, laying off workers and reneging on job offers to new hires. Profitability has become both an immediate goal and a short-term necessity.

Amazon has already been gaining market share in Indian e-commerce. Its new cash infusion is timed to take advantage of market conditions and to accelerate its gains in the rapidly growing online shopping market in India. The world’s major e-commerce players all have ambitions to globalize their businesses, and they see India as a huge step toward that. Naspers has invested in Flipkart; eBay and Alibaba are both investors in Snapdeal; Alibaba and Ant Financial have invested in Indian payment processing company Paytm; Alibaba is building a data centre in India to offer cloud services rivalling Amazon Web Services. India is becoming a key stage on which their global ambitions will play out and Amazon has just raised the stakes.