High Stakes in Indian E-Commerce Industry

Walmart Acquires India's Flipkart, Altering the Market

Walmart logoIn October 2007, Flipkart was launched as a simple Web site to sell books. The founders delivered orders to buyers, going door to door on two-wheelers. Like Amazon, Flipkart had a humble beginning, but grew to become a major influence in India's retail market.

Last week, Walmart acquired a 77 percent stake in Flipkart for about $16 billion. This is a major development that will further highlight the growth potential of e-commerce in India, which is becoming one of the most attractive retail markets in the world given its size. With Walmart's support, Flipkart can be expected to accelerate its vision of altering buying behaviour in the country. The deal will also encourage other merger and acquisition activity, drawing other online retail giants to India.

Flipkart is the e-commerce market leader in India with close to 40 percent share of the market. However, Amazon's entry in 2013 changed the landscape and delivered a major blow to Flipkart, reducing its customer total by offering faster delivery options, lower prices and additional features such as Prime streaming services. Since then, Flipkart has evaluated strategic partnerships including a potential merger with eBay in August 2017, and made a similar, yet unsuccessful attempt to merge with Snapdeal, another major local e-commerce company.

Amazon, which holds 44 percent share of the online retail market in the US, is engaged in a tough battle with Walmart for the US consumer. Now, Amazon and Walmart will be fierce competitors in India. It's a rivalry that's going global.

Flipkart will allow Walmart to jump-start its ambition of reaching Indian customers, and thus defend against Amazon's onslaught. By becoming a major player in India, Walmart will quickly gain a better understanding of emerging markets, an asset it hopes to use in other locations.

For Indian consumers, we expect the deal to broaden the product choice, with Walmart bringing in products from a multitude of suppliers worldwide. This was one of the effects of Amazon's launch in the country. At the time, the market was essentially limited to products carried by Flipkart, eBay and Snapdeal. Although Flipkart was the clear innovator in this space, Amazon was able to secure a second-mover advantage when it arrived with its huge selection of products.

The entry of Walmart creates a new sense of balance. In addition to funding for investments in infrastructure, the company has the logistics talent and a web of partners that Flipkart can now tap into. On the other side of the equation, Walmart will have access to Flipkart's portfolio of products from local businesses, which Walmart could carry in other markets. Walmart's supplier network has expanded.

We also believe that the agreement will have a significant impact on pricing in the market, with the potential for a drawn-out price-war. When Walmart faces off with Amazon in India, it's likely to wield its best weapon: low prices.

Indian customers are very price-conscious and familiar with the advantages that price-wars can create. For example, we're reminded of the virtual revolution that Reliance Jio started in the Indian telecommunication market. The price-cutting moves triggered by Jio offered Indian consumers one of the most affordable mobile data plans in the world. We can question the sustainability of such ruthless pricing strategies, but the operator has certainly changed expectations.

Like Jio, Walmart and Amazon have cash flows from other businesses and can, at least temporarily, subsidise their Indian operations. The deal will accelerate competition between these two giants and will trim already tight margins further. Amazon has seen significant operating losses in its international business since 2016, mostly as a result of its large investments in India. The two companies will make online retail more advantageous, persuading more Indians to shop online. The growth that the two companies are looking for will be a self-fulfilling prophecy, but a big question for Walmart is how much money it is prepared to sink into the adventure.

Flipkart, a company once often referred to as the "Amazon of India", is now the Amazon competitor of India.

Sign up to our free Daily Insight service here.

This entry was posted on May 14th, 2018 and is filed under Services. You can follow any responses to this entry through the RSS 2.0 feed or you can leave a response.

Posted By Raghu Gopal On May 14th, 2018

(There are no comments yet)
Leave a Comment

Hot News

Team Tweets

CCS Insight
Intel uncorks OpenVINO: our thoughts on @Intel's unique approach to deploying artificial intelligence at the networ… https://t.co/bGx5V3bXS0
Follow CCS Insight
Shaun Collins
RT @paolopescatore: Our take on the new vision for BT consumer and product announcements @bt_uk $BT https://t.co/1dUccTGAAA https://t.co/m…
Follow Shaun
Ben Wood
Great to see @Panono has pivoted to a new business model. Device was always a great piece of innovation - hope they… https://t.co/KZ8fpamibs
Follow Ben
Martin Garner
@intel announces OpenVino computer vision toolkit. https://t.co/V29cNilmym Auto-optimising deep learning models at… https://t.co/0IM4tz6rlz
Follow Martin
Geoff Blaber
.@IntelAI & @Qualcomm both talking #AI today. They come from very different perspectives but a key message is the s… https://t.co/LgmWGxZMED
Follow Geoff
Marina Koytcheva
Confirming humanity will become trickier with time.... https://t.co/7ZYc8fPkXA
Follow Marina
Nicholas McQuire
At #BoxWorldTour today. @levie arguably the funniest CEO in the business, takes the stage: “#GDPR is now more popul… https://t.co/86Ohfb08De
Follow Nicholas
Paolo Pescatore
@UHD4k @virginmedia Indeed, basically the first time we will see BT Sport in #UHD #4K on Virgin Media
Follow Paolo
Kester Mann
Apparent change in position on consolidation in France by regulator Arcep if it is able to "create value for the co… https://t.co/wTBHpdPGyQ
Follow Kester
George Jijiashvili
A pleasure moderating this afternoon's panel on how VR & AR are transforming entertanment experiences w/ Alex Lambe… https://t.co/fBfaD3luf0
Follow George
Laura Simeonova
RT @benwood: P20 devices testament to Huawei's ambition in smartphone market. Consistently improving design, capabilities and appeal of its…
Follow Laura
Katie Taylor
London hospitals to replace doctors and nurses with AI for some tasks https://t.co/vxuYdJRYFA
Follow Katie

Recent Blog Posts

Blog Post
Intel Uncorks OpenVINO New Toolkit Is a Big Move in Computer Vision for AI at the E... Read more
Blog Post
PayPal Acquires Sweden's iZettle More Consolidation in the Financial Technology Market Last ... Read more
Blog Post
UK Sets Tough Rules to Protect Key Infrastructure Public and Private Services Are on the Front Line of Digital... Read more
More blog

Latest Company News

Blog Post
Phone-Makers Betting on 5G Devices to Overcome Smartphone Slump Research firm CCS Insight forecasts dips in demand for mobil... Read more
More news