The Alibaba of India is armed with Modi's blessing and is poised to knock Amazon out of the subcontinent - so now Bezos is considering spending billions to buy a stake in it
- Amazon has a huge market opportunity in India.
- But government regulations and customer familiarity is favoring local giant Reliance Retail to take hold of the still-fragmented e-commerce market in the massive country.
- That's why Amazon is reportedly in talks to buy a stake in Reliance.
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Amazon is reportedly in talks to buy a 26% stake in Reliance Retail, India's largest brick-and-mortar retailer.Reliance Retail is rolling out an e-commerce service, and that could seriously threaten Amazon's growing presence in what's on track to become the second-largest e-commerce market in the world. Neither Amazon nor Reliance commented for this story.
And, perhaps more importantly, Indians haven't determined their e-retailer of choice. It's still a fragmented marketplace with Amazon, Walmart-owned Flipkart, and local giants like Reliance and Paytm Mall all claiming some of the pie.
With 10,000-plus physical locations, five million customers a week, and the blessing of the Narendra Modi administration, Reliance Retail has a serious potential to become India's Alibaba - a domestic retail giant that fends off Amazon from gaining serious market share.And Amazon, which has already lost out on China and spent billions in India, can't afford to fall behind in this region of the world.
Modi is fighting the threat of 'data colonialism'The Modi government is making it challenging for companies outside of India to take advantage of the explosive growth in consumer spending, with a slew of new laws that restrict foreign direct investment in e-commerce.
Several other rules, like barring companies from offering special prices on certain websites, are intended to keep brick-and-mortar healthy as e-commerce booms.
American retailers have balked at the rules, particularly Walmart, which owns a $16 billion majority stake in retailer Flipkart. "This is a major change and a regressive policy shift," a senior director in government affairs at Walmart told the Office of the United States Trade Representative in an e-mail on Jan. 7, Reuters reported.
Those roadblocks are bad news for Amazon
Growth at Amazon Web Services - the company's cash cow - has slowed, so investors are hoping that Amazon can dominate in new international markets like India to boost revenues."Amazon has several drivers that should yield robust global revenue growth with rising margins the next several years, namely ... significant opportunity in existing and newer international markets like India, Mexico, and Australia," Cowen analysts wrote to investors in July.
Amazon has been rolling out in new markets around the world for years, but the payoff hasn't established itself yet. Amazon loses money when it comes to the international sector - to the tune of $690 million in 2019 and $1.1 billion for the first six months of 2018.Growth in sales abroad is also slowing in 2019. In the first half of 2019, Amazon saw 10% year-over-year growth in net sales outside of North America, compared to a 31% net sale boost during the same period last year.
The legal roadblocks are so intense, in fact, that Amazon grouped India in with famously-restrictive China in its most recent quarterly statement under the "Risk Factors" header of "Our International Operations Expose Us to a Number of Risks."
But local players are set to flourish - and Amazon is likely to drop coin on them
The Modi rules are creating winners and losers. Analysts say Reliance Retail, India's largest retailer which is now opening an e-commerce service, is a definite winner from the new laws.Two senior executives told The Economic Times on Thursday that Amazon is in talks to purchase a 26% stake in Reliance. That would allow Reliance to become a Marketplace seller on Amazon, and would give Amazon an instant logistics and fulfillment network across India. However, the talks might not lead to a deal.
Reliance is India's biggest industrial conglomerate, and it has its fingers in oil, textiles, telecommunications, consumer electronics, and just about everything else. With $87 billion in revenue, it's one of India's most well-known corporations - lending it a name brand across India that's recognized more widely than Amazon.
But for Amazon, losing out on India would be very costly. Amazon has already invested at least $5 billion in India. The company fumbled in establishing a meaningful presence in China, so losing out on India means that the retailer would not sell to roughly 37% of the world's population.And as for Reliance, UBS analysts asked in their January report, "Can RIL evolve into India's Amazon/Alibaba/Walmart?" It then followed up: "Yes."
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