Amzon India

Feb 26

Happy Friday, this is Vedica with today's update. It's also our 250th newsletter edition!! It's a cool milestone for us, and we have to thank you for reading. In today's newsletter I thought I'd cover an interesting Reuters piece on Amazon in India.

  1. Amazon documents reveal company’s secret strategy to dodge India’s regulators

➡️ The Reuters article is an interesting one in highlighting the regulatory maze that is India's e-commerce sector and how Amazon has navigated it. Reuters argues that "Amazon favored big sellers on its India platform – and used them to maneuver around rules meant to protect the country's small retailers from getting crushed by e-commerce giants, internal documents show. As one presentation urged: “Test the Boundaries of what is allowed by law.” To be honest, I think that's a somewhat sensationalist take, and I would argue that India is better off simplifying multi-brand retail rules.

➡️ The report argues, not incorrectly, that small merchants are an important political constituency in India, and multi-brand retail regulations are largely aimed at keeping them happy. More importantly, they are an important vote bank for the BJP, and for all its business friendly rhetoric, Amazon has often been caught in the cross-hairs of the current administration.

➡️ Amazon has attempted to position itself in India as a champion of small traders and sellers. Reuters cites this a pure cynicism noting that ~35 (not percent but literally 35 sellers) of Amazon’s more than 400,000 sellers in India account for around two-thirds of its online sales. Two sellers in which Amazon had indirect equity stakes accounted for around 35% of the platform’s sales revenue in early 2019. Another 33 Amazon sellers accounted for about a third of the value of all goods sold on the company’s website.

➡️ Globally ~40% of Amazon sales are its own direct sales to consumers. Because of restrictions on direct sales, Amazon in India can't sell its own brand products as it does in the elsewhere. Amazon worked around this by entering joint ventures with what it calls special merchants. One such venture was a seller named Cloudtail, a JV set up with Infosys founder Narayana Murthy, in 2014, which at one point made up ~50% of all sales on the platform.

➡️ When in 2016 the government changed the rules to restrict sales from a single seller at 25% of total sales, Amazon and Cloudtail were both caught on the wrong foot. Soon after it set up a second JV with the family of another tech pioneer, Ashok Patni, to offset the lost sales from Cloudtail. But yet again, the government hobbled Amazon, restricting in 2018, its ability to have equity in vendors selling on its platform.

➡️ Every time the government has changed the rules of the game, Amazon has adapted. This in Reuters view is positioned as Amazon stretching the boundaries of the law, but as I said earlier I think it speaks more to India's muddle headed approach to e-commerce rules. There's a lot to be said about Amazon's impact on SMEs, but e-commerce in India is just beginning to take off, and I think the country will benefit from the scale that players like Amazon bring to bear on the ecosystem. Amazon is by no means a monopoly in India, so to try and keep the e-commerce landscape so fragmented, in my opinion, isn't really very helpful.

➡️ Reuters positions Amazon as misrepresenting the platform it gives SMEs, especially since a few merchants make up the bulk of the sales on its platform. That maybe true, but again, I don't think that makes Amazon a villain. If anything it points to the opportunity that exists for platforms to really cater to SMEs in the way that Shopify and Etsy do. Covid has accelerated e-commerce adoption my smaller merchants, and I'd love to see players like Meesho in India compete with Amazon in this segment.

➡️ The cynical take here of course is that a number of regulatory changes and the opaqueness and unpredictability of e-commerce rules are geared to favour Reliance, which is expanding its e-commerce presence. How that battle shapes up — between Reliance and Amazon, and between Reliance and smaller traders, will be an interesting one tp follow.

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