Will Amazon Can Succeed In India?

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                                  Will Amazon Can Succeed In India

The hype over the location of Amazons HQ 2 has died down but thee-commerce giant actually just opened its biggest office building yet.This one though isnt in the U.S.The new campus is in Hyderabad India.It covers 9.5 acres with 1.8 million square feet of office space making it the largest Amazon building by total area.It has the capacity to hold some 15000 workers.Even its headquarters individual buildings in its hometown of Seattle can't hold that many people in one building.The building out of the new campus in India just is another sign of how committed Amazon is to the market how aggressively they plan to invest in the market how much of a commitment they are making to India.India is seen as one of the last major growth markets for the retail giant.

Amazon began its retail operations in India back in 2013.Since then the company has invested more than five billion dollars in to the country. Now the reason that Amazon is so interested in this market is because it represents enormous untapped potential.Right now e-commerce represents just 3 percent of total consumption in India.While India population has swelled to 1.3 billion less than half are online.The country recently rolled out its 4G network and as Internet penetration rates continue to climb Amazon hopes to edge out local and international competitors.

Theyre sinking a lot of money into India because the projections arecrazy. I mean analysts say that this is a market thats going to be worth 100 billion dollars by 2022.However Amazon faces steep competition from Walmart which completed its 16 billion dollar acquisition of domestic e-commerce company Flipkart in 2018. Before the acquisition Flipkart controlled an estimated 40 percent of the Indian e-commerce market bolstered by its fashion and apparelbrands. Now Amazon and Walmart are locked in a tight competition for market share.

Yet despite their growing influence roughly 90 percent of India retail market is still controlled by small mom and pop stores.These local retailers wield a lot of political power which has led toup dated e-commerce regulations that make it much tougher for multinational corporations to take on domestic competitors.Direct to consumer sales were already banned for foreign-owned retailers leading Amazon and Walmart to set up a network of affiliate companies that allowed them to continue selling their own products.But after Walmarts Flipkart acquisition the Indian government banned foreign e-commerce companies from selling products through affiliates that they owned a majority stake in and from negotiating exclusive deals with sellers.

Amazon has a lot of its own private label products like the Echo like batteries like a lot of things and groceries as well that its tryingto sell in the Indian market.So when the government put in regulations that said it was not able to evensell its own products through merchants that it had a stake in that led Amazon to take down thousands of products on its website.The New York Times estimated that Amazon would have to pull about 400000 items in total accounting for nearly a third of its sales in the country.However these regulations could only be a short term setback.Some analysts say its just a matter of time before Amazon finds clever ways to reconfigure its business models and partnerships to comply.Amazon is pouring a lot of money into the country.

Could that all be stifled by these regulations?That is a big question.I think probably Amazon is going to figure out a way to work its way through the regulatory obstacles There a reasonable track record they have of executing well despite some obstacles whether they are economic or cultural or logistic or regulatory Amazon is already taking major steps to adapt by expanding its brick and mortar presence in the country.In August it signed a deal to buy a minority stake in Future Retail which operates over 900 stores and owns several large supermarket brands.With this investment Amazon is really taking this hybrid retail approach.

By combining the brick and mortar the localization of an Indian partnerand its own e-commerce experience thats what Amazon believes will hopefully lead it to success in this market.The company is also expanding its online grocery business Amazon Fresh.Now grocery deliveries will be available in some parts of Bengaluru and eventually in other cities too.Food and grocery is by far the largest retail segment in India.It is the biggest market in India.Its almost 55 or 60 percent of household spends is still grocery items.So you know without that its very difficult for Amazon to capture themarket.Amazon also hopes to learn from past mistakes.The company shut down its e-commerce operations in China this summer afterit failed to make headway in the market.They faced really good entrenched competition from companies that did much better job fitting their products and their services to that market.And so were talking about JD.

command of course Alibaba.In India its taking a different strategy. Theres more of an emphasis on rural customers.In fact 80 percent of Amazons customers currently in India live outside of the country biggest cities.Amazon has actually set up these sort of really tiny stores in rural areas so that Indian customers can go in and actually learn how to purchase things and order things on their smartphones.Now Amazon even offers an alternate version of its app designed to run onin expensive smartphones with spotty Internet access.It also launched its Hindi website last year and hopes to add a variety of regional languages soon.

But whether its designing new apps setting up small brick and mortar retail stores or building huge new campuses these long term investments don't come cheap. And it may be awhile before these efforts are reflected in profits.Look its going to be a very expensive market and I think they were willing to sustain losses in that market for a long period of time I would guess 10 years. So I think we still have several years ahead of losses.Amazons international e-commerce unit consistently operates at a loss.But as growth slows in North America the company hopes that eventually India can be another cash cow.When you think about Amazon opening up a campus for 15000 employees any where else it would not be able to fill it.I mean Amazons international business can be doing well in Europe and Australia but it needs a big market like India for its future growth.

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