India is far and away the most important international market to Amazon over the next decade, and it’s not even close. But if Amazon is going to become the No. 1 e-commerce company there, the traditional Amazon playbook for success will not work.
The latest reminder of this came yesterday, when the New York Times reported that Amazon may be violating new e-commerce rules in India. The rules bar any one merchant on sites like Amazon from accounting for 25 percent or more of total sales. An industry analyst told the paper that one of the sellers on Amazon’s India marketplace — in whose parent company Amazon holds significant ownership — likely accounts for between 40 percent and 50 percent of sales. That appears to be a problem.
An Amazon spokesman told the paper it was still looking into the new rules. But, at a minimum, it’s another signal that Amazon will continue to have to run its operation very differently in India if it’s going to win the wallets of the country’s growing middle class from competitors Flipkart and Snapdeal.
From the time Amazon set up shop in India in 2013, it has had to take a different approach to how it sells items there. In the U.S. and many other markets, Amazon operates as both a retailer and as a marketplace. This means that Amazon owns and sells its own product inventory in a lot of cases, but also allows millions of other merchants to list products for sale on the site. One result of this model is that when Amazon prices one of its own products aggressively, third-party merchants follow suit.
But in India, e-commerce sites like Amazon that have significant foreign investment are not permitted to operate as a retailer that owns and sells its own inventory. The new rules also stipulate that sites like Amazon cannot try to influence product prices on the marketplace either. Translation: If Amazon — as well as Flipkart and Snapdeal — wants to have the best prices in India, it’s going to have to rely on its marketplace merchants to do it on their own.
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