1. AMAZON IN INDIA
Business strategy project by;
Dipesh Bhattacharyya(03)
Soumita Acharyya(04)
Jyotirmoy Basak(25)
2. Table of Contents
Introduction..................................................................................................................................... 2
Why India........................................................................................................................................ 2
Challenges....................................................................................................................................... 2
Entry into India ............................................................................................................................... 3
Amazon’s approach to Global Business Challenges ...................................................................... 4
Legal and Political Environment................................................................................................. 4
Local Market and Culture ..........................................................Error! Bookmark not defined.
Technology and Infrastructure .................................................................................................... 5
Global vs. Local .........................................................................Error! Bookmark not defined.
Strategic decisions and Alternatives ............................................................................................... 8
Learnings......................................................................................................................................... 9
References..................................................................................................................................... 11
3. Introduction
Amazon entered India with its core competencies - serving customer preferences, fulfilling
orders and maintain low costs, but its India debut required a deviation from tried and tested
methodology of delivering goods. As India is an emerging market, lower internet connectivity,
growing infrastructure, logistics challenges meant that Amazon had to consider expanding
channels of reaching the consumer. I will discuss Amazon’s approach to entering India and
global business challenges it faced.
India’s consumer segmentation and preferences are changing along with their economic
development. To compete effectively against the market incumbent Flipkart, Amazon not only
had to leverage its strengths (greater bargaining power with suppliers, industry best practices and
superior merchant operation platform) but also had to differentiate Amazon’s brand by
emphasizing the consumer experience and enhanced benefits.
Why India
Online retail is worth $3.1 billion, or 10% of the organized retail market, and is estimated to
grow to $22 billion, or over 15% of the organized retail market, in five years, according to a
November 2013 report by brokerage firm CLSA (Dalal, 2014). India, with 205 million Internet
users, has the third largest Internet user-base in the world, behind China with 300 million and the
US with 207 million (Dalal, 2014) . Adding to this booming sector, annual disposable income
per household is to grow by two-and-a-half times by 2015 and huge sales are expected of PCs,
tablets and smartphones (Sheth, 2012). This makes India a lucrative market for any e-commerce
company, especially for a giant like Amazon.
Challenges
As shiny as India’s online retail market looked- Amazon faced some major challenges
Low average broadband speed and flat average internet speed cause for concern
Online payment landscape marred by low penetration of credit and debit cards; high
failure rate of online payment transactions
4. No FDI in e-commerce
third party logistics networks are of low quality
Culture skepticism of online shopping
Entry into India
Understanding the tough challenges posed by India’s economic and regulatory landscape-
Amazon tested water by launching an online cataloging service through jungle.com for retail
purchase that facilitates transactions fulfilled by third party suppliers. Junglee aimed to pit the
smaller e-commerce websites against each other and not sell products themselves. The idea
sought to lure the players who were too small to compete against incumbents like Flipkart,
InfiBeam and LetsBuy and would stand to get great link and advertising boost by signing up on
Junglee.com (Pal, 2012) this business proposition worked out for Amazon main entry into India
in two ways:
1) Junglee.com was a low-cost way for Amazon to find out what the Indian market is about ---
build brand loyalty -- and hopefully when the retail regulations loosen in India take their
customers with them (France-Presse, 2012) As a result it was able to draw more traffic than its
biggest competitor Flipkart which it later capitalized though Amazon.in. (Sen, 2014)
2) Learn about consumer behavior: Amazon was quoted as saying “key learnings [from
jungle.com] were related to how important it is to focus on selection and quality of selection, and
how important it is to focus on eliminating defects (Pahwa, 2013) It was important for Amazon
to learn Indian customer since failure to modify the business model in China led to decrease in
market share to just 3.5% (Wang & Ren, 2012)
Amazon has launched in India on its own- learning from its biggest mistake in China- partnering
with a local company. Owing to China’s strict regulations and license requirements, which
implies that www.amazon.cn is controlled by other Chinese companies that are indirectly owned,
partially or completely, by Chinese nationals. This has hampered the company’s competitiveness
and has resulted in Amazon capturing only 1% of China’s $196 billion e-commerce market even
after eight years of its inception (Gulati, 2013)
5. Amazon’s approach to Global Business Challenges
Legal and Political Environment
Indian FDI regulations does not allow foreign companies to sell its own sourced products. As a
result Amazon had to change its traditional “Amazon Fulfillment” model, where it sources
products from sellers and sells it to the end consumer. Its traditional model had helped Amazon
to manage and control the responsiveness of the delivery mechanism and quality of products.
Thus leveraging its bargaining power with sellers to drive down prices.
Regulation restriction in India meant that it had to adapt marketplace model where sellers sells
products to end consumers through Amazon. This meant lack of control on delivery and payment
mechanism. Although a boom for small sellers (by providing unlimited virtual shelf space)
Amazon is working hard to maintain its cost/price leadership through innovative payment and
delivery mechanisms, customer service and diverse offerings.
In order to control quality of goods and ensure timely delivery, amazon has innovatively adapted
its traditional business model of “fulfillment by Amazon” to provide end to end logistics service
to sellers. In the adapted version the seller still own the inventory, thus Amazon stays clear of
FDI regulation violations while maintaining timely delivery of goods to end consumers (Srikant,
2013).
6. How Amazon Model Works:-
First of all, Portals shows the Sellers List who sell the desired portfolio products and then get
customers browsing through those products. After matching seller and customers it creates
appealing discounts after that Customer Shops for the desired products and then Seller ships the
product to customer . If Product Accepted and Not returned back then Seller gets his agreed price
of the product minus the commission charged by Amazon for doing everything they do. Thus
the core bread and butter of the Model is “X% commission on the total sale value given to the
seller”. This model has been shown by the Figure 3.
Strategies for Sellers:-
Amazon moved out a program “Amazon Chai Cart” these are the mobile tea carts that
navigated city streets, serving refreshments to small-business owners and teach them the benefits
of e-commerce. The Chai Cart team reportedly traveled more than 9,400 miles across 31 cities
and engaged with more than 10,000 sellers.
7. Other move that Amazon created was Amazon Tatkal, a self-described “studio on wheels” that
provides a suite of launch services, such as registration, imaging, cataloging, and sales training
so far it has been covered in 15 cities.Tatkal enables Small and Medium Businesses (SMBs) to
get online and sell on Amazon.in, in less than 60 minutes. Starting with New Delhi, Amazon
Tatkal will traverse the country, engaging with thousands of entrepreneurs, artisans,
manufacturers and sellers and help them sell online on the spot.
Amazon.in has five crore products from 75,000 sellers. The number of sellers has witnessed a
250 percent growth annually in 2015 and as per the officials of Amazon this launch would help
thousands of small and medium businesses in India.
The company also introduced ―Easy Ship and Seller Flex” With easy ship Amazon couriers
pick up packaged goods from a seller’s place of business and deliver them to consumers. And
with the seller flex, vendors registered under Amazon designate a section of their own
warehouses for products to be sold on the website, and Amazon coordinates the delivery
logistics. This ―neighborhood‖ approach is convenient for sellers and has benefited Amazon by
speeding up delivery of some products.
Amazon also had to adapt delivery and fulfillment. In the U.S., Amazon uses a centralized
shipping platform, which it calls Fulfillment by Amazon (FBA), to store and distribute the
products it sells. Sellers send their goods to Amazon’s fulfillment centers and pay a fee for the
corporation to store, pick, pack, and ship their wares. Amazon implemented FBA in India as
well, and to date has built nearly two dozen warehouses there, the largest one in Kothur in
Telangana.
Amazon is the only major player to increase its market share from 14 to 21 percent. It is
consistently eating up Flipkart and Snapdeal’s share, and the $3 billion investment will certainly
help.
Overall, Amazon only saw tepid 3% international sales growth this quarter, though the company
said that would have been 12% if it weren't for the unfavorable foreign exchange impact. Still,
even 12% is down from 14% quarterly growth in Q2 2014, and 20% in 2013 (those figures also
exclude the effect of exchange rates).
8. In India, he faces a set of challenges unique to the country. For example, it's incredibly mobile-
first - the director of Google India predicts that by 2017, 70%-80% online transactions will
happen via smartphone. Plus, The AP reported in August 2014 that fewer than 12% of Indians
had credit or debit cards, so Amazon has had to adapt to a "Cash on Delivery" model, which isn't
yet available in all areas.
Technology and Infrastructure
A prime example of a challenge of delivering goods in a developing country is logistics. One of
the reasons Amazon tripped up in China was because it closed Joyo’s internal delivery
operations after the acquisition. By the time it re-established it in 2007, it had lost valuable time.
In India and China, unlike the West, third party logistics networks are of low quality. Across
cities in Russia, China and Brazil, it is common to see e-commerce couriers on motorcycles, vans
or even bicycles, rushing around delivering orders. Many of them even allow competitors to use
their delivery network for a fee (Dharmakumar, 2011)
Amazon is planning to use its own logistics service to handle the delivery of all products that its
vendors sell through its e-commerce marketplace in India Amazon.in, according to a report
in The Economic Times citing the company’s chief in India (Abudheen, 2014)
Currently, Amazon follows a hybrid logistics model where it delivers some of the products itself
while using other logistics firms to deliver some products sold by vendors on its marketplace. In-
house logistics provides more control over delivery time but adds to fixed costs of running an e-
com venture (Nair, 2014).
This would be a strategic move which would entail skipping the traditional model of shipping
products by e-com firms which rely either fully or partly on third-party logistics service
providers for delivery. By shipping products for other vendors it also generates revenue from
shipping products. (Abudheen, 2014) Additionally, Amazon is trialing using neighborhood
grocery stores and petrol stations as delivery points. (BOSE, 2014) which is going to be a game
changer – providing access to remote locations of the country and capitalizing on a huge market
segment.
This approach handles Amazon’s customer service leadership competitive strategy. For example
all items in “fulfilled by Amazon” are eligible for cash on delivery, guaranteed one-day delivery,
9. free standard delivery, free pickup and returns. From consumer side, consumers care about
selection, fast and reliable delivery, convenience and FBA provides all of that to
consumers. (Sen, Amazon India's approach is to focus on long term, 2014) In India logistics is
the key to market dominance. The quality of logistics right from pick-up of merchandise to
packing, storing, transporting and delivery will help create differentiation (Nair, 2014)
Having met the challenge of logistics, Amazon had to invest heavily on infrastructure. With
higher penetration of smartphones than PCs. The country has 205 million Internet users, most of
them users of mobile devices (of which 70 million are smartphones). Forty per cent of e-
commerce is over mobile, and that's where the industry is going to be. So Amazon launched
mobile apps for Android and iOS devices (Sen, Moth to a Flame, 2014).
Other competitors like Snapdeal allows customers to choose Hindi and Tamil versions. This
gives them advantage over Amazon from a culture angle since India is a country with various
languages and cultures. So a website in regional language is something that Amazon can think of
doing. Both are also launching mobile-only features like personalized apps and location-based
deals. (Nair, 2014). Owing to weak internet connectivity Amazon has innovatively designed
its payments functionality that allows customers to start where they left off in case of an
incomplete transaction (Wharton, 2014).
Strategic decisions and Alternatives
As noted above, Amazon decided to go in alone. One reason was because it could not work with
a partner in China. Although this strategy has its benefits like full control of operations and
strategic direction of the company, going with a local partner in India (either through acquisition
or a JV) would have helped Amazon to hit the ground running from day one. Instead of waiting
to understand the Indian market with Junglee.com, they could have tied up with someone like
flipkart or snapdeal to capitalize their payment and logistics network. Understanding Indian
culture is the key to a successful operation. Flipkart has already tried to break the barrier of
plastic money by introducing COD, thus building trust with the consumer.
Secondly, most of India is still rural with little or less access to internet. So Amazon uses in
addition to traditional couriers, Indian post, to do deliver seller’s products with COD. This
delivery mechanism is usually unreliable and often faces delays. As noted above, Amazon is
10. investing millions of dollars in creating its own logistics network providing end to end logistics
for its sellers. Thus Amazon can control timely delivery and costs, proving a great service and
maintain its customer service competitive strategy. Additionally- it can work with local stores to
act as fulfillment centers to allow a quicker shipping to consumers in rural and tier III cities.
Thirdly, Amazon launched its services in India with books, CDs, Video Games and electronics.
It needs to diversify its offerings to capture a yet untapped target segments such as apparels.
Partnering up with like of Myntra, it can expand into delivering latest fashion to fashion savvy
modern middle class consumer.
Lastly, Amazon is investing most of its war chest in improving logistics and payment
technology. It provides state of art merchant management portal. But Amazon needs to go
beyond that and need to provide a total buying experience. It needs to create local language
based mobile and desktop apps, reaching consumers in non-English speaking parts. It needs to
provide access to local deals based on consumer locations using its infrastructure of local mom
and pop stores.
Learnings
The most important take away from Amazon’s experience is that international firm opening up e-
commerce operations abroad need to take care of the culture and be cautious of the fact that what
works in their home country might not work elsewhere. As discussed, Amazon entered in China
with a JV (which it had to owing to regulations) and sold of its logistics arm. That caused a
significant drop in market share since they failed to invest in creating necessary infrastructure to
deliver products to consumers. Additionally- Amazon in China is pronounced YAMASHI-
which added complications in marketing. On the other hand, it was very cautious and studied the
Indian consumer by launching Junglee.com (which means ‘forest’ in Hindi) which served as a
very good pre-cursor to launching of its main operations.
Another take away is that processes and technology which might work in home country may not
work overseas. As mentioned above, payment methods such as credit cards are a given factor in
western countries, but in India Amazon had to adapt to local culture and its need to see the
product before buying it and as a result launched COD.
11. Therefore, Amazon has brilliantly managed challenges of global business environment such as
culture, infrastructure, local markets, regulations and global local dilemma and has maintained
its customer service leadership in India.
Conclusion:-
Amazon is an American international e-commerce company. It was started by Jeffrey P. Bezos in
the year 1994. And it was launched in India in June 2013. Three years back, Amazon had no
infrastructure in India, and now it dominates the Indian markets. So main objective of the case is
to study the challenges faced by Amazon India during initial years and what strategy it followed
to overcome the challenges. This case will also study the Business Models of Amazon India.
At the very start it was perception of investors that in India It will not go long like China as in
the year 2004 when Amazon entered in China it hasn’t seen much success there with Alibaba, its
Chinese competitor, dominating the ecommerce market. After its bad run in China, Bezos is
going all in for India.
Fact behind formation of Amazon in India was its huge number of headcounts i.e. 1.25 billion
four times as big as the U.S.’s and more than doubles Europe’s. Of these, 500 million, around 35
percent, are internet users. As per researches the yearly growth rate of internet users is highest in
India around six million users join every month. Researchers expect the online shopping market
in India to reach $15 billion by 2016 up from only $35 million in 2014.
Amazon is known for knowledgeable products. Amazon in India work on complex business
challenges to innovate and create efficient solutions that enable various Amazon businesses,
including Amazon websites across the world as well as support Payments, Transportation, and
Digital products and services like the Kindle family of tablets, ereaders and the store. Reasons of
its success are the finest talent and strong leaders with proven experience working to make
Amazon the Earth’s most customer-centric company. Apart from this Technological innovation
drives the growth of Amazon, offering customers more selection, convenient shopping, and low
prices
