Amazon’s Ambitions In India May Have Hit A Regulatory Roadblock

With its high population density and emerging middle class, Amazon desperately wants to get into India.

Unfortunately, for Amazon, India’s regulatory environment indicates that the nation of over 1 billion potential consumers does not exactly feel the same way. The Indian government has passed regulations that influence pricing and sales sourcing, which Amazon and similar sites seem to be in violation of. Making matters worse, there was no window given for time to comply; the regs went into effect immediately.

“They’ve not given any timeline for enforcement,” said Satish Meena, an analyst at Forrester Research in India. “There’s no proper instructions to companies about how to implement these things. That’s a very open-ended question the government has left.”

There is a consensus among analysts and Indian Internet experts that, despite the immediate effect of the laws, enforcement is not expected immediately, and it remains unclear what the penalties for violations will be. But, on the upside, the rules do give some clarity about the status of foreign eCommerce operators in India, which, up until now, had been something of a cloudy question. But, cloudy or not, it is a desirable target.

“With a growing middle class and propensity to shop oinline, the revenue potential there is enormous,” said Colin Sebastian, an analyst at Robert W. Baird & Company.

But brick-and-mortar retailers in India — aware of the fate of their developed world counterparts at the hand of eCommerce mega-players like Amazon — have lobbied the Indian government to place some restrictions on eCommerce.

Amazon has the lasting lesson of China behind it and its difficulties breaking into a huge and desirable market that is entirely dominated by local talent, like Alibaba. And India is a rather tough market to jump into since there are laws that ban largely foreign-owned firms from operating retail outlets that sell from their own cache of goods. Lots of American multinationals — Amazon, Walmart, Apple — have fought that rule to no avail.

The workaround is to build marketplaces that match buyers and sellers, instead of through owning inventory directly — though Amazon still runs the delivery logistics for its independent partners, much the way it does in the U.S. with marketplace sellers. The new regulations allow the marketplace hack to stay in place but with the additional stipulation that no single seller can make up more than a quarter of sales on an eCommerce marketplace. The new rules also limit pricing controls that the marketplace owner can place on sellers.

Amazon’s success in India is largely dependent on Cloudtail, with some estimates putting it behind 40 to 50 percent of the site’s sales in India — a dependency that is now illegal. Flipkart also works closely with an affiliated large seller and faces a similar problem.

“Through our amazon.in marketplace, we will continue to help small and medium businesses in India connect with consumers,” noted Craig Berman, a company spokesman.

Flipkart declined to comment.

Snapdeal is a great fan of the legislation — probably because it has no large sellers. So, this hurts the competition without affecting its business.