Flipkart, the Walmart-owned Indian eCommerce player, and Amazon’s Indian unit are having a tough time meeting the deadlines under new eCommerce laws in the country.
According to a report in Reuters, the Indian units of both retailers are overhauling ownership structures and changing vendor relationships to meet the February deadline to be compliant. Under the new rules, foreign eCommerce companies are prohibited from owning a large stake in local online retailers and are prohibited from inking exclusive deals with merchants. Critics of Amazon and Flipkart contend the eCommerce heavy hitters have created sellers or vendors they have a direct or indirect stake in so that they can offer deeply discounted items. That, the critics contend, hurt the merchants that aren’t operating online.
While Amazon and Flipkart sought an extension to be compliant with the new rules, Reuters reported the Indian government declined the request saying that after “due consideration” it decided not to extend the deadline. Flipkart Chief Executive Kalyan Krishnamurthy had argued in a letter earlier in January that the new rules required it to look at “all elements” of the business operations. After all, under the new rule any eCommerce company that gets 25 percent of its inventory from units of the company will be considered to be controlled by the company. To meet the new rules, two sources familiar with the matter told Reuters that Flipkart is likely to create a middleman company that holds less than a 25 percent stake. That middleman company would be able to sell to vendors without running afoul of the 25 percent sourcing restriction, noted Reuters.
Another result of the new rules is that eCommerce companies may not be able to use exclusivity when rolling out new products on their platforms. The rules prevent online merchants from getting vendors to sell products exclusively with them on their platform. The contracts have to be worded in a way that allows brands the freedom to sell to rivals directly.