As a result, last week, the Confederation of All India Traders (CAIT) had written a letter to the Department of Industrial Policy and Promotion (DIPP) complaining that these e-commerce firms were flouting the FDI norms.
The companies have restarted their sales events this month after figuring out alternate ways to offer discounts, according to reports.
In March 2016, the DIPP, under The Ministry of Commerce, framed the new FDI norms, which allow 100% FDI in e-commerce in the marketplace model (where the e-commerce site is a technology platform connecting buyers and sellers) through the automatic route. The rules also capped the sales originating from a single vendor or one group company at 25%.
More importantly, the rules prohibit the e-commerce firms from advertising sales and offering discounts—the two strategies that so far had drawn scores of customers to their portals.
Flipkart, which started as a book-delivery service in 2007, has now grown into a $11 billion company. Its founders, Sachin Bansal and Binny Bansal, worked at Amazon before they started the company modelled after the former. Amazon, by comparison, entered late, in 2013, but is already close on Flipkart’s heels. Amazon CEO Jeff Bezos had announced in June that he would pump another $3 billion in his company’s Indian operations, taking the total to $5 billion.
Since then, both e-commerce giants have been at loggerheads, trying to claim the number one spot. Until now, their primary weapons were discounts. Sellers on their portals were suggested prices to offer their products at, and the discounts were later funded by the companies themselves from the vast capital they accumulated via investments.
Now that the discount wars must be ended, it remains to be seen which among the two top firms—Flipkart and Amazon—is able to turn the nascent swelling e-commerce tide in its favour.
Whether the shift from the ad-driven, discount-based model to the marketplace model will bring profitability will be decided by which company is able to “retain their customers while not spending too much,” says Shriram Subramanian, Managing Director of InGovern, a corporate governance consultancy. “That’s the key,” he says.
And these firms know it, too. Amazon recently launched its prime services (free and unlimited one or two-day delivery) and Amazon Now services (two-hour delivery for grocery) in India. Amazon Prime also has a video feature allowing “unlimited streaming of exclusive Amazon Originals, blockbuster movies and premium TV shows”.
On the other hand, Flipkart owned Myntra, it has been reported, is diversifying to home furnishing, precious and non-precious jewellery and the personal care segments. Such services may encourage customers to “stick” to their favoured portal.
Homegrown Flipkart has been around longer than Amazon in India, but the latter has caught up within the last three years since it started operations here, so much so that its goal is to make India its biggest market outside the USA. Yet, in China, Amazon was behind the Chinese e-commerce giant Alibaba and eventually bowed to its competitor. Does Flipkart, or the others, have the homegrown edge?
Subramanian thinks they do not. “In China a homegrown company may have had an edge because of the language issues, cultural issues. In India language is not a barrier and the cultural issues are not insurmountable. So, there is no homegrown advantage that Flipkart can have over Amazon here.”
However, adds Subramanian, “Any marketplace—be it telecom providers or insurance companies, a few large companies will dominate the market-share. There will be a number one and number two, and the positions will be dynamic. Amazon will not gain at the loss of Flipkart or vice versa. There is a place for both to exist and grow together, no matter at whatever rate that growth happens.”
“I think the opportunity here is massive and growing exponentially. We’re in the early phase of India’s digitisation—it won’t be a winner takes all. I expect multiple winners—in all categories, some that haven’t been born yet,” says Sanjay Swamy, managing partner at PRIME Venture partners, an early-stage VC in India.
Data corroborates the expected growth. From the current estimated US $550 billion the e-commerce market is projected to touch US $1.2 Trillion by 2020 and US $2.1 Trillion by 2025, propelled by the largely young, internet-savvy demography in India and the government’s concerted effort to promote digitisation across the country.