Facing stiff competition from Alibaba in China, Amazon is shifting its focus to India as the next big e-commerce opportunity for its retail and cloud services operations. CEO Jeff Bezos announced June 7 at a US-India trade summit that Amazon will invest an additional $3 billion in expanding its operations in the country.
Amazon will face local competition in India as it did in China.
Flipkart and Snapdeal are two Indian online retailers attempting to create their own version of Amazon's e-commerce success, as New York Times technology reporter Farhad Manjoo discusses in this video.
At the same time, Amazon is likely to find ways to cooperate with national laws and regulations that have hampered other technology giants.
Apple as a more vertically-integrated company ran into barriers in its attempts to open stores in India. National rules require certain amounts of Indian-produced goods in foreign-owned retail operations, according to CNBC's report, quoting Manjoo. Amazon should have no problem including Indian goods in any physical or online stores it might decide to open.
India's Prime Minister, Narenda Modi, met with President Obama Tuesday, before attending the US-India Council's 41st annual Leadership Summit. Modi presented Bezos with a Global Leadership award at the event in Washington, and Bezos announced to the press that Amazon's investment in India would expand from $2 billion to $5 billion.
Bezos was cited by Reuters as saying India was Amazon's "fastest-growing" sales region outside North America. Overall, Amazon's sales in North America are growing at 25% a year, or $63.7 billion in 2015. International sales are growing at a more modest 5.7% or $35.4 billion overall. It's not known what share of international sales consumers in India represent, but Bezos labeled the planned expansion there "a huge opportunity," according to Reuters.
Amazon has built 21 fulfillment centers in India and employs 45,000 people there, Reuters reported. Bezos said in 2014 that Amazon had achieved its first $1 billion in sales in India, faster than it had in any other country.
Amazon isn't alone in seeing India's potential. Both IBM and Microsoft previously announced plans to expand their cloud services in India.
Jeff Barr, chief evangelist for Amazon's cloud unit, Amazon Web Services, said a year ago that Amazon would establish a region for its cloud services unit in India in 2016.
First, however, Amazon will have to face some homegrown competition in India.
Flipkart was started in 2007 by two former Amazon employees, Sachin Bansai and Binny Bansai (not related), both graduates of the Indian Institute of Technology in New Delhi. Flipkart has 33,000 employees, and was valued at $11 billion in May by Morgan Stanley, which estimated its online sales at $12 billion for the 12 months ended March 31, according to The Economic Times. Its headquarters are in Bangalore.
[Want to learn about a company moving away from AWS? Read How Dropbox Moved 500PB of Customer Files Off AWS.]
Snapdeal was established in 2010 as an online marketplace. It lists 35 million retail items online, about the same number as Amazon's Indian operation, according to Quartz India, an investor publication. Snapdeal boasts of 275,000 suppliers of goods throughout the country and claims an ability to deliver goods to 6,000 towns and cities.
Despite the homegrown competition, many consumers are just beginning to consider purchasing good online, according to a January article in Fortune.
Even making deliveries in a country with an archaic address system is a challenge. Amazon hires riders with local knowledge and dispatches them on motorbikes. The riders wear backpacks to deliver packages to addresses like "the house behind the mosque across from the stadium."
Amazon has not said so, but success in India could lead to more rapid development of online sales in other developing nations, such as Indonesia or countries in Africa. If the public in India gets accustomed to ordering online, many societies may skip the brick-and-mortar phase of the economy and never build shopping centers or large retail districts in the city.