In light of the fact that Indian regulators have been tightening conditions for foreign companies, Jeff Bezos has decided to pledge $1 billion in Amazon's (NASDAQ: AMZN) Indian operations to attempt to generate goodwill amongst policymakers and capture a market that holds immense potential.
The main idea is to get more "mom-and-pop" stores in India, i.e. small, local stores that may not have a large consumer base who can leverage the Amazon platform to promote and sell their products. These stores are known as kirana stores in India, and Amazon has partnered with around 20,000 of them.
"Today, we have thousands of retail outlets partnering with us under this program. The network of 'I Have Space' partners is spread across Tier 1, 2 and 3 cities - and beyond," the company said. Additionally, founder and chief executive Jeff Bezos tweeted: "It's good for customers, and it helps the shop owners earn additional income."
However, the foray into India will not be easy: on Monday, India's antitrust watchdog ordered an investigation to see if Amazon and Walmart (NYSE: WMT) have violated competition laws lately (Walmart owns local company Flipkart). These two platforms themselves account for more than 80% of online sales in India, according to Morgan Stanley.
In fact, last month, Walmart also invested in Bangalore-based startup ShadowFax, which works with local stores in 300 cities across India to use their property to store inventory, and leverage their large network of freelancers for the delivery. This indicates that Amazon will also have competition against its endeavors, with Walmart unlikely to be the only other major company trying to tap into India's largely latent yet booming economy. In that vein, e-commerce is still at an early stage in India, accounting for just 3% of total retail sales, according to industry estimates.
"What we are doing is we are going to manufacture incubated zones. For instance, there is Meerut, which is famous for something and you have the Tirupur, Coimbatore belt, which is famous for apparel and T shirts," says Gopal Pillai, VP - seller services, Amazon India. "So we are going cluster by cluster. That is some of the investment out of the $1 billion," he continued, clearly indicating that the strategy would be regionalized and would take advantage of specialization.