The Indian government is playing the role of holiday party police for Walmart and Amazon after it announced new regulations that appear poised to impede the American duo’s efforts to grow their business in India.
Online commerce in the country is tipped to surpass $ 100 billion per year by 2022 versus $ 35 billion today as more Indians go online, according to a co-authored report by PwC. But 2019 could be a very different year after an update to the country’s policy for foreign direct investment (FDI) appears to end the practice of discounts, exclusive sales, and more.
The three main takeaways from the new policy, which goes into effect on February 1, are the ban on exclusive sales, the ban on retailers selling products on platforms that count as investors, and the restrictions on discounts and returns.
Those first two clauses are pretty clear and will have a significant impact on Amazon. – which has injected some $ 5 billion into India – and Walmart, which spent $ 16 billion to buy the India-based Flipkart.
Both online retailers have been able to make a splash by teaming up with brands for exclusive online sales, particularly in the smartphone space where, for example, Amazon has worked with Xiaomi. and Flipkart He has collaborated with Oppo. The new guidance would appear to end that practice, while adding additional restrictions to complicate supplier relationships. Starting in February, brands will be prohibited from selling more than 25 percent of their sales through any e-commerce marketplace.
Walmart bought Flipkart for $ 16 billion, but the two founders of the Indian company are gone [Photo by AFP/Getty Images]
Beyond restricting companies like Oppo, Xiaomi prioritizes its own Mi.com site for sales, that 25 percent failure is a headache for Amazon, which operates several joint ventures with Indian retailers. Those JVs were designed to circumvent a 2016 decision that prevented foreign e-commerce companies from holding inventory, but now appear to be prohibited.
Cloudtail India (49:51 JV between Amazon and Catamaran Ventures) is Amazon’s largest seller, while another major is Appario Retail, a collaboration with Patni Group. Together, they both sell more than 25 percent of the product on Amazon, use exclusive offers, and are partially owned by Amazon. That’s three strikes.
Those rules will have Amazon and Walmart-Flipkart. working to find alternatives, but there are more with restrictions on discounts and money-back offers, which could hugely hamper the appeal of online commerce, which has been undermining brick-and-mortar retailers with heavy subsidies.
Here is the relevant part of the note:
E-commerce entities that provide a market will not directly or indirectly influence the sale price of goods or services and will keep the playing field level …
The reimbursement provided by the market entity group companies to buyers will be fair and non-discriminatory.
Exactly what constitutes a “level playing field” or “fair” may be open to interpretation, but clearly this update offers offline retailers a route to claim prices on online retail sites.
The first thought is that these new updates are focused on the tenants of the core business model that make e-commerce what it is today.
“It will kill the competition and there will be nothing for online retailers to differentiate themselves,” Amarjeet Singh, KPMG Partner, href = “https://qz.com/india/1508340/indias-new-e-commerce-fdi -rules-may-hurt-amazon-flipkart / “> told Quartz in a comment.
The new regulation is widely seen as a response to the concerns of smaller vendors, who feel marginalized and powerless compared to larger organizations. Now, with capital-intensive policies like discounts, exclusive sales relationships, and strategic investment off the table, smaller players will take hold and be able to do more with e-commerce, according to Kunal Bahl, CEO of Snapdeal – a niche e-commerce company that once competed head-to-head with Flipkart and Amazon.
It is shaping up to be a very different year for e-commerce in India in 2019.
