Will Amazon be able to overcome challenges to its expansion plans in India?

A tougher global e-commerce environment and repeated policy and regulation problems are raising questions about the company's India expansion plans

For Amazon, North America accounts for 60 per cent of total sales, according to the financial results announced in April, its first quarterly loss since 2015. A clutch of countries other than the US, Canada and Mexico together account for just about 25 per cent of the Seattle-based e-commerce major’s international business. India is part of that small international business pie. Against the global economic turmoil and slowing of pandemic-fuelled growth in online shopping, industry watchers are wondering whether Amazon may cut its international exposure in foreign lands where losses are piling up.

Against that backdrop, Amazon’s repeated setbacks of other kinds in India — the latest being the National Company Law Appellate Tribunal (NCLAT) ruling that upheld the Competition Commission of India (CCI) penalty in the Future Coupons case — stand out. The India management maintains that it’s bullish on India and will stay invested without getting distracted, but sources pointed out that the company is concerned about the uncertainty and ambiguity in policy and regulation, which make it difficult for any business to plan investments.

The American firm, which competes with Walmart-owned Flipkart as well as Mukesh Ambani’s Reliance Retail in this country, entered India less than 10 years ago in 2013. Its cumulative investments have topped $7 billion during this period. In contrast to the heady top-dollar investments announced by founder and then CEO Jeff Bezos in the early days in India, the company has more recently been in the headlines for its various court cases, arbitration proceedings, penalty by the country’s anti-trust body and other investigations. Local trade bodies such as the Confederation of All India Traders (CAIT) are also often at loggerheads with the mighty Amazon in a foreign versus desi battle, in a throwback to the days when Walmart evoked fear in the minds of kirana or neighbourhood store owners.

As for Walmart, which acquired a majority stake in Flipkart in a $16-billion deal in 2018, the business now resonates with an Indian-ness. Flipkart, founded by Sachin Bansal and Binny Bansal in 2007 in Bengaluru, remains India’s e-commerce poster boy.

Amazon may have attempted such a brand trade-off in its stalled deal with the Future Group, founded by Kishore Biyani. It tried to step into the no-man’s land called multi-brand retail and faced action. In December 2021, CCI suspended its earlier approval for Amazon’s investment in Future Coupons and a 49 per cent stake in the group. It also imposed a penalty of over Rs 200 crore on the e-commerce firm for ‘’misrepresentation’’ and ‘’suppressing information’’ while seeking approval for the deal from the antitrust body. According to CCI, Amazon’s investment in Future Coupons was to exercise strategic control over Future Retail. Recently, NCLAT, where Amazon had challenged the CCI decision, upheld the antitrust regulator’s verdict.

Amazon’s “intent” to become the single largest shareholder in India’s largest offline retailer when foreign direct investment opens up in this sector is at the centre of controversy. Both CCI and NCLAT held that the e-commerce firm hid this “intent” while seeking approval for its investment in the Future Group.

Even as CAIT national secretary general Praveen Khandelwal hailed the anti-Amazon decisions citing violation of foreign investment norms by the American e-commerce firm, in reality FDI in multi-brand retail has not been made null and void yet. The United Progressive Alliance regime (2004-2014) allowed FDI up to 51 per cent in multi-brand retail, but only UK-based Tesco set up a couple of stores under the policy. Subsequently, there’s been no evidence of any application for FDI in multi-brand retail once the Bharatiya Janata Party government came to power in 2014.

Amazon’s legal battle with the Future Group has been running on a parallel track as well. After the Amazon-Future Coupons deal, the Biyani group decided to sell the Big Bazaar retail business along with wholesale and logistics units to Reliance Retail in a Rs 24,713-crore transaction. Amazon has been busy blocking the deal in various courts in India and overseas on grounds that the Amazon-Future pact had a clause prohibiting the Biyani group from selling its retail assets to a list of restricted entities including Reliance.

Apart from these, Amazon along with other foreign e-commerce firms was told to comply with changing rules from time to time. In one such rule, through Press Note 2, the government amended the FDI regulations for e-commerce marketplace players, restricting them from hosting or selling products of sellers with equity participation in the platform. The Jeff Bezos-founded firm rejigged its business model after this, putting an end to the joint venture with N R Narayana Murthy’s firm Catamaran Ventures by buying out its stake in Cloudtail. Mandatory “country of origin” label was among the many policy changes that e-commerce firms such as Amazon were told to follow. Earlier this year, its offices along with those of Cloudtail and Appario Retail (a JV with Patni group) were raided by CCI after offline retailers alleged the American group was monopolising the market.

However, India is not the only geography where Amazon is facing regulatory flak. The US House Committee had recently asked the Department of Justice to launch a criminal probe against Amazon over its alleged refusal to hand over data about third-party sellers. US Federal Trade Commission chairperson Lina Khan has red-flagged the “anti-competitive” aspects of Amazon, too. The European Union also began an antitrust investigation on Amazon’s use of “sensitive” data from independent retailers.

Meanwhile, Amazon has tried to help itself during the past years by ticking the right boxes in India, such as hard-selling its scheme (Sambhav) to create employment for small businesses.

The latest issue of The Economist argues that in the poorer regions where Amazon operates, such as India and Latin America, the infrastructure is shoddy and local competition intense. “That makes it look like it is throwing good money after bad.” Will the Seattle major look at ways to get out of the mess or continue to stay invested despite odds?

The firm closed its online marketplace business in China at the end of 2020 after trying to make it happen. In India, the company’s interests are equally widespread if not more, including video, music and Amazon Web Service. According to Arvind Singhal, chairman and managing director of Technopak Advisors, with so much going for Amazon across categories, it’s unlikely to cut ties with India. However, Singhal says Amazon may come under shareholder pressure to put on hold any future investments in India in the backdrop of so many setbacks.