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The E-commerce Retail Battle for India Heats up as Alibaba Steps In

April 8th, 2017

India is an internet retailing hotbed. The past decade may have favoured the China over India economically, but with a booming population and notable income growth, India becomes even more intriguing as China’s development starts to slow down. Growth hungry retailers have eyed India for some time, but its restrictive laws towards foreign investment and infrastructure issues had previously made things difficult. And while they are by no means easy yet, it’s clear that the world’s internet retailing giants, Amazon and now Alibaba, are determined to get a foothold before consumers become loyal to a player with the best assortment, prices and convenience.

Internet Retailing sales in India (Fixed Exchange Rate)

Alibaba invests in local companies, hoping to get lightning to strike twice with digital payments

Alibaba has been cautious with international expansion, but it is moving forward still. According to industry analysts, Alibaba considers entering new markets from retail and a payments perspectives, and it appears to be investing in both of these avenues in order to maximize its potential in India. Unlike its competitor, Amazon, Alibaba prefers to buy stakes in already operational businesses, buying influence, operational knowledge, and a share of their growth. Ultimately, it relies on the local experts to help drive the business forward. For a country as difficult to enter as India, this lower-risk strategy makes sense. Alibaba doesn’t need to have an explicit presence in the country if it can buy into companies that will eventually be integral in India’s e-commerce market.

2015 was Alibaba’s first foray into the India retail market. It participated in a US$500 million round inthe second largest internet retailer, Snapdeal. While its overall stake in Snapdeal is rumored to be low, (Alibaba has come out previously to state that it was not interested in buying the firm outright yet), this stake could turn into something larger in the future.

More substantially, the end of 2016 saw a US$177 million investment in another company, Paytm, giving Alibaba a 40% share of the company. This is Alibaba’s first overt movement into the Indiaretailing space. Paytm is not a traditional retailing company, but instead is India’s largest e-wallet with over 200 million clients. Not only is this a space that Alibaba knows well because it pioneered the technology in China, but as Paytm moves into retail (it opened its own B2C retail marketplace in2017 which is set up just like Alibaba’s Tmall), Alibaba can help it to create a highly valuable ecosystem that is centred on payments. With the Indian government expressing moving towards a more digitized economy, Paytm could be in an even more advantageous position.

Amazon prefers to build in India

Amazon’s position in India is significant, and has been outlined in greater depth here. In short, with a commitment of US$5 billion since 2014, it is clear that Amazon will stop at nothing to establish a major presence in this high potential country. Its focus is on providing guaranteed delivery even infar-flung regions and locking in users early with a local roll-out of the Prime program.

Amazon has picked multiple fronts to invest in, much like Alibaba, but it has chosen significantly more expensive ones, like media and logistics, taking ownership of them in the process. The play here is for customer loyalty. Investment in infrastructure is an attempt to expand e-commerce outside of upper class urbanite circles and its most recent investment in culture (US$300 million has been committed to Bollywood partnerships, with a channel released to Prime members in March 2017) will add more value to the Prime program and expand potential interest amongst more Indians.

But what about Flipkart?

The Top Three E-commerce Brands in India

It seems disingenuous to discuss the top players in India without actually discussing the top player. Flipkart’s story shows that in today’s market, being the first mover alone might not be enough. It may have been the first success story of the modern Indian e-commerce market, but many were worried that it simply wouldn’t be able to keep its lead in light of competition from more deep-pocketed rivals as its share started to flag after 2014. If growing an e-commerce giant is anything, it is expensive. But a leadership position is a terrible thing to waste, especially in a market with as much potential as India. 2017 may yet prove beneficial to Flipkart, as financial saviors from across the world hope to use the company as their entry point into India. China’s Tencent (a top rival to Alibaba) and the US’s eBay (a top rival to Amazon) have been rumored to be in the final stages of US$1.5 billion investment in Flipkart, an investment so large that the company may be merged with eBay’s Indian arm.

Who will win?

India’s e-commerce market is in the middle of taking off, so who will reap the most spoils when all is said and done? Alibaba has made some recent moves, but its low-risk investment strategy may prove to be too little, too late unless it can create a digital payments revolution like it did in China or it increases its ownership of Snapdeal. Amazon has chosen the opposite strategy with its high-risk/high-reward investments. It seems determined not to lose as far as investment is concerned, meaning that all it needs to do is figure out how to spend its war chest wisely. And lastly there is Flipkart, a once-fading leader with a new potential lifeline from companies that can help it stave off the giants. If anything, Flipkart’s new fortune proves that the competitive atmosphere in India is still shifting and that still worth fighting for.

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Tim Barrett

Tim Barrett is a global retail analyst at Euromonitor International who previously covered a number of markets for the US. He has a bachelors in economics and philosophy from Northwestern and has been involved in market research since 2011. Professional interests include the evolving grocery landscape and online marketplace growth.

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