Jeff Bezos has been bullish on India and Amazon has been giving a tough competition to home-grown e-tailers Flipkart and Snapdeal.
Vijay Govindarajan , Coxe Distinguished Professor at Tuck at Dartmouth and Marvin Bower Fellow at Harvard Business School has studied Amazon’s business model in India closely. In an interview to Sanjay Vijayakumar, the expert on innovation speaks about Amazon’s strategy in India.
What has been the key to Amazon’s success in India?
There are three keys to Amazon’s success in India. First, they made a commitment to the Indian market. The e-commerce market is likely to explode in India in the next 5 years due to the ubiquitous presence of mobile phones and an emerging middle class.
Amazon chose India as a strategic market to invest in and they have invested big. Instead of looking for short-term profits, Amazon sees India as a long-term play.
Second, Amazon created the market for e-commerce. In emerging markets, the need has to be converted into demand. India has a vast number of small-scale suppliers, unlike the U.S. where there are large-scale suppliers.
Most small business owners are unaware or even afraid of selling their products through the Internet.
To overcome this problem, Amazon launched Amazon Chai Cart-- mobile tea carts that served refreshments to small-business owners while teaching them the benefits of e-commerce.
The Chai Cart travelled about 10,000 miles and talked to more than 10,000 sellers! To help these sellers get online quickly and address their concerns with e-commerce, Amazon created Amazon Tatkal that provides a suite of launch services, such as registration, imaging, cataloguing, and sales training.
Third, India is not one homogeneous market, so it requires tailored strategies. Amazon, therefore, created multiple business models. It has the U.S.-style central fulfilment system with regional warehouses that can cater to large suppliers. But at the same time, it launched Easy Ship. Amazon couriers pick up packaged goods from a seller’s place of business and deliver them to consumers.
How do you see Amazon’s prospects in light of planned entry by Alibaba? How will the market be like, what would be the chances for Flipkart and Snapdeal?
I welcome Alibaba’s entry into India. The e-commerce play in India is very vast. We need more competition to energise this sector to continue to innovate.
It is possible local players like Flipkart will be acquired by Amazon or Alibaba.
Also, there is a huge “last-mile” problem in India: How to deliver the product to individual households?
Amazon, for instance, has contracts with a number of major delivery services in the country, including India Post and cargo airline Blue Dart.
I see potentially huge job creation where people are employed to deliver packages locally using auto rickshaws or bicycles or motor bikes.
Do you think reaching out to people without access to the Internet is a key to Amazon’s success?
This is absolutely a key to Amazon’s success. When a Big Box retailer such as Walmart enters a market, the fear is that mom-and-pop shops will disappear. This fear is particularly acute in India given the millions of such corner stores. Amazon converted those small retailers into partners while at the same time overcoming the problem that most Indians in rural areas lack an Internet connection.
In small villages and remote areas, people can go to the local mom-and-pop store and use their Internet connection to browse and select goods from Amazon. Store owners record their orders, alert customers when their products are delivered to the store, collect the cash payment, and pass along the money — minus a handling fee — to Amazon.
The arrangement neatly circumvents the problem of conducting e-commerce in a cash economy.
And store owners report increased sales of their own while customers are on-site.
What can other foreign firms looking to enter India learn from Amazon’s strategy?
There are three important lessons. First, to succeed in India, you must convert invisible need into visible demand.
Take a completely different sector. The reason Aravind Eye Care has succeeded is because they conduct mobile eye camps in rural India to create the demand. Second, you have to innovate to capture the Indian market. Amazon simply did not send their U.S. business model to India.
Its strategy is “Made in India, for India”. Third, you must cultivate the ecosystem including suppliers, customers, financial institutions, distributors, etc.
What would be the ideal number of e-commerce companies to ensure maximum competitiveness in India?
I predict there will be two e-commerce companies in India when the dust settles. There are network effects in e-commerce. The scale is critical.
