Look to Amazon for some lessons on India

Teachings from the Chinese market can give us a broad understanding around the diversity of markets and the challenges of engaging with a market rife with potential and local competition. But India is less evolved and less transparent in many dimensions than China. So uncertainty is unusually high. The World Bank's Ease of Doing Business Index ranks the South Asian economy at 130th in the world.

Amazon engages

Since its entry into India in 2013, Amazon has pledged about US$5 billion (NZ$6.9b) in the market.

Amazon has targeted India for its international growth after pulling back from China due to fierce competition from local company Alibaba.

Web shopping will make up 25 per cent of total retail sales by 2020. The number of online shoppers is expected to top 175 million by then.

India presents an opportunity for Amazon to source products for selling to its customers worldwide.

Stiff competition

Where there is a market, there's competition.

Amazon faces competition in India mainly through startups Flipkart Internet and Snapdeal.com.

Amazon has chosen to enter aggressively in order to establish a foothold in the market. Not every company would have the financial power to do that.

Nonetheless, the United States company has outspent local market leader Flipkart nearly threefold.

This cost relates to the liability of foreignness.

Despite Amazon's strong investment, Indian consumers only bought US$16b worth of goods online in 2015 and the company is losing US$1b in India a year.

It suffered its biggest loss in the quarter ended September, a whopping US$541 million. This was more than twice its US$208m loss during the same period last year.

Flipkart has also been hurting from competition itself.

Alibaba is already in the marketplace through its investment in Paytm and Snapdeal. Other players such as Baidu and Rakuten are expected to follow into the market. So competition is not going to get any easier.

India celebrated the Diwali on October 30. Trying to ride on the spending season, both Amazon and Flipkart slugged it out in October with their flagship sales events—the Great Festival Sale for Amazon and the Big Billion Day for Flipkart.

The honour of this battle was shared, as Amazon had more shipments while Flipkart had more gross merchandise value.

To create more breadth to the competition, Amazon has just created a global store where Indian customers can purchase select products listed on the company's American website and pay in rupee through options such as internet banking.

Niche approach

Competition is tough in India and foreign companies need substantial commitment and investment to engage.

But all's not lost for those with less capital.

As with other emerging Asian markets, the rising middle income group means that spending power is there.

But do not expect the pace of growth to be as fast as that in China and Southeast Asia.

Nonetheless, high quality goods will always be appreciated.

With competition in the e-commerce spaces, we should expect companies like Amazon, Flipkart and Snapdeal to have a lot of interest in placing high quality products on their sites.

Published on stuff.co.nz