Will Amazon be Able to Rule the Indian Ecommerce Market? The giant has what most local players don't-deep pockets and cash to burn

The Indian e-commerce industry has seen significant churns and consolidation. The homegrown firms flourished for a few years. The spate of acquisitions started when Flipkart acquired Myntra in 2014. This was followed by the acquisition of Jabong, which left Flipkart as the sole native beacon of the Indian e-commerce industry. Flipkart could neither handle the competition by Amazon nor mighty aspirations and deep pockets of Walmart. Flipkart fell prey to Walmart's big aspirations and deep pockets. That dealt the final blow to the dream of homegrown e-commerce triumphing against the Walmarts and Amazons of the world.

This acquisition announced the dominance by American companies, Walmart and Amazon in the India ecommerce industry. Similarly, Chinese players such as Xiaomi and Tik Tok followed the suite in overtaking the mobile phone industry and the Indian app ecosystem. This domination further enabled these stakeholders to penetrate payments, insurance, logistics and other related sectors.

The Western influence

The more interesting aspect of this penetration is the 100 million denizens of India's tier-one cities that are highly influenced by the Western culture are already a part of the Walmart and Amazon ecosystem. Now the Amazons of the world are trying to enter the tier two and three towns, where language, infrastructure, and workforce are major barriers to entry even for local enterprise, let alone foreign players.

From the get-go, Amazon worked on building its hubs and distribution centres to create the best delivery network in tier one cities. To tier reach two and three towns, Amazon has translated its content into local languages, built a local workforce, updated their apps to work with low-end smartphones and an irregular cellular network, and is even using small stores as package depots in these towns.

Challenges in India

Like all ecommerce players in India, Amazon wants ownership of the retail and grocery sector but is facing challenges in capturing this market. Though it is not an unusual aspiration, several Indian ecommerce players have tried and failed, Amazon has what most players don't—deep pockets and cash to burn, on levels that native players cannot compete with.

On one hand, the domination and penetration of international players are making Indian consumers' lives more convenient, creating jobs, building infrastructure and training new talent. On the other, it hampers the native ecosystem's innovation and growth. To build and survive in the Indian ecommerce industry the native players need a huge amount of investment, which is hard to come by, to first hire top talent, entice consumers who are price sensitive and withstand cash-rich competitors such as Walmart and Amazon.

The kind of players

Currently, there are two types of ecommerce players in the Indian market. First, those who have taken the typical top-down approach: the Amazons and Flipkarts of India who try to capture the premium consumer. Their top-down approach of penetrating the top 100 million consumer base has worked primarily because their consumer base is largely English speaking who considers Amazon to be aspirational.

The second category is a new breed of Indian ecommerce startups who have taken the bottom-up approach, such as ShopX, LaYuva, Meesho, Shopmatic and Shyplite. They are trying to digitize the tier two and three towns by putting smaller sellers online and connecting them with the local consumer base. Though the consumer base in tier two and three towns is 4x that of the tier one cities, it is more challenging to capture them. They are fragmented by language, customs, and culture across the country. This means that to get a share of their wallet you need to have a grass-root understanding of the country. Something the ShopXs do very well, but this understanding alone is not enough for them to win the market against Amazon. The only option most of these startups have is to either be acquired by Amazon, by Flipkart or to burn out.

Look at China

China is an excellent case study of how to build a native ecosystem. Alibaba, Didi, JD.com, Tencent and many other Asian technology-based platforms would not have become a reality if China had not built such a high barrier to entry for international players. China's strategy to help develop a native ecosystem where international businesses can only play a role in a controlled capacity has not only helped Chinese companies become multi-billion dollar businesses but also helped these businesses to innovate and set new global standards.

India stands at a critical juncture in its economic cycle, where growth is imminent. But to who does the growth and opportunity belong? Does it belong to the international players who have sunk billions into the Indian market, built infrastructure and created jobs, or does it belong to the grass-root native players who, compared to Amazon, are not cash-rich or big enough for Amazon to even see them as competition, but are equally, if not more, talented to build a world-class business and can better cater to the needs of the Indian retailer and consumer because they understand and can relate to them, especially in tier two and three towns?

The government has paid heed to this topic and brought in regulations that help local ecommerce players compete against foreign companies. Though this will help the local players to compete on more equal grounds, it also means discounts will start evaporating and products prices will go up. As consumers usually, we do not care much about whether a player is foreign or local. We care about price and convenience, but maybe we should begin thinking about who we want to see emerging as the winner.