Bangalore/New Delhi: A day after Flipkart said it raised $1 billion in fresh capital, Amazon.com Inc.’s chief executive Jeff Bezos announced that the world’s largest online retailer would pump in as much as $2 billion into its India business as it aims to become the leader in one of the fastest-growing e-commerce markets and rev up sales growth outside of North America.

Amazon did not give a time frame for the investment, but a spokesperson said it would be a “continuous flow allowing us to aggressively invest in growing our business and enhancing customer and seller experience". Flipkart has thus far raised $1.78 billion for its capital-intensive e-commerce business.

“After our first year in business, the response from customers and small- and medium-sized businesses in India has far surpassed our expectations," Bezos said in a statement. “We see huge potential in the Indian economy and for the growth of e-commerce in India. At current scale and growth rates, India is on track to be our fastest country ever to a billion dollars in gross sales. A big ‘thank you’ to our customers in India—we’ve never seen anything like this."

The large war chests of Flipkart and Amazon may trigger a price war and inflate already-high customer acquisition or marketing costs, analysts and investors said. They will also increase pressure on rivals Snapdeal, Jabong and Shopclues to raise cash and lead to more mergers among e-commerce companies.

“This money will mostly go into funding operating losses… given the discounts at which they (e-commerce players) are selling, they need $150-$200 million per year," said Sanjeev Aggarwal, managing director, Helion Ventures Pvt. Ltd. “Secondly a lot will go into acquiring companies in the vertical segment play…like grocery, furniture, baby category."

The $2 billion investment by Amazon comes as the company is facing increasing pressure from investors to cut spending and focus on improving its wafer-thin margins after the US-based online retailer reported disappointing quarterly results for a large part of the past year. Last week, Amazon said it posted a loss of $126 million for the latest quarter, much wider than what most Wall Street analysts had estimated.

Amazon’s investment shows the increasing importance of its Indian business and also highlights the company’s ambition to succeed in a fast-growing international market. It is struggling to make significant inroads in China where Alibaba, which is set to list its shares in the US this year, dominates e-commerce sales.

“All large e-commerce markets are taken so this is probably the only market which is yet to be fully penetrated. Of the total $500 billion retail we are only $3-4 billion in e-commerce so it is important for Amazon to not to lose in India—the only large market left with high growth potential," Helion’s Aggarwal said.

Amazon globally generated nearly $75 billion in sales last year, roughly 40% of which came from international markets, including Germany, Japan and UK. The company has stated a goal to generate half its sales from outside North America and it needs to scale up its India and China businesses to achieve it, analysts said. Last year, sales growth in Amazon’s international markets dropped to 19% from 27% in the previous year.

India’s e-commerce market, excluding travel, is worth $3.1 billion and expected to grow to $22 billion in five years, according to a November 2013 report by brokerage firm CLSA. By that time it is expected to be the world’s third-largest e-commerce market after the US and China. Mint reported on 26 June that Amazon had increased the capital it can invest in India to as much as 1,500 crore in December from 200 crore in 2012-2013, citing documents filed with the Registrar of Companies.

Amazon Seller Services Pvt. Ltd, the firm’s India business, launched its India marketplace in June 2013 and has quickly expanded its product selection to become the biggest rival to Flipkart and Snapdeal. It now offers 15 million products across 28 categories, including electronics and apparel, and also claims to have the largest product assortment in 11 of these categories, including books and toys.

The number of third-party sellers on Amazon’s site has risen to over 8,500 from a mere 100 a year ago. In comparison, Snapdeal has over 30,000 sellers, Shopclues more than 40,000, and India’s largest e-commerce firm Flipkart over 3,000 merchants on its platform.

Flipkart said on Tuesday that it raised $1 billion in fresh capital from existing investors including Tiger Global, Naspers and Government of Singapore Investment Corp., marking the largest-ever fund raise by an Indian start-up and among the largest ever by any Internet start-up globally.

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