For U.S. e-commerce companies, some of the most tantalizing expansion opportunities lie in India. Hong Kong-based investment bank CLSA forecasts that the country’s e-commerce market, now at $3.1 billion, will grow to $22 billion in the next five years. The problem for the likes of Amazon.com (AMZN) and EBay (EBAY) has been the Indian government’s strict rules barring companies backed by foreign money from warehousing their inventory on Indian soil—or selling it directly to the nation’s billion-plus consumers.
After several years of disappointing economic growth, the government is looking for ways to boost foreign investment. India’s Department of Industrial Policy and Promotion published a report earlier in January weighing whether it should relax regulations for online retailing and has asked e-commerce companies to register their opinions by Jan. 30. U.S.-owned companies are pushing hard to change the rules, says Amit Agarwal, Amazon India’s vice president and country manager.
U.S. companies have found a way to do business while they await the Indian government’s decision. They’re allowed to deliver and store goods on behalf of Indian merchants and are building local delivery and storage businesses and investing in e-commerce startups.
Amazon established an Indian online marketplace in June where merchants can hawk their wares and pay the company fees to store and deliver their goods. More than 2,300 sellers have signed up, listing 440,000 products including books, electronics, diapers, and jewelry, says Agarwal. That’s more than Indian e-commerce pioneer Flipkart but far shy of market leader Snapdeal.com, which lists some 20,000 sellers and 4 million products. EBay led a $50 million round of funding for Snapdeal last year. “Ninety percent of the assortment we have is not comparable to any other e-commerce company in India,” says Snapdeal Chief Executive Officer Kunal Bahl. “That’s where we’ve driven growth.” Snapdeal says it expects to hit $1 billion in sales conducted on its website this year; Flipkart says it will do the same in 2015.
Amazon said on Jan. 20 that it plans to open a 150,000-square-foot warehouse in Bangalore, matching a facility it maintains in Mumbai, to speed deliveries. On Jan. 15, EBay India announced a nine-hour delivery guarantee for customers in Mumbai. EBay India executive Vidmay Naini said in a statement that the service will expand to other cities over the next few months.
To appeal to local merchants, foreign companies will have to keep improving delivery range and speed, says analyst Rajiv Prakash, the founder of NextIn Advisory Partners, which advises Indian startups. In November, Amazon teamed up with India’s postal service to deliver packages to remote locations, a project Snapdeal says it has tested but hasn’t adopted. A month later, Amazon launched a guaranteed next-day delivery service for certain products in six major Indian cities; Flipkart and Snapdeal both followed, though the latter’s guarantee applies only to the municipality of Delhi. (Flipkart said it would undercut prices on Amazon’s Indian marketplace by 10 percent.)
Even with fervent lobbying, there are no guarantees that foreign companies will be able to expand into direct sales. India’s industrial policy department said in its report that easing rules could help cut prices and make supply chains more efficient but expressed concern that India’s small and midsize businesses would be hard-pressed to compete with the buying power and technology of an Amazon or EBay. “The market is not yet ready for opening up e-retail space to foreign investors,” the report read.