Amazon’s Tryst With Indian Regulations & How It Sidestepped To Continue Operations

Over the past 5 years, Amazon has almost become a household name in India, slowly but surely taking over going to local shops for purchasing products. As consumer trust in the platform increased, the country began realising Amazon's dreams of being the next biggest market after failed escapades in China. Aiming to capitalize on this dormant growth, the company began laying the infrastructure for its operations in a big way. Fast forward to present day, where the Indian government is almost set to slow down this growth in the country, or some would say. Reportedly, the legislation was drafted to level the playing field between big companies operating globally and domestic sellers. The new regulation stated that sellers with majority stake governed by a company with Foreign Direct Investment cannot distribute goods through e-commerce marketplaces. Among other things, e-tailers are also barred from negotiating exclusives on products to allow for fair trade. The rule came into effect on February 1st, a day marked by the shuttering of Amazon's Prime Now, and the removal of over 400,000 items were removed from Amazon's catalog. Their biggest sellers, Appario and Cloudtail, were hit hard by the regulation as they scrambled to recover. However, this was not Amazon's first brush with Indian regulations, as demonstrated by the return of these sellers to the platform within a week's time.  Join us as we take a look into how Amazon skirts regulations to ensure profitability in unsure operating environments.

The Setting For Change

Flipkart and Amazon combined make up 70% of online sales in India, exhibiting an impressive duopoly over the market. However, many local brick-and-mortar services are suffering, mainly due to the push of Amazon into the hyperlocal 'Kirana' style of product delivery. One of the main driving forces against this movement is The Confederation Of All India Traders, representing over 70 million small retailers around the country. The influx of requests from small retailers and local vendors to the government prompted the action of regulation against e-commerce giants. This is also a political move, considering the voting strength of the small and medium vendor demographic. The Modi government is looking to hold on to the demographic as an important vote bank, with the political clout of the Confederation Of All India Traders coming into play to influence this decision. There was also a similar regulatory overhaul in 2016, wherein the government added regulations that were related to pricing and sourcing of sales on the websites. Government stated that one single seller cannot account for more than 25% of sales on a marketplace such as Amazon. This marked the time when Amazon's tryst with Indian regulators began, with their lawyers working to find a way out for Cloudtail, Amazon's crown jewel.

Not Amazon's First Brush With Regulators

At this point, Cloudtail, one of the sites prominent sellers partly owned by Amazon, was put into a difficult situation as it then dominated over 40-50% of the sales on Amazon. However, the company circumvented this by not selling directly the the consumer, instead engaging in a network of associated companies to deliver the products to the customers Cloudtail and Appario, two of Amazon's biggest sellers, suspended operations on February 1st, which was the day that the new regulations came into place. Next, they proceeded to conduct reorganizations in the structure of their companies to adhere to regulations. The company owning Cloudtail, known as Prione Business Services, is a Joint Venture between Narayana Murthy's VC firm Catamaran Ventures and Amazon Asia. While the stake was previously split 51:49 with Amazon being the minority holder, it is now split as 76:24 to ensure that regulations are followed. Moreover, Cloudtail will also branch out into other marketplaces to comply with the 'no exclusives' rule, listing on sites such as Snapdeal, Indiamart and other such sites, except Flipkart. Amazon's other venture for e-commerce in India known as Appario Retail will also undergo a similar treatment to comply with the newly mentioned regulations. Appario is a subsidiary company of a JV company known as Frontizo, which was owned by Patni Group and Amazon Asia in a 51:49 ownership. The arrangement post-regulation is not clear, with analysts predicting that it will be similar to what occurred with Cloudtail.

In Conclusion

While the e-commerce regulations were largely lauded by the trader community in India, Amazon's well-paid lawyers won the battle once again. Even as the wheels of the Indian government move slowly, another regulatory overhaul is probably on the way to plug existing loopholes. Until then, it is business as usual for Amazon as it exploits the loopholes left by regulators.