Can Amazon Succeed In India?

Summary

Amazon has opened its largest office building to date in Hyderabad, India, spanning 1.8 million square feet and accommodating 15,000 workers. This move signifies Amazon's aggressive investment and commitment to the Indian market, which represents significant untapped potential with e-commerce accounting for just 3% of total consumption. Despite facing competition from Walmart and regulatory challenges that forced the removal of nearly a third of its sales in India, Amazon is adapting by expanding its brick and mortar presence, investing in local supermarket brands, and launching AmazonFresh. The company is also targeting rural customers and offering localized versions of its app and website. While Amazon's international unit operates at a loss, the company is willing to sustain losses for a long-term strategic play in India's burgeoning market.

Takeaways

• 🌏 Amazon has opened its largest office building to date in Hyderabad, India, showcasing a significant commitment to the Indian market.
• 🏢 The new campus in Hyderabad spans 9.5 acres with 1.8 million square feet of office space, exceeding the capacity of Amazon's Seattle headquarters.
• 👥 The Hyderabad campus has the capacity to accommodate up to 15,000 workers, indicating Amazon's aggressive expansion plans in India.
• 💼 Amazon's investment in India has surpassed $5 billion since it began retail operations in 2013, highlighting the potential of the Indian market.
• 📈 E-commerce in India represents only 3% of total consumption, with a population of 1.3 billion and less than half online, suggesting enormous growth potential.
• 🌐 With the rollout of India's 4G network, Amazon aims to capitalize on increasing internet penetration to outcompete local and international rivals.
• 💰 Analysts predict the Indian e-commerce market will be worth $100 billion by 2022, making it a crucial market for Amazon's future growth.
• 🛒 Amazon faces stiff competition from Walmart, which acquired Flipkart for $16 billion, giving it a significant share of the Indian e-commerce market.
• 📉 New e-commerce regulations in India have made it more challenging for multinational corporations like Amazon to compete with local retailers.
• 🛍️ Amazon has had to pull nearly a third of its sales in India due to new regulations banning foreign-owned retailers from selling through affiliated companies.
• 🔄 Despite regulatory challenges, Amazon is adapting by expanding its brick and mortar presence and investing in a hybrid retail approach in India.
• 🛒 AmazonFresh, the company's online grocery business, is expanding in India, targeting the largest retail segment which accounts for a significant portion of household spends.
• 📚 Learning from its failure in China, Amazon is focusing on rural customers in India and has introduced measures to cater to local preferences and conditions.
• 💡 Amazon's long-term investments in India, including building new campuses and adapting its services, may take time to reflect in profits and could involve sustained losses for a decade.

Q & A

Where is Amazon's biggest office building located?

Amazon's biggest office building is located in Hyderabad, India.

What is the total area of Amazon's new campus in Hyderabad?

The new campus in Hyderabad covers 9.5 acres with 1.8 million square feet of office space.

How many workers can the new Amazon campus in Hyderabad accommodate?

The new campus in Hyderabad has the capacity to hold around 15,000 workers.

When did Amazon start its retail operations in India?

Amazon began its retail operations in India in 2013.

How much has Amazon invested in India since starting its retail operations?

Since 2013, Amazon has invested more than five billion dollars into India.

What percentage of total consumption in India is currently represented by e-commerce?

E-commerce currently represents just 3 percent of total consumption in India.

What is the current population of India and what percentage of it is online?

India's population has swelled to 1.3 billion, with less than half being online.

What is the projected value of India's e-commerce market by 2022 according to analysts?

Analysts project that India's e-commerce market will be worth 100 billion dollars by 2022.

What is the current market share of Walmart in India's e-commerce market through its acquisition of Flipkart?

Before the acquisition by Walmart, Flipkart controlled an estimated 40 percent of the Indian e-commerce market.

What is the current state of India's retail market in terms of control by small local retailers?

Roughly 90 percent of India's retail market is still controlled by small mom and pop stores.

How has the Indian government's regulation affected Amazon's operations in India?

The Indian government's regulation has banned direct to consumer sales for foreign-owned retailers and has also prohibited foreign e-commerce companies from selling products through affiliates they own a majority stake in, leading Amazon to take down thousands of products on its website.

What steps is Amazon taking to adapt to the Indian market and overcome regulatory obstacles?

Amazon is expanding its brick and mortar presence, investing in Future Retail, expanding its online grocery business AmazonFresh, and focusing on rural customers with small stores and an alternate version of its app designed for inexpensive smartphones and spotty internet access.

What is Amazon's strategy in India in terms of language and regional focus?

Amazon launched its Hindi website last year and plans to add a variety of regional languages soon, with an emphasis on rural customers who make up 80 percent of its current Indian customer base.

What lessons has Amazon learned from its e-commerce operations in China and how is it applying them in India?

Amazon learned the importance of fitting products and services to the local market from its experience in China. In India, it is taking a different strategy with more emphasis on rural customers, setting up small stores in rural areas, and offering an app version designed for inexpensive smartphones with spotty internet access.

How long is Amazon willing to sustain losses in the Indian market?

Amazon is willing to sustain losses in the Indian market for a long period, with estimates suggesting they might be prepared to do so for up to 10 years.

What is the current status of Amazon's international e-commerce unit in terms of profitability?

Amazon's international e-commerce unit consistently operates at a loss.

Why is India considered crucial for Amazon's future growth?

India is considered crucial for Amazon's future growth due to its large population and the potential of its e-commerce market, which Amazon hopes can become another cash cow as growth slows in North America.

Outlines

00:00

🌏 Amazon's Largest Office in Hyderabad, India

Amazon has inaugurated its largest office building to date in Hyderabad, India, which is not in the U.S. The campus spans 9.5 acres and encompasses 1.8 million square feet, surpassing the capacity of any individual building in Seattle. With room for 15,000 workers, this expansion signals Amazon's commitment to the Indian market, which is considered a major growth opportunity. Since launching operations in India in 2013, Amazon has invested over $5 billion. The country's e-commerce market is currently at 3% of total consumption, with a population of 1.3 billion and growing internet penetration. Amazon aims to outpace local and international competitors as the market is projected to be worth $100 billion by 2022. However, Amazon faces significant competition from Walmart, which acquired Flipkart for $16 billion in 2018. Regulatory challenges have arisen, with new rules restricting foreign e-commerce companies' operations, forcing Amazon to remove thousands of products. Despite these obstacles, Amazon is adapting by investing in brick and mortar, partnering with Future Retail, and expanding AmazonFresh to capture the significant grocery market in India. Lessons from its unsuccessful venture in China are being applied to better tailor its strategy to the Indian market.

05:01

📈 Amazon's Focus on Rural India and Long-Term Investment

Amazon is placing a strategic emphasis on rural customers in India, where 80% of its current customer base resides outside major cities. To cater to this demographic, Amazon has established small stores in rural areas to educate customers on online purchasing and has developed an app version suitable for low-cost smartphones with unreliable internet connections. The company also launched a Hindi website and plans to introduce regional languages to reach a broader audience. Despite the high costs of these long-term investments, which may not yield profits for a considerable period, possibly up to 10 years, Amazon is prepared to sustain losses as it eyes India as a future growth driver. The international e-commerce unit consistently operates at a loss, but with slowing growth in North America, India represents a significant market for Amazon's expansion plans. The establishment of a campus for 15,000 employees highlights Amazon's commitment to the Indian market, where it seeks to become a major player despite the financial challenges ahead.

Keywords

💡Amazon HQ2

Amazon HQ2 refers to Amazon's second headquarters, a project that garnered significant attention due to its economic impact and the competition among cities to host it. In the context of the video, the hype around HQ2 has subsided, and Amazon has instead opened its largest office building in Hyderabad, India, showcasing the company's commitment to expanding globally and not just focusing on the U.S.

💡Hyderabad

Hyderabad is a city in India and the location of Amazon's new campus. The video emphasizes that Amazon's biggest office building is not in the U.S. but in Hyderabad, which is significant as it highlights Amazon's strategic global expansion and investment in emerging markets like India.

💡Office Space

Office space in this context refers to the physical area designated for work activities within a building. The script mentions that Amazon's new campus in Hyderabad covers 1.8 million square feet of office space, making it the largest Amazon building by total area and indicating the scale of Amazon's operations and potential workforce capacity.

💡E-commerce

E-commerce is the buying and selling of goods and services, or the transmitting of funds or data, over an electronic network, primarily the internet. The video discusses how e-commerce represents just 3 percent of total consumption in India, suggesting a vast potential for growth and competition in this sector.

💡Investment

Investment in this script pertains to the financial resources Amazon has committed to its operations in India. Since beginning its retail operations in 2013, Amazon has invested more than five billion dollars into the country, demonstrating the company's long-term strategy and confidence in the Indian market's potential.

💡Market Share

Market share is the portion of the total market for a particular product or service that a company or brand controls. The video highlights the intense competition between Amazon and Walmart for market share in India's e-commerce sector, with each company employing different strategies to capture consumer spending.

💡Flipkart

Flipkart is an Indian e-commerce company that was acquired by Walmart for $16 billion in 2018. The acquisition gave Walmart a significant foothold in the Indian market, as Flipkart controlled an estimated 40 percent of the e-commerce market share, making it a key player and competitor to Amazon.

💡Regulations

Regulations in this context refer to the rules and policies set by the Indian government that affect how e-commerce companies operate. The script discusses updated e-commerce regulations that have made it more challenging for multinational corporations like Amazon and Walmart to compete with local retailers, impacting their business models and strategies.

💡Brick and Mortar

Brick and mortar refers to a traditional business that has a physical presence, such as a store or office, as opposed to an online-only business. The video mentions Amazon's expansion into brick and mortar presence in India by buying a minority stake in Future Retail, which operates over 900 stores, indicating a hybrid retail approach to capture the market.

💡AmazonFresh

AmazonFresh is Amazon's online grocery delivery service. The script notes that Amazon is expanding AmazonFresh in India, starting with some parts of Bengaluru and planning to extend to other cities. This is significant as groceries represent the largest retail segment in India, making it a crucial area for Amazon to penetrate.

💡Private Label Products

Private label products are those manufactured for and sold under a specific brand name, which is often that of the retailer. The video mentions Amazon's own private label products, such as Echo devices and batteries, which they are trying to sell in the Indian market. However, recent regulations have impacted Amazon's ability to sell these products through affiliated merchants, leading to the removal of thousands of items from their website.

💡Rural Customers

Rural customers refer to consumers living in less urbanized or rural areas. The script highlights that 80 percent of Amazon's customers in India live outside the country's biggest cities, indicating a strategic focus on rural markets. Amazon has set up small stores in rural areas to educate customers on how to use their smartphones for purchasing, reflecting an adaptation to the local market.

💡Localization

Localization is the process of adapting a product or service to suit a particular locale or market. The video discusses how Amazon is combining brick and mortar presence with the localization of an Indian partner and its own e-commerce experience to succeed in the Indian market. This approach is crucial for understanding and catering to the unique preferences and behaviors of Indian consumers.

Highlights

Amazon has opened its biggest office building yet, located in Hyderabad, India.

The new campus covers 9.5 acres with 1.8 million square feet, making it Amazon's largest building by total area.

The Hyderabad campus has the capacity to hold 15,000 workers, surpassing individual buildings in Seattle.

Amazon's commitment to India's market is evident through its aggressive investment and expansion plans.

India is considered one of the last major growth markets for Amazon, with significant untapped potential.

E-commerce currently represents just 3% of total consumption in India, with a population of 1.3 billion.

Amazon began retail operations in India in 2013 and has since invested over five billion dollars.

Analysts project the Indian e-commerce market to be worth 100 billion dollars by 2022.

Amazon faces competition from Walmart, which acquired Flipkart, controlling an estimated 40% of the market.

Approximately 90% of India's retail market is still controlled by small local retailers with significant political power.

New e-commerce regulations in India have made it tougher for multinationals like Amazon and Walmart.

Amazon had to pull about 400,000 items, nearly a third of its sales in India, due to new regulations.

Amazon is adapting by expanding its brick and mortar presence and investing in Future Retail.

AmazonFresh, the online grocery business, is expanding to Bengaluru and other cities.

Food and grocery is the largest retail segment in India, making up 55-60% of household spends.

Amazon is learning from past mistakes in China and focusing on rural customers in India.

Amazon has set up small stores in rural areas and offers an app version for inexpensive smartphones.

Amazon's long-term investments in India may take a while to reflect in profits, with potential losses for up to 10 years.

Amazon's international e-commerce unit operates at a loss, but India is seen as crucial for future growth.

Transcripts

The hype over the location of Amazon's HQ2 has died down, but the

e-commerce giant actually just opened its biggest office building yet.

This one though, isn't in the U.S.

The new campus is in Hyderabad, India.

It covers 9.5

acres with 1.8

million square feet of office space, making it the largest Amazon building

by total area.

It has the capacity to hold some 15,000 workers.

Even its headquarters, individual buildings in its hometown of Seattle,

can't hold that many people in one building.

The building out of the new campus in India just is another sign of how

committed Amazon is to the market, how aggressively they plan to invest in

the market, how much of a commitment they're making to India.

India is seen as one of the last major growth markets for the retail

giant.

Amazon began its retail operations in India back in 2013.

Since then, the company has invested more than five billion dollars into

the country. Now, the reason that Amazon is so interested in this market

is because it represents enormous untapped potential.

Right now, e-commerce represents just 3 percent of total consumption in

India.

While India's population has swelled to 1.3

billion, less than half are online.

The country recently rolled out its 4G network, and as Internet

penetration rates continue to climb, Amazon hopes to edge out local and

international competitors.

They're sinking a lot of money into India because the projections are

crazy. I mean, analysts say that this is a market that's going to be worth

100 billion dollars by 2022.

However, Amazon faces steep competition from Walmart, which completed its

16 billion dollar acquisition of domestic e-commerce company Flipkart in

2018. Before the acquisition, Flipkart controlled an estimated 40 percent

of the Indian e-commerce market, bolstered by its fashion and apparel

brands. Now Amazon and Walmart are locked in a tight competition for

market share. Yet despite their growing influence, roughly 90 percent of

India's retail market is still controlled by small mom and pop stores.

These local retailers wield a lot of political power, which has led to

updated e-commerce regulations that make it much tougher for multinational

corporations to take on domestic competitors.

Direct to consumer sales were already banned for foreign-owned retailers,

leading Amazon and Walmart to set up a network of affiliate companies that

allowed them to continue selling their own products.

But after Walmart's Flipkart acquisition, the Indian government banned

foreign e-commerce companies from selling products through affiliates that

they owned a majority stake in and from negotiating exclusive deals with

sellers.

Amazon has a lot of its own private label products like the Echo, like

batteries, like a lot of things, and groceries as well, that it's trying

to sell in the Indian market.

So when the government put in regulations that said it wasn't able to even

sell its own products through merchants that it had a stake in, that led

Amazon to take down thousands of products on its website.

The New York Times estimated that Amazon would have to pull about 400,000

items in total, accounting for nearly a third of its sales in the country.

However, these regulations could only be a short term setback.

Some analysts say it's just a matter of time before Amazon finds clever

ways to reconfigure its business models and partnerships to comply.

Amazon is pouring a lot of money into the country.

Could that all be stifled by these regulations?

That is a big question.

I think probably Amazon is going to figure out a way to work its way

through the regulatory obstacles.

There's a reasonable track record they have of executing well despite some

obstacles, whether they are economic or cultural or logistic or

regulatory.

Amazon is already taking major steps to adapt by expanding its brick and

mortar presence in the country.

In August, it signed a deal to buy a minority stake in Future Retail,

which operates over 900 stores and owns several large supermarket brands.

With this investment, Amazon is really taking this hybrid retail approach.

By combining the brick and mortar, the localization of an Indian partner

and its own e-commerce experience, that's what Amazon believes will

hopefully lead it to success in this market.

The company is also expanding its online grocery business, AmazonFresh.

Now, grocery deliveries will be available in some parts of Bengaluru and

eventually in other cities too.

Food and grocery is by far the largest retail segment in India.

It is the biggest market in India.

It's almost 55 or 60 percent of household spends is still grocery items.

So, you know, without that, it's very difficult for Amazon to capture the

market.

Amazon also hopes to learn from past mistakes.

The company shut down its e-commerce operations in China this summer after

it failed to make headway in the market.

They faced really good entrenched competition from companies that did a

much better job fitting their products and their services to that market.

And so we're talking about JD.com,

and of course, Alibaba.

In India, it's taking a different strategy.

There's more of an emphasis on rural customers.

In fact, 80 percent of Amazon's customers currently in India live outside

of the country's biggest cities.

Amazon has actually set up these sort of really tiny stores in rural areas

so that Indian customers can go in and actually learn how to purchase

things and order things on their smartphones.

Now, Amazon even offers an alternate version of its app designed to run on

inexpensive smartphones with spotty Internet access.

It also launched its Hindi website last year and hopes to add a variety of

regional languages soon.

But whether it's designing new apps, setting up small brick and mortar

retail stores or building huge new campuses, these long term investments

don't come cheap. And it may be awhile before these efforts are reflected

in profits.

Look, it's going to be a very expensive market and I think they're willing

to sustain losses in that market for a long period of time, I would guess

10 years. So I think we still have several years ahead of losses.

Amazon's international e-commerce unit consistently operates at a loss.

But as growth slows in North America, the company hopes that eventually

India can be another cash cow.

When you think about Amazon opening up a campus for 15,000 employees

anywhere else, it wouldn't be able to fill it.

I mean, Amazon's international business can be doing well in Europe and

Australia, but it needs a big market like India for its future growth.