E-commerce boom tempts Amazon to test Indian market

Changes to India's strict investment rules mean overseas retailers can now be majority shareholders

Andrew Buncombe
Thursday 03 November 2011 17:07

The online retailer Amazon.com is poised to enter India and could start operations next year in a country where a growing middle-class could substantially boost global revenues.

The Seattle-based company has already hired several key figures for its Indian operation and has been recruiting software engineers, IT specialists and other staff ahead of the launch. Amazon is said to be hiring in the southern Indian cities of Chennai, Bangalore and Hyderabad.

"A team of over 200 people is being built, though all of them might not end up in the core retail arm," one unidentified source told the Times of India.

Rumours that Amazon was seeking to establish operations in India have been around for some time. It posted recruitment advertisements on Twitter and poached a senior executive from the Indian online retailer Landmark to head its India operation. It has also appointed a human resources director, Raj Raghavan.

It was initially believed that Amazon was planning some sort of joint venture with Flipkart, an Indian online retailer set up four years ago which has quickly become the largest in India. Flipkart, which accepts cash on delivery and whose co-founder, Binny Bansal, once worked for Amazon, is now believed to be looking to expand its own brand in India.

Analysts say there could be both rewards and pitfalls for a new entrant to India's online book market. While publishing in India is a booming business, in both English and a range of Indian languages, online sales account for just a small portion of the market. Those who actively use the internet on a monthly basis could number as few as 50 million in a country of 1.2 billion.

Vivek Dehejia, a Mumbai-based economist and commentator, said: "I am sceptical about how likely they are to penetrate the market and succeed. In terms of net access, it's still a relatively tiny number of well-to-do people who have regular access to do online shopping."

Mr Dehejia said Amazon might also struggle as a relatively late arrival to the market. But he added: "Amazon has not got where it is without being savvy."

A number of online retailers have been buying up Indian operations. The daily deals website SoSasta.com was acquired by Groupon, while the online auctioneer eBay bought Baazee.com.

Recent changes in the rules relating to foreign direct investment, which mean multi-brand foreign retailers can now hold up to 51 per cent of equity and be the majority shareholder, may be linked to a flurry of reports of overseas retailers planning Indian operations. But Amazon would still require an Indian partner.

Last night a spokesman for Amazon, Craig Berman, said: "We've made no announcement regarding a business in India, and we have a long history of not speculating about what we may or may not do in the future."

Traditional bookstores in India are already preparing for a fight. Kanwarjit Singh, who runs The Bookshop, one of Delhi's most celebrated independent stores, was aware of the Amazon rumours. "I think it will impact us in a major way," he said. "With the discounts they offer, they would wipe us out pretty fast."

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