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.