When the news came in last week that Government may open up FDI in Indian E-Commerce, most of us thought that all ecommerce players in India, the local as well as international players, would be quite excited. The opening up will allow ecommerce sites to have their own inventory, and international players can setup their businesses based on inventory based model rather than a marketplace based model. Opening up FDI will mean that Indian players who have their own inventory can easily pitch for overseas investment.
This is all good right, but surprisingly, Flipkart does not see it that way!
To the surprise of many, India’s largest online retailer, Flipkart has said that they are not in favour of opening up of FDI in online retail sector! And the reason given for that is “It will help only one company”, which was obviously a reference to Amazon.
The Flipkart spokesperson said in a statement given to ET in this regards, ”The only e-commerce player that will benefit from such a move is a company which is already operating in India as a marketplace and wants to enter the country through an inventory based model”.
Now we find the reason given by Flipkart quite amusing (and absurd), especially from a player who is a largest Indian ecommerce site by quite a fair margin.
What I gather from that statement is “We are afraid of competing with Amazon (and others), if they come with inventory based model”
Now, let us first look at how Flipkart operates. They first started with inventory based model and later changed it to marketplace model because of FDI rules did not allow them to raise international funding. The company which sells majority of products on Flipkart, WS Retail, was indirectly was forced to spin-off by Flipkart, so as to ensure that Flipkart themselves does not sell anything. Based on this, they took loads of international funding!
If FDI in E-Commerce opens up, it is not going to be only Amazon that benefits, but many Indian players as well, who have their own inventories. They will now be able to raise foreign funding easily.
At the same time many larger international players like Best Buy, Newegg, Wal-mart and others can start operating “online only” model in India after having a local JV partner.
Yes, Amazon, who already are operating a marketplace model in India, stands to benefit a lot as well. They will now be able to sell their own products like they do it in US, UK and many other countries.
Flipkart is worried that if these international players come to Indian market, they will not be able to compete with them (why else would they oppose opening up FDI?).
In our view, opening up FDI in e-commerce will bring in healthy competition and a more level playing field. We obviously don’t want a single player ruling the Indian online market (which Flipkart has nearly become). More the competition, the better it is for all, and most importantly for Indian consumers.
Do share your thoughts with us on this!