New FDI rules had little impact on Amazon


April 27, 2019

Written By Aditi Shrivastava, ETtech

Nearly three months after Inc said India’s revised foreign investment rules would hurt both customers as well as sellers, the e-commerce giant indicated the impact had been minimal in the first quarter of the year, although the claim could not be independently verified in the absence of India-specific revenue or sales data.

While the new rules effective February 1 caused a few days of downtime in certain categories, the overall impact on sales was minimal, Amazon told investors in a conference call after announcing its first quarter results on Thursday.

“We did make some changes to our structure to stay in compliance with all regulations. There were a few days of downtime for some of our selection. But for the full quarter, the impact was minimal,” chief financial officer Brian Olsavsky said.

Amazon’s profit more than doubled in the first quarter to $3.6 billion on sales of $59.7 billion, with its international business growing 9% to $16 billion. More importantly, however, losses in its international business went down significantly to $90 million from $622 million a year earlier, giving it better headroom to invest in cash-burn intensive emerging markets like India.

“We’re in compliance and very, very happy with the progress of the business in India,” Olsavsky said during the earnings call.

Amazon’s India rival Flipkart, majority owned by Walmart Inc, also told ET recently that the company had not seen any impact with the new regulations kicking in. “We have not seen any issues. We have always embraced the regulatory framework,” Flipkart CEO Kalyan Krishnamurthy said in an interview to this paper.

The positive comment came despite a warning to investors by Walmart in its 2019 annual report.

The US retailer said “regulatory constraints, such as regulation of product and service offerings including regulatory restrictions on ecommerce offerings in international markets, such as India” could negatively impact its operating results.

Amazon and Flipkart have controlled customer experience by keeping their inventory on online marketplaces under check, experts said, adding that both the ecommerce behemoths would rather work around the regulatory changes than tweak this fundamental philosophy.

“Regulatory frameworks have been worked around earlier as well,” said Devangshu Dutta, chief executive at consulting firm Third Eyesight, which tracks the retail and consumer product ecosystem.

Any public statement by these entities has an element of perception management, Dutta said, adding both Amazon and Flipkart would find a way to cover their margins in the long run even if there is a short term negative impact.

In December, the government took a series of measures to tighten the norms for e-commerce companies, barring them from selling products of the entities in which they have a stake. The altered norms also restricted them from mandating any seller to sell products exclusively on their respective platforms. The new rules kicked in from February 1.

Amazon divested a part of its holdings in large online seller entities, Cloudtail and Appario, to comply with the changed rules, while Flipkart created a layer of business-to-business entities to act as intermediaries between its wholesale arm and prominent sellers on its platform.

Amazon and Walmart remain optimistic about India’s ecommerce opportunity despite the tightened rules and the entry of Mukesh Ambani-owned Reliance Industries into the e-commerce marketplace later this year. While Amazon has committed $5.5 billion for its India operations, Walmart last year invested $16 billion to acquire 77% stake in Flipkart.

Source: economictimes