Amazon and Walmart subsidiary Flipkart are scrambling to revamp their supply chains, vendor relationships and systems. New regulations from the world’s fastest growing economy have undermined these retailers’ business models and obstructed their sales in India’s burgeoning e-commerce sector.
Previously, foreign companies were forbidden from holding their own online inventory and shipping it directly to customers. Amazon had found a workaround in the form of local subsidiaries of firms in which it had holdings, which opponents insisted was violating the spirit of the rule. Largely due to such proxy sellers, Amazon and Walmart had controlled almost 80 percent of India’s e-commerce.
But as of February 1, such goods are not permitted for sale by foreign companies. In addition, these firms are barred from entering into exclusive online sales agreements. A vendor’s inventory also will be considered under the control of an e-commerce marketplace if more than one-quarter of its sales are derived there.
The protectionist move follows ongoing complaints from domestic retailers over anticompetitive practices. Amazon and Walmart both requested a six-month postponement of the effective date but were denied.
“Thousands of products were pulled from Amazon.com Inc.’s India website Friday — the first direct impact from the country’s new e-commerce rules,” writes Corinne Abrams in the Wall Street Journal. The article goes on to explain that the restrictions are the latest effort by India to curb U.S. tech giants’ dominance in the country and “promote homegrown companies” as Prime Minister Narendra Modi seeks a second term.
“Both Amazon and Walmart have made big bets in India, where the e-commerce market is estimated to balloon to $72 billion in 2022,” Abrams adds. “Amazon has pledged to invest $5 billion to expand in [India], while Walmart’s takeover of India’s Flipkart for $16 billion was its biggest acquisition ever.”
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The operations of these e-commerce giants have been thrown into disarray. As these companies, and others, navigate such severe regulatory pressure, success will hinge upon the effectiveness, responsiveness and flexibility of their supply chains.
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