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Could Alibaba derail Flipkart's India ambitions?

06-August-2014
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Could Alibaba derail Flipkart's India ambitions?

There is a certain irony that ex-Amazon employees Sachin Bansal and Binny Bansal are now the biggest rivals to Amazon’s dominance in India. Flipkart crossed $1 billion in gross merchandise this year; the first e-retailer to do so, showing that the early lessons learnt in Amazon had been put to good use. However, the Bansals claim a closer relation with Chinese heavyweight Alibaba. Speaking to media after announcing the Myntra acquisition earlier this year, Sachin Bansal admitted that the company’s role model was Alibaba, pointing out to a number of similarities between the Indian and Chinese markets.

Though Flipkart might currently be the biggest e-retailer in the country, Amazon and Snapdeal are nipping at its heels but perhaps an unforeseen competitor to Flipkart could be, in another case of irony, Alibaba itself.

The Indian e-retail market is among the fastest growing in the world, especially with the slowdown seen in the more mature markets of the West. According to reports, the total size of the e-retail market is expected to reach $504 billion by 2015-16, growing at a 50-55 per cent CAGR, according to CRISIL Research. Therefore it is not surprising that venture capitalists and e-commerce players are not shy of investing such large amounts in the country.

Though Amazon has already entered the Indian market last year and has been growing with its usual aggression, the Chinese e-commerce giant has still to create any major headway in the country. Alibaba is of course right now occupied with its expansions in the US, where it is expected to come out with an IPO towards the end of the year, expected to be one of the largest by an internet company. This will certainly excite Flipkart and Snapdeal, who are both expected to come out with an IPO next year.

Currently, Alibaba has offices in Mumbai, Ahmedabad, Delhi and Chennai to support its network of buyers and suppliers but so far that has been the extent of its operations. It did buy out UCWeb in 2014, a web browser that is the most popular mobile phone browser in India with upwards of 34 per cent market share. So, it seems that even though Alibaba might not have any plans for the Indian market currently, given its attention is diverted to the West, it is prepping itself for a likely expansion.

But for the likes of Snapdeal and Flipkart, the question is which model should they be following—the Chinese or the American.

Paresh Parekh, Tax Partner (Retail & Consumer Products) Ernst & Young suggests that retail players will now need to differentiate themselves. Does Flipkart bank on its Indian knowledge or does Amazon’s global learnings will give it an edge? These are the decisions that e-retailers should be asking themselves, says Parekh.

Over the years Flipkart has emulated Amazon in certain departments; from an aggressive market expansion strategy to the launch of in-house brands, same day delivery and free delivery (which is no longer available on orders worth less than Rs 500). However, at the same time Flipkart has also introduced schemes which are typically Indian, the best example of which is cash-on-delivery. This blending of ways has served Flipkart well though it hardly has the market share in India like Amazon and Alibaba command in the US and China respectively. The reason for this is obviously because the Indian e-retail market is more open than China with a lot of players competing for a slice of the pie.

Unlike Amazon, Alibaba works more as a middleman; connecting suppliers to buyers. This is something how Snapdeal operates too and even Flipkart has recently moved to this marketplace model. The obvious benefit of this is of course that the e-commerce company does not hold any inventory and for a market like India this is a big advantage. As Praveen Sengar, Principal Research Analyst at Gartner explains, “In India, the biggest challenge is inventory. There is no visibility on what products will sell where.”

Alibaba has also invested a lot of money in creating different platforms to further empower its buyers and sellers and make transactions easy. This is also something that Flipkart believes in. Even post the latest round of investments, Sachin bansal mentioned that investments would continue to be made in “building technology platforms to enable sellers in selling online.” Both Alibaba and Flipkart see themselves as enablers rather than e-retailers and it will be interesting to see how these ideologies collide if and when Alibaba turns its eyes to India.

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