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International Journal of Management and Applied Science, ISSN: 2394-7926
http://iraj.in
Volume-3, Issue-2, Feb.-2017
AMAZON IS PREPARED TO BURN UPTO ONE BILLION USD
ANNUALLY IN INDIA TO DETHRONE RIVAL FLIPKART
ANAND SAGAR
Department of Management, Shri JJT University, Jhunjhunu, Rajasthan(India)
E-mail: [email protected]
Abstract - In the quarter that ended September, 2016, Amazon reported a $541 million dollar loss from its International
businesses, largely due to the investments it is making in India. The company’s aggressive spending and deep discounting
isn’t just affecting large rivals Flipkart and Snapdeal but also smaller players such as Voonik, Zivame, Koovs, Lime-Road,
StalkBuyLove and Craftsvilla, who play in the online-fashion space that usually yields high margins. Earlier, Amazon spent
a lot of capital to build warehouses and infrastructure, but in 2016 they have increased spending on customer acquisition.
With the results, Flipkart and Ola's were at the forefront of a debate saying that Indian-origin startups need policy support to
counter "capital dumping" by foreign rivals. While free and fair competition is a must to benefit the consumers or end users,
it is also to be taken into considerations that Indian-origin startups not only remain competitive but also be able maintain a
sustained growth in terms of revenue and profit generations for themselves. Hence, it will not be out of place to agree that
Indian-original startups need some sort of direct or indirect policy support from the Government so as to remain competitive
against their foreign rivals.
Keywords - Amazon, Flipkart, Snapdeal, Warehouse, Discounting, Advertisement, policy support from government.
guaranteed delivery in a day or two as well as early
access to deals.
I. INTRODUCTION
Amazon invested Rs 2,010 crore in its main Indian
unit, marking the single largest capital infusion as it
wanted to topple market leader Flipkart from its
perch atop one of the world's fastest-growing markets
for online retail. With this investment, made in
November, 2016 the total capital invested made by
Amazon went up to over Rs 7,000 crore in a year’s
time.
The aggressive spending has started showing some
results. Amazon Seller Services' turnover for the last
fiscal rose 116% to Rs 2,217 crore. In the same
period Flipkart Internet's sales increased 153% to Rs
1,952 crore. However, these figures don't include the
revenue of Flipkart's fashion subsidiary Myntra. Both
Amazon Sellers Services and Flipkart Internet earn
revenue through commissions, advertisements and
shipping fees that they charge sellers.
It was estimated to have lost over Rs 1,000 crore to
woo customers with special offers and discounts
during the festive season in October, 2016. It burnt up
nearly a $1 billion in 2016 in India as it was
determined to outpace its Indian rivals. In an industry
reportedly flat or negative, Amazon India continued
to show remarkable growth of over 100% in 2016.
Earlier, Amazon spent a lot of capital to build
warehouses and infrastructure, but in 2016 they have
increased spending on customer acquisition.
II. REVIEW OF LITERATURE:
(1) Madhav Chanchani (2016) The Jeff Bezosowned company, which operates the online
marketplace Amazon.in, is estimated to have lost
over Rs 1,000 crore to woo customers with special
offers and discounts in the festive season in October,
according to two people aware of the details. "We
will invest what it takes to become the customers'
preferred choice in India, and are encouraged that we
are India's largest and fastest-growing e-commerce
marketplace," said an Amazon India spokeswoman in
a statement to ET's queries about the investment and
losses.
Flipkart will now need to raise fresh money of its
own to counter Amazon. The Bengaluru-based
company, backed by New York Investment firm
Tiger Global, has raised about $3.4 billion so far.
Flipkart was in investment mode in 2015, which it
has cut down in 2016. It will need to raise capital
before it can start matching Amazon's spending. The
capital infusion by Amazon is the first since the
Indian government announced new norms for online
retail in April, and also the first after Bezos increased
capital commitment to India from $2 billion to $5
billion in June. This has been a year of aggressive
expansion for Amazon in the country as it has
launched a slew of global programmes, including the
Prime subscription service, where customers get
(2) Alnoor Peermohamed (2016) Amazon’s losses
in India more than doubled to Rs 3,572 crore during
the twelve months that ended March 2016 as it
stepped up its investments to dethrone local
rival Flipkart as the top retailer in the country.
The Seattle-based e-commerce platform’s losses in
India jumped up from Rs 1,724 crore in the year ago
period, while revenue more than doubled to Rs 2,275
Amazon is Prepared to Burn up to One Billion USD Annually in India to Dethrone Rival Flipkart
140
International Journal of Management and Applied Science, ISSN: 2394-7926
http://iraj.in
crore, up from Rs 1,022 crore in financial year 201415. The figures are from documents filed with the
Registrar of Companies reviewed by Livemint.
According to the documents, the company also
increased its authorised share capital to Rs 16,000
crore, an increase of over four times in the past 12
months, and its paid-up share capital to Rs 9,629
crore. The move show’s Amazon’s will to win in
India, the last large open global market.

(3) Amazon India Q3 loss jumps to $487 million,
The Indian operations of the Seattle-headquartered ecommerce major Amazon continue to be a drag on its
finances. In the quarter ending December, the
company's
losses
from
its international
business jumped over four times to $487 million
compared to $108 million in the year ago period. This
significant rise in losses for Amazon's international
business comes on the back of its aggressive
investment in the India market, where it fights the
likes of home-grown rivals Flipkart.
Company CFO Brian Olsavsky said, India continues
to be a rather large investment for the e-commerce
biggie. “It's still very early . We continue to say that,
but we are very encouraged with what we've created
with customers and sellers alike in India over the last
few years. We continue to develop new functionality
for that country , whether it's delivery or seller
features. We rolled out Prime last summer if you'll
remember, and we recently launched Prime Video
there.“


“We don't expect India to be any different. We will
continue to build our business there, and continue to
do a great job for both customers and sellers. We're
bullish on India in the longer-term,“ said Olsavsky
and added, “We like the initial engagement we're
seeing and the response from, again, both customers
and sellers,“ to a question on investments in India and
China. The company re cently launched Prime
services in China as well. For the same period, net
sales in the international business grew 18% to $14
billion.

III. FINDINGS


Amazon attributes its huge growth in losses to
spending on infrastructure, new fulfilment
centres and on technology. It also said it is
spending on launching new products and services
for its customers and sellers in the
country. Amazon launched its loyalty service
Prime ahead of the festive season and launched
its video streaming service in December — both
of which are said to have drawn heavy
investments.
All three large e-commerce players in India also
incur huge losses due to discounting of products
on their platforms, and this is expected to be one
of the top sources of Amazon India’s losses.


Volume-3, Issue-2, Feb.-2017
Under the Department of Industrial Policy and
Promotion guidelines for foreign direct
investment (FDI) in e-commerce marketplaces,
players aren’t supposed to regulate the price of
products sold.
Unlike
its
Indian
rivals Flipkart and
Snapdeal, Amazon is using its global balance
sheet to fund its expansion in India, meaning
profitability isn’t a top focus. This puts the
company at an advantage against its rivals who
have to rely on external investments,
forcing Flipkart co-founder Sachin Bansal to
recently cry foul and demand that the Indian
government curb Amazon’s dollar-fuelled
growth in the country.
Amazon has been aggressively investing on
discounts
and
promotions,
building
infrastructure, and new launches in the domestic
market. It is also pushing its daily consumables
and FMCG goods business Amazon Now and
Pantry . Amazon has pumped in about Rs 7,000
crore over the last year in its Indian entity, which
runs the marketplace business here. It also added
Rs 150 crore to its payments business late last
year signalling its intent of a larger play in the
payments
market.
Amazon is expected to be burning close to $1
billion in India annually to ward off rival
Flipcart, which is struggling to raise fresh funds
amid continuous organisational changes.
Throughout 2016, Amazon launched multiple
global programmes in India, including its popular
subscription-based service Prime, which is priced
much cheaper here compared to the US market.
In the previous quarter of 2016, Amazon had
registered $541million in losses from its
international business, which again was largely
due to heavy spends in India.
According to an Economic Times report, these
ix companies reported a combined loss of Rs 515
crore for the fiscal year 2015-16, up from Rs 134
crore in the year ago period. While losses shot up
as much as 19 times for some players, the growth
in
revenues
was
fairly
muted
as
these companies were forced to engage in deep
discounting
to
compete
with Flipkart and Amazon.
In comparison to Amazon, rival Flipkart reported
a loss of Rs 2,306 crore on a revenue of Rs 1,952
crore for the year that ended March 2016.
However, these figures cannot be directly
correlated to those of Amazon’s as the Indian
firm has set up a complex holding structure to
navigate the country’s complex FDI norms.
Flipkart was in investment mode in 2015, which
it has cut down in 2016. It will need to raise
capital before it can start matching Amazon's
spending," said Meena. The capital infusion by
Amazon is the first since the Indian government
Amazon is Prepared to Burn up to One Billion USD Annually in India to Dethrone Rival Flipkart
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International Journal of Management and Applied Science, ISSN: 2394-7926
http://iraj.in

announced new norms for online retail in April,
and also the first after Bezos increased capital
commitment to India from $2 billion to $5 billion
in June. This has been a year of aggressive
expansion for Amazon in the country as it has
launched a slew of global programmes, including
the Prime subscription service, where customers
get guaranteed delivery in a day or two as well as
early access to deals. Last week it also launched
Prime Video, for which Amazon has been tying
up with a number of content creators.
Amazon is losing about Rs 600 crore every
month (non-sale months) and it will burn up
nearly a $1 billion this year in India as it races to
outpace its Indian rivals – Flipkart.



CONCLUSION

Amazon has so far committed $5 billion to India
with the effect of its investments in the country
showing up on its global balance sheet for the
first time. In the quarter that ended
September, Amazon reported a $541 million
dollar loss from its International businesses,
largely due to the investments it is making in
India. The company’s aggressive spending and
deep discounting isn’t just affecting large
rivals Flipkart and Snapdeal but also smaller
players such as Voonik, Zivame, Koovs, LimeRoad, StalkBuyLove and Craftsvilla, who play in
the online-fashion space that usually yields high
margins.
Volume-3, Issue-2, Feb.-2017
Earlier, Amazon spent a lot of capital to build
warehouses and infrastructure, but in 2016 they
have increased spending on customer
acquisition," said Satish Meena, an analyst with
Forrester Research, who believes Flipkart will
now need to raise fresh money of its own to
counter Amazon.
The Bengaluru-based
company, backed by New York Investment firm
Tiger Global, has raised about $3.4 billion so far.
Flipkart and Ola's were at the forefront of a
debate saying that Indian-origin startups need
policy support to counter "capital dumping" by
foreign rivals.
In view of the circumstances mentioned above
and the fact that while free and fair competition
is a must to benefit the consumers or end users, it
is also to be taken into considerations that
Indian-origin startups not only remain
competitive but also be able maintain a sustained
growth in terms of revenue
and profit
generations for themselves. Hence, it will not be
out of place to agree that Indian-original startups
need some sort of direct or indirect policy
support so as to remain competitive against their
foreign rivals.
REFERENCES
[1]
[2]
[3]
Madhav Chanchani (2016) “Amazon makes its biggest-ever
investment in India yet” Economics Times, 20th Dec., 2016
Alnoor Peermohamed (2016) “Amazon's aggressive spending
in India doubles losses to Rs 3,572 Crores in Financial year
2016”, Business Standard, 26th December, 2016,
“Amazon India Q3 loss jumps to $487 million”, Times of
India, 4th February, 2017.
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Amazon is Prepared to Burn up to One Billion USD Annually in India to Dethrone Rival Flipkart
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