A Reuters special report has revealed that Amazon India has been bending rules and cutting corners to expand in the country. While India’s small retailers have been crying foul over Amazon’s business practices for a long time, these documents add fuel to the fire.
According to the report by Reuters, Amazon has been bending rules just enough to not get into legal trouble in India. For instance, the Indian FDI (foreign direct investment) rules prevent Amazon or other e-commerce retailers to control inventory in India.
This means Amazon can be the platform where buyers meet sellers but it cannot control how the sellers sell things. However, the report says Amazon found a way to control the inventory. So here’s everything you should know about the recent investigation into Amazon India’s business model.
Investigation Into Amazon India
Amazon India’s advertisements are currently running on the slogan “Aapki Apni Dukaan” which means “Your own Store.” The model is built around the platform connecting buyers with sellers. It says it has independent sellers that put up their products for sale on Amazon.
When you, as a customer, buy those products, Amazon gets a fee out of every sale. Sounds like a fair model, considering small businesses are likely to make better sales online. Well, the Reuters investigation says otherwise.
Amazon’s internal documents reveal the creation of a “Special Merchant (SM)” in 2014. This special merchant, namely Cloudtail, is one of the biggest sellers on Amazon, accounting for over 40% of the platform’s sales.
Cloudtail was created as a collaboration between Amazon and the Infosys founder, N.R. Narayana Murthy. Amazon wanted it to control more than 40% of sales on Amazon India. This would’ve made it a $1 billion business, whose profit would, indirectly, go to Amazon.
What’s alarming is that Cloudtail is created and controlled by Amazon, which means it directly flouted the Indian FDI rules.
Moreover, leaked notes from Jay Carney, a top Amazon official reveal that only 33 Amazon sellers account for about a third of the value of all the goods sold on the website. In simple terms, Amazon has been supporting and promoting a handful of sellers, causing loss to the rest of them.
Difference Between Amazon U.S. And Amazon India
In its home country, the United States, Amazon has an entirely different model. It has warehouses where it stores all the goods and sells them through its website. This model is one reason why the platform is in the bad books of the Department of Justice (DoJ).
The U.S. Congress Antitrust report also showed leaked emails from Amazon officials. These emails talk about how Amazon sold goods at a loss just to kill the competition. However, in India, the platform has an entirely different model…Read more>>