In Blow To Amazon And Walmart, India Bans A Key Part Of Their Business Strategy

In Blow To Amazon And Walmart, India Bans A Key Part Of Their Business Strategy

The Indian government sent a strong screw you to Amazon and the Walmart-owned Flipkart on Wednesday, banning e-commerce companies from selling products from companies that they have an equity interest in or “entering into exclusive agreements with sellers,” CNBC reported.

India already bans e-commerce sites from selling products directly, per the New York Times, which has led to them acquiring stakes in affiliate companies that serve much the same purpose at arm’s length. At issue is the power of e-commerce companies to make bulk purchases of goods that they then sell to “select sellers, such as their affiliates or other companies with which they have agreements,” CNBC wrote. The strategy allows giants like Amazon to offer products at low prices that smaller competitors often find hard to match.

In a statement to CNBC, India’s commerce ministry said the new rules would go into effect on Feb. 1, 2019, adding the new rules specify that: “An entity having equity participation by e-commerce marketplace entity or its group companies, or having control on its inventory by e-commerce marketplace entity or its group companies, will not be permitted to sell its products on the platform run by such marketplace entity.”

The move could mean Amazon would be forced “to stop competing with independent sellers and end its offerings of proprietary products like its Echo smart speakers in India, its top emerging market,” the Times wrote. It’s also a blow to Walmart, which bought a 77 per cent stake in Flipkart for $US16 ($23) billion this year, and may be forced to stop selling products produced by companies it owns. As the paper noted, both companies’ competitive strategies rely on highly efficient supply chains and pressuring retailers to comply with their requirements, so this is not a good sign for their Indian ambitions.

The Times wrote that the decision appears to have been motivated by concerns from India’s prime minister, right-wing populist culture warrior Narendra Modi, that his party is losing ground ahead of upcoming elections:

Prime Minister Narendra Modi of India initially courted foreign companies to invest more in the country after his 2014 election victory, but his administration has turned protectionist as his party’s re-election prospects have dimmed in recent months. Mr. Modi has increasingly sought to bolster Indian firms and curb foreign ones through new policies, including one that requires foreign companies like Visa, Mastercard and American Express to store all data about Indians on computers inside the country. The government has also declared its intention to impose tough new rules on the technology industry.

According to CNBC, beneficiaries of the move will likely include owners of small businesses like farms and corner stores, the latter of which “dominate Indian retailing,” who believe that U.S.-based tech giants are trying to undermine their economic position. The site added that the Confederation of All India Traders issued a statement saying that tech giants will no longer to be able to commit “malpractices, predatory pricing policies and deep discounting.”

However, the law was vaguely written and contains some sections that appear to contradict each other, lawyer Salman Waris of New Delhi’s TechLegis told the Times, which means that its ultimate impact remains unclear. The paper also noted that Amazon is well-known for navigating Indian law to remain in compliance without losing its ability to steer markets, though Walmart’s decision to acquire Flipkart has already been questioned by analysts as a potentially unwise financial move.

[CNBC/New York Times]