Why Amazon Is Betting Big On India
Amazon (NASDAQ:AMZN) CEO Jeff Bezos recently announced an additional investment of $3 billion in India, taking its net investment to over $5 billion in the country. To put things in perspective, this is almost equal to the company’s global marketing costs in 2015, and is higher than its total capital expenditures last year ($4.5 billion).
Amazon has stated that it intends to use this money to improve its position in the e-commerce space as well as build its web services business in the country. India presents an opportunity both in terms of a growing market as well as a skilled workforce, considering its 7%-plus GDP growth, relatively stable political environment and a relatively young working population. Below we take a look at why Amazon is betting big on India:
- E-Commerce Growth: Amazon has been operating in the e-commerce market in India since 2013, and has seen significant growth in the last three years. It is now among the top three e-commerce platforms in the country, along with Flipkart and Snapdeal, both in terms of Gross Merchandise Value (GMV) and the number of site visits. With an estimated current market size of $38 billion, e-commerce in India is expected to grow to about $120 billion by 2020, which presents a massive growth opportunity for Amazon. [1]
- AWS Growth: In addition to e-commerce, Amazon’s focus on expanding its web services business in emerging markets stems from the business’s robust profitability and Amazon’s growing list of global customers which now includes Salesforce, Netflix, Uber and Apple.
- International Growth: Amazon’s international business has not been able to match North America in terms of either top line or bottom line growth. In 2015, Amazon’s international revenues increased just 5.7% year-over-year to $35.4 billion compared to growth of over 25% in North America to $63.7 billion. In the first quarter this year, sales in international markets grew 24% but operating income remained negative. The company’s big push into India is also likely aimed to provide a boost in terms of international sales growth as well as profitability.
Overall, Amazon’s investment in India makes a lot of sense given the massive market opportunities – both e-commerce and AWS – and relatively favorable competitive environment.
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Notes:- Ecommerce Landscape of India [2016], ASSOCHAM India, Feb 26 2016 [↩]