OPENING CASE Emerging Markets Ethical Dilemma Amazon Enters India Amazon must win India. This is an order from founder Jeff Bezos. It is not hard to see why. Having failed in China, Amazon is counting on India to drive major growth. The population of India is four times as large as that of the United States and more than double that of Europe. By the time you read this case, India's population is likely to surpass China's. As other major emerging economies slow down, India continues to feature exciting annual growth rates of 7 % -8%. A win in India can also be potentially replicated in other promising markets such as Indonesia and Nigeria. In 2013, Amazon launched its Indian website Amazon.in. Bezos told the pioneering group of expatriates who were Indian-born engineers who had previously worked at Amazon in the United States to "think like cowboys, who are wild and fast and a little bit rude, and not like computer scientists." In 2014, Bezos himself showed up in India, presenting an oversize $2 billion check to Amit Agarwal, head of the India operation. But India is not an easy nut to crack. Not every Indian household has a street address. Many addresses are simply descriptions such as "the house behind the temple." A hurdle bigger than addresses is how to get paid. Only 60% Indians have bank accounts, and only a tiny fraction enjoy credit cards. Therefore, Amazon has to accept cash on delivery. In India's rapidly advancing e-commerce industry, Amazon is a late entrant. Two leading local start-ups Flipkart and Snapdeal-were founded in 2007 and 2010, respectively. Incumbent conglomerates such as Tata and Reliance launched their own e-commerce sites left and right. In 2017, Alibaba, which had soundly beaten Amazon in China, entered India by buying 5% of Snapdeal and 62% of Paytm. In 2018, Walmart, after a decade of frustration associated with its inability to run brick-and-mortar stores (because of regulatory barriers), spent $16 billion to acquire Flipkart. In summary, rivalry is intense and entry barriers are not sky high. In terms of substitutes, e-commerce obviously competes with brick-and-mortar stores, because only 5%-10% of the population have shopped online. With the world's highest density of retail out- lets, India is the legendary land of small shops. It has more than 15 million outlets, compared with 900,000 in the United States, whose market (by revenue) is 13 times bigger. Without online shopping, approxi- mately 90%-95% of retail sales in India are made in tiny independent mom-and-pop (kirana) shops. The retail industry is the largest provider of jobs after agriculture, accounting for 6 % -7% of jobs and 10% of GDP. Its participants also represent a huge bloc of voters. As a result, the retail industry has been able to repeatedly pressure politicians to sponsor legis- lation clipping the wings of foreign retailers such as Walmart. Indian regulations dictate that Amazon cannot sell its own inventory. This forces Amazon to be a plat- form for sellers-akin to its "fulfillment by Amazon" program in the United States. Therefore, it is crucial to build good relationships with sellers. However, most Indian merchants are not comfortable sell- ing online. In response, Amazon sets up numerous joint ventures (JVs) with local firms to facilitate the migration of some of their business online. Amazon would even pick up products from sellers and deliver them-India is the only country where Amazon does this. Amazon's other response is to send a small army of employees to local markets, introducing e-mail, apps, and e-commerce to small merchants, who are offered deep discounts and incentives. All of this hard work will be useless if Amazon cannot lure enough customers. Amazon's (and Flipkart's) first group of customers are generally sophisticated urban dwellers who speak English and are already online. Getting them to start shopping online is hard-but not that hard. The real challenge is to attract the next 100 million people who are less wealthy and speak one of India's 22 major languages at home. In 2018, Amazon launched its first website and mobile app in Hindi. Translation cannot be straightforwardly done from English. In fact, some words such as free and mobile phones are left in English because this is how Hindi speakers talk in everyday conversation. Another form of adaptation 141 142 PART 2 BUSINESS-LEVEL STRATEGIES OPENING CASE (Continued) was delivering products to small kirana stores that have reliable addresses, instead of delivering to customers with unreliable addresses. Amazon relies on kirana owners who practically know everybody in the neighborhood to either call recipients to come to collect products or deliver "the last mile" to recipients. Instead of being wiped out by Amazon, some kirana owners can not only make a little commission off every delivery, but also attract more customers to their stores-a win-win for both sides. From a resource-based view, what is truly valuable and unique about Amazon? It may be its willingness to outspend rivals. "When will we make money?" is a question that Bezos reportedly never asks his India team. Having pledged $5.5 billion, he always raises a provocative question: "Are we investing enough?" One lesson from Amazon's failure in China is that "We should have spent way more." In a bidding war, Amazon, in fact, offered to acquire Flipkart more than Walmart offered, but Amazon was rejected because Flipkart was afraid that merging the two online giants-commanding a combined 80% online market share-would not win approval from antitrust authorities. Frustrated but more determined to win, Amazon reportedly has been spending $25 million a month. However, emboldened by other deep-pocket investors such as Alibaba and Walmart, Amazon's rivals can also copy this strategy. Despite India's promise, institutional uncertainties seem to deteriorate. In February 2019, Amazon (as well as all foreign-invested e-commerce firms, which now include Flipkart because it is no longer Indian owned) had a rude awakening. The government banned exclusive arrangements, deep discounts, and JVs with sellers. Amazon was forced to draw up new contracts with thousands of sellers, not only deleting wording such as exclusive but also dissolving JV arrangements. Before it was able to do that, all affected products had to be taken offline, wiping out-literally overnight almost half of its products on Amazon.in. Consumer uproar on social media was ballistic. "What's wrong with Amazon?" one frustrated shopper yelled, posting a screenshot. "I had 20 items in my shopping cart and suddenly 16 of them are now unavailable!" "US tech firms bet on India, then the rules changed." This is the title of a Wall Street Journal article summarizing the new deep freeze. Why did the presumably "business-friendly" Narendra Modi government do this? Given that Indian- owned e-commerce firms were not affected by such new regulations, the regulations were clearly designed to discriminate against foreign entrants. This seems to be the newest episode of the mighty political muscle of the retail industry overpowering the multinationals. After all, the retail industry can deliver millions of votes, but Amazon can deliver none. Although a government spokesperson announced that even though India welcomes foreign firms, they "cannot be allowed to indulge in anticompetitive practices" that crush the mom- and-pop shops. Although a small number of kirana owners signed up by Amazon are grateful to Amazon, most shop owners frankly hate it. The government, according to the commerce minister, "is clear about standing together with the country's small retailers. We won't let any harm to come to them." In January 2020, the government launched an antitrust investigation of Amazon (and Walmart and Flipkart), and Amazon pledged an additional $1 billion for India. In such an environment, can Amazon win? Sources: (1) Bloomberg Businessweek, 2018, Amazon's quest to win India, October 22: 43-47; (2) Bloomberg Business week, 2018, The man who flipped Flipkart, May 14: 28-29 (3) Bloomberg Businessweek, 2019, India's e-commerce crack- down, February 11: 17-19; (4) Economic Times, 2017, Ali- baba to hike stake in Paytm's marketplace for $177 million, March 3 economictimes.indiatimes.com: (5) Economist, 2017. Home and away, October 28 (special report): 7-8; (6) (7) Fortune, 2016, Amazon invades India. January 1: 63-71; Economist, 2018, Bentonville, meet Bangalore, May 12: 55-56; (8) Wall Street Journal, 2019, US tech firms bet on India, then the rules changed, December 4: A1, A12: (9) Wall Street Jour al, 2020, Bezos vows $1 billion for Amazon in India, January 16: B3; (10) Wall Street Journal, 2020, India probes Amazon, Flipkart, January 14: B4.