Category : Business
Why Amazon Would Fail In India?
 Bibhu Datta Rout  
 26 January 2018  

Long ago, there lived in a village two brothers — Motu and Patlu. Motu was the fat guy and Patlu was very lean and thin. One day both of them decided that they will start independent business in their village to sell mustard oil. Motu was smart guy and wanted to capture entire village. In order to do so, he started giving discounts on mustard oil. Patlu kept price at same level and focussed on the quality. Soon 90% of the market was captured by Motu and rest 10% was Patlu’s share.Soon Motu realised that he was incurring losses, rather massive losses. Though revenue was going high, but losses were also mounting with equivalent speed. He took some loan ( investor’s money) and diversified his business into ground oil. At that time there were few players in the market, who were already selling ground oil. Motu applied his tactics, as he was quite confident of his discounted business model. He started giving discount on ground oil as well. The investors were happy, that he kept on capturing market. Some more investors joined hands with him and put more money and Motu kept on giving discounts. He captured 80% of ground oil market and incurring more losses. Patlu, who had lost the first battle of mustard oil and few guys from ground oil had joined hands by that time. They had been searching for right time to screw Motu for unethical business practices. However, they could not do anything as Motu was “The Big Motu” by that time and out of reach from guys like Patlu. Motu had been arrogant to the producers, but he kept consumers happy. Producers had no choice, as Motu’s shop was selling more than any other shop out there. While life was moving forward, ‘The Big Motu’ felt there was big need to introduce TV to village, as villagers were deprived of TV. That was indeed a great idea and few investors put large chunk of money to it. Motu came up with a subscription model, so that whoever saw TV, had to pay some amount of money to Motu. People were happy, but the Motu’s staff at ground oil and mustard oil business were terribly unhappy, as the focus on those business were not there. The staff were working too much. The initial high salary was marginalised over period of time. So Motu kept on making customers happy, but at the cost of his own staff and producers of the product. He always believed that if one producer left his shop, dozen more would come and join. He was right, as everyone was dying to have Motu’s name associated with them.Every dog has a day. One day when Motu woke up from bed, he saw Patlu and few police men at his bed. Few of the unhappy producers were also besides him along with few local politician. Police had filed a case of unfair business practice and the charges were verified by few producers, staff even some customers who Motu felt were loyal customers. Motu tried to cease the case by paying some money, but probably he didn’t have enough money to pay the demand of politicians. The very next moment, investors started asking for money, staff revolted and things went very bad. The Big Motu was bankrupt.This story is satire metaphor of how Amazon runs business worldwide and why Amazon would fail in India with unethical business practices. India as a country is very different from the rest of the world. The consumers behave very differently here. Let me highlight few attributes of Indian.Attribute :1 People from Asian origin and specifically Indians value for money. Brand loyalty always loses the battle when pitted against the monetary gains. The discounted model does not create loyal customers in India. Attribute :2 Indians are very receptacle, adoptable to change and very fast in spreading the message. Thanks to mushrooming social media groups. So anytime Amazon tries to reduce the price of discounted items, it would take very little time, people switching to competitor. When Amazon entered India, there were few multi-million dollar e-commerce giants. Now there are many, with a hope that they would be taken over by Amazon some day. If at all Amazon buys few of them, the intrinsic value of the deal would be far below the sell off valuation.Attribute :3 Political and ideological idiosyncrasies. In Indian it is always believed that if two persons don’t match in their political views, probably they won’t be good team player. The silent reader who has been reading until now, will definitely have eyebrows up by now. Politics play an important role in governing a lot of things in India. Unlike west and Europe, where business houses are aligned to multiple parties so that nothing goes wrong when opposition is in power, in India, business houses cannot function the same way. Common people in India barely change political ideologies. As a result, it has been witnessed again and again that big companies ruin once there is a change in power at centre or state. People don’t hesitate to do political vendetta crossing any limits. It won’t be surprising Amazon falls prey to this practices.Attribute 4: Unlike other parts of the world, ego plays a vital role in shaping the personality of Indians. There are ample instances where dear ones are dejected just to satisfy ego, with hefty financial sacrifices. Enough of attributes. Let us put some search light through corridors of Amazon’s functioning in India. Unhappy sellers : Amazon makes majority of sellers unhappy in India. I have talked personally to more than 30–40 big sellers. All have same opinion. They have very indifferent attitude towards sellers. Despite having high profile machinery and huge man force and automated services, many times they fail massively in making their sellers unhappy. Hefty FBA charges : In small items such as books, fulfilment by amazon (FBA) charges are quite high. As a result, many of the regional languages book never ever see the face of Amazon. There is a possibility of some cynical political person sees some opportunity here and files a chargesheet on Amazon of killing regional language by not allowing space in e-commerce. Either Amazon would be forced to reduce the charges or find some alternatives. I don’t find any reason why a book lover won’t be interested to wait for 1 more day to get the books through normal shipping in India. Same day delivery practices in India, where there are a lots of logistics and infrastructure issues cannot be ruled out, would definitely force companies like Amazon to default in multiple instances. All the defaults can be clubbed together to make the case study big enough to file against Amazon. Flawed review practices : Amazon review processes are terribly skewed in favour of Amazon’s sponsored product. It is just a matter of time, when some agencies do some clinical litmus test on Amazon’s practice and expose them completely.Sponsored products : Amazon’s sponsored product has lot of loopholes and tries to fool even sellers. e.g. The adds will be shown to the person who paid for the add and amount will be deducted based on CPC model. Thanks to google’s chrome and Amazon. Both must be sharing the data or a special way of data stealing might be happing from systems.Unnecessary Add budgets : In order to capture Indian market, Amazon has been spending huge money on adds. Many of the TV channels fake viewership no and ask more money than they deserve. Since Amazon has lots of money from people, it does not hesitate to spend as many as they can.Too many things at same time: In stead of making some product robust and full proof, Amazon keeps investing in new products. They are in a mission to capture world just like the great Alexander. But the great man also failed in India, while underestimating the variance of IndianControl over rating systems: If you analyse Amazon take overs, they have almost taken over all big rating agencies starting from Alexa, IMDB, goodreads and many more and try to influence the product. I don’t know whether there are unfair practices over here, but seeing Amazon’s hostile takeover and unfair practices, the probability can not be ruled out.Arrogant behaviour: Two years back, when I was talking to Amazon customer service executive, they were very polite, but these days things have completely reversed. The potential reason could be the employees started believing they are too big to fail. I remember the day when I joined a company called EDS(electronic data system). That time it was fortune 80 company and there was absolutely no work. I left after few months of joining. I gave reason for exit as lack of work. My manager burst into laugh. Manager : You are getting four course meal from five star hotel. Travel is taken care by company and you work in fortune 80 company with good salary. What else you require in life.Me: I feel the company won’t survive more than 15 years with this model as the basics are not clear.Manager: You have gone crazy, as no fortune 100 companies ever died in 15 years. Rest all was history. EDS did some bad take overs, they were not having lots of savings and were not prepared for crisis and finally it was sold to HP. Eventually EDS helped HP, which was a fortune 30 company to incur losses and later divided into multiple parts.Possible cases how Amazon can fail in India.Amazon keeps on buying e-commerce companies, every passing day a new company is born supported by black money. Amazon is tired of fake acquisitions after lots of spending.Amazon has entered into food segment. Once small quality mistake can create a big havoc of generating nationalistic campaign to run against Amazon. All those people who wants to get benefitted, might join hands. One such instances, will create more opportunity and eventual exit due to heavy investors pressure.Amazon is killing the local intellectual market by stopping regional books online, as the cost incurred in distributing through Amazon is quite high. Indians value a lot for education and feel proud while preserving the culture. Indians would not eat, but would definitely love to see their children see big schools. Probably only country in the world who behaves this way. That is the reason education is over $100B business in India. If some campaign is run as anti-India against Amazon, it will take very short time to close Amazon out of India.Right to information and Right to privacy have lots of tentacles, which can be used or misused against unethical practices of Amazon.While entering food segment and entertainment segments, Amazon would be pumping in lots of money as it will be competing with companies like Reliance, UTV, Eros etc. The journey won’t be as easy as competing with Flipkart. Probability will be higher in favour of failure.If there is coalition government at centre, God help the big A. The amount of money that might be pumped into, will force the same year exit from India.There are no substantial examples that any business house running for losses or lack of profit has been able to sustain in long run. Amazon has been without profit for almost since inception, but it was majorly operational in country like US, the country which gave world many economic bubble like dot.com, sub prime crisis etc, where a economy can sustain even debt to GDP ratio is close to 100%. But in changing economic scenario, that model does not hold good. The functioning of Amazon is nothing less than e-commerce version of sub-prime crises, where the company believes that after they capture the complete market they will raise the price. But that instances will never happen in India. The day it is tried, there will either be multiple new companies floated, or public outrage or government interference. All in all these possible cases Amazon would fail in India.