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Goliath vs. Goliath

Amazon and Reliance’s Battle Over Indian E-Commerce

Written By

Saurin Desai

Graphic By

Jessie Jiang

Amazon is no stranger to dominating. Using its near-monopolistic market position, vendor exclusivity contracts, expansive distribution network, and low-cost differentiation strategy, Amazon frequently out-competes rivals—which has led to a staggeringly high 50% market share in the US and nearly $400bn in annual revenues. However, for a company the size of Amazon, there is limited scope for additional domestic expansion, underscoring the need for foreign market entry to sustain returns to shareholders. It’s hardly shocking that Amazon is intensifying efforts to break into the nascent yet exploding Indian e-commerce market. With a projected 18.5% compounded annual growth rate (CAGR), the industry will grow to $200bn in five years—proving to be fertile ground for long-term growth. Amazon is not alone in recognizing the strategic need to tap into the Indian market: In 2018, Walmart acquired Flipkart, a local player with a 32% market share in India, as it seeks to continue its recent forays into e-Commerce. While Amazon faces competition from fellow foreign competitors, its most jarring threat comes from Reliance Industries, an Indian conglomerate with interests in oil and gas, telecommunications, and retail. So why is a relatively unknown company—outside of India—in a position to dominate the highly lucrative e-Commerce market for the foreseeable future? The answer lies in a recent court case between Amazon and Future Group, an Indian retail company with a previously established business partnership with Amazon.

A provision under a prior contract between the two companies afforded Amazon the right to veto any business arrangement Future Group pursued with Amazon’s competitors.

Amazon alleges it was not consulted prior to Reliance’s recently announced $3.4bn deal with Future Group to acquire its retailing, warehousing, and logistic assets. Amazon fears Reliance will expand its core capabilities and realize synergies that allow it to bolster its e-commerce business—while also supplementing its dominance of the estimated $1tn consumer retail market—and is seeking to prevent the deal through the courts. The case lays bare Amazon’s and Reliance’s positioning in India and exposes the regulatory, economic, and internal factors that enable an uneven competitive landscape deeply favoring Reliance. India’s competitive laws are largely a remnant of its pre-economic liberalization period. Regulatorily speaking, India favors local businesses over overseas competitors through high tariffs and stringent requirements over foreign direct investment. For example, under Indian law, foreign competitors like Amazon and Walmart are barred from entering into exclusive selling agreements with their subsidiaries (i.e., Amazon cannot sell items from vendors they have more than a 25% equity stake in). In fact, Amazon and Walmart are already subject to pending regulatory litigation. These regulations are a huge disadvantage to Amazon, whose cost leadership strategy relies on large-scale manufacturing partnerships. Now, the company will have to explore alternative business models and sources of competitive advantage—like leveraging local business partners—while Reliance, as an Indian competitor, isn’t bound by these regulations. Moreover, Reliance possesses valuable and hard-to-imitate resources and capabilities for the e-commerce space. Its already-strong retail footprint is set to double after the recent deal with Future Group, bolstering its network of supermarkets and retails stores. JioMart, its e-commerce service, will reap the “network effect” as Reliance develops a strong presence in nearly all medium-to-major Indian cities, thereby expanding its outbound logistics capabilities. As Reliance is acquiring wholesaling, logistics, warehousing, and front-end retail assets, there is a strong opportunity for vertical integration which are likely to result in quick and reliable order fulfillment. Thus, in addition to achieving strong business value, this deal should be viewed as a statement of intent by Reliance. Additionally, fashion remains a key driver of the e-commerce boom, and Reliance’s existing retail stores already offer a reliable supply chain for apparel. The company also demonstrates a superior value proposition for customers boasting same-day deliveries, no-questions-asked refund policies, no minimum order requirements, and free delivery. The aggregate effect of these capabilities allows Reliance to gain operational efficiencies and appeal to the average Indian consumer—who is extremely price conscious. While the map to success in the e-commerce space is relatively clear for Reliance, it is not without roadblocks. For one, companies with immense resources like Amazon will seek to adapt whatever business model proves most profitable in light of Indian regulations. Indeed, the more important question is of sustainable, long-term competitive advantage. As India modernizes and further develops, consumer purchasing criteria will evolve to weigh the customer experience more heavily. This could be an issue for Reliance, as it has extensive familiarity with brick-andmortar operations but is a relatively new entrant into the e-commerce and delivery industry. There are many operational and financial differences between physical and online fulfillment, including what customers expect and their subsequent pain points. While Reliance is fighting on its home turf, Amazon is an expert in e-commerce which may pose a competitive threat. The e-commerce industry facilitates low switching costs for consumers, and Amazon is an expert in catering to niche demand. Therefore, developing specialized capabilities in online retail. leveraging current physical retail stores, and optimizing end-to-end user experience is a priority for Reliance Some may harbor more bullish sentiments on Amazon and point to its deep expertise in the e-commerce space, investments in India totaling $6.5bn, and considerable technical and human capital. While it’s evident Amazon retains core capabilities that map well to e-commerce, the specific dynamics of the Indian e-commerce market and macro trends in India temper its competitive advantage. While Amazon bypassed listing restrictions by launching joint ventures and incorporating them as inventory-holding companies, the loophole has since closed. In a huge blow to Amazon and other foreign e-retailers, the Indian Ministry of Commerce is introducing new regulations that prohibit even indirect stakes in vendors. A central part of Amazon’s investments in India has been digitization campaigns for Indian small businesses, which incentivize use of Amazon’s marketplace. However, there has been strong resistance from The Confederation of All India Traders (CAIT), a trade body that represents over 60 million merchants, which has organized protests in several cities aimed at fighting Amazon’s anti-competitive and predatory pricing tactics. Prime Minister Narendra Modi is also piling pressure onto the e-commerce giant; he has launched a “Vocal for Local” campaign to incentivize purchasing goods and services from local competitors and has also instituted a 2% tax on all foreign-bound digital billings, which unduly affects US-based companies such as Amazon and Walmart (via Flipkart). With this political and economic calculus, there remain several questions over Amazon’s survival— much less dominance—in the Indian e-commerce space. Thus, Amazon is disadvantaged due to a favorable regulatory climate for Reliance and the impending deal with Future Group. However, Reliance must be wary of resting on its laurels—especially with the emergence of customer experience as a major pain-point for consumers. Although Reliance is at a significant short-term advantage due to its superior value proposition, revenue and costs synergies from the Future Group deal, and its status as a local competitor. The question remains, however, whether Reliance can capitalize on its short-term advantage to exert sustainable, long-term dominance over the booming Indian E-Commerce market. With stakes in the hundreds of billions, there’s a lot to compete for.

Fast Fashion Breeds Deceit

Written By

Isabella Picillo

Graphic By

Michelle Ren Zhang

Sustainability is one of the most prominent trends in designer fashion, trumping statement-making trousers and voluminous dresses season after season. Although sustainability in fashion has been a conversation for decades, it gained momentum towards the end of the 20th century when fashion became cheaper and more accessible, largely due to globalized manufacturing. In the 1990s, several companies, such as Nike, were exposed for their environmentally harmful practices, which gave rise to “eco-fashion.” Yet the start of sustainable fashion as we know it today began in the early 2010s. Consumer sensitivity, particularly to forced labor, combined with ecological concern as the conditions of fast fashion workers became apparent, such as in the 2013 Dhaka garment factory collapse. Today, we have witnessed many designer brands, self-proclaimed “activist companies,’’ and B Corporations debut environmentally-friendly designs to affirm their commitment to improving sustainability. Both the media and the general public are paying close attention to the fast fashion segment considering their large contribution to environmental degradation. As environmentally conscious consumers demand accountability, fast fashion companies, like Zara and H&M, have responded by announcing their commitment to addressing climate change and becoming more sustainable. However, the significance of these corporate promises remain unclear.

Many experts have expressed concern regarding corporations’ attempts to “greenwash” consumers, to misrepresent the extent of a company’s sustainability.

The fashion industry has long tolerated environmental harm as inherent to the production process, but selfproclaimed “activist companies’’ and B corporations have led a movement to dispel this tolerance. For instance, outdoor clothing company Patagonia was recognized for its sustainability and social responsibility efforts in every facet of its business. In this season alone, 64% of its fabrics were made with recycled materials, and all of its electricity needs in the U.S. were met with renewable electricity. It is also concurrently working toward its long-term objectives: becoming carbon neutral across its entire business by 2025 and eventually becoming a true zero-waste company.

“Designer brands have also touted their commitment to becoming environmentally friendly, most notably during the 2019 September fashion month.

It started in New York when Gabriela Hearts unveiled the first carbon-neutral fashion show, featuring upcycle prints from previous collections. Two days later, Gucci announced that its show would also be carbon-neutral. Today, fashion giants have turned sustainability into a competition, as we continue to see more brands announce their commitments. This is not necessarily negative, as long as companies are taking meaningful steps toward reducing climate change. There is pressure on the fashion industry to reduce its environmental impact. McKinsey estimated that the fashion industry as a whole is responsible for 4% of the world’s greenhouse gas emissions, while the United Nations reports that it accounts for 20% of global wastewater. The fast-fashion segment, in particular, is notorious for its alarming environmental toll and its history of exploiting workers. Fast-fashion companies are no exception in trying to attract environmentally conscious consumers. In fact, they may face even more