Case Study: Flipkart vs. Amazon in India: Who’s Winning?

Case Study: Flipkart vs. Amazon in India: Who’s Winning?

Kristina Kemp

Flipkart is the 6th largest startup in the world, the number one online retail platform in India with a 45% market share, and a valuation of over $15 billion (Flipkart.com, n.d.).  They have enjoyed sustained competitive advantage because they’ve diagnosed their barriers to market entry and have been solution oriented and overcome Indian e-commerce challenges to ease into their current standing.  Amazon saw the opportunity after failing in China and entered India as a latecomer.  They leveraged Flipkart’s deep understanding of the retail e-commerce market. Projections are looking like Amazon and Flipkart may be nearing a competitive parity with Amazon poised to close the gap and take the lead in the Indian market in the near future.  

Background of Flipkart

Flipkart’s early entrant strategy and wise tactic choices in India’s burgeoning e-commerce market have proven successful since their beginnings in 2007 as a young startup selling only books.  By taking advantage of the volume of young, professional, middle class in a country of over 1.2 billion people using the internet more than ever before, with a projected $130 billion increase in the e-commerce market (Flipkart.com, n.d.), Flipkart gradually made the right moves at the right times and now hosts over 75 product categories, third-party sellers, and has a compounded annual growth rate of about 300% (Rothaermel, 2019).

Flipkart undoubtedly covered all the groundwork when they implemented the strategic management tasks of analysis, formulation, and implementation to gain and sustain competitive advantage and has therefore formulated a business model that has allowed them to be so dynamic.  Their groundwork included a diagnosis of their barriers to entry.  Based on the findings, they changed their original model from a provider of solutions to unique Indian e-commerce challenges to an online platform that allows merchants to sell through its site and pay a fee for each transaction.  This model of hosting third-party sellers will enable them to circumvent the government ban on direct foreign investment (Rothaermel, 2019).  Their strategic business model revisions have been what’s set them above their competition.  By focusing on how the people shop, for example, paying cash on delivery, offering peace of mind with a no haste return policy, as well as the same or next day delivery in 10 urban areas, these tweaks catalyzed a change in the way the people of India do their shopping (Rothaermel, 2019).  They made online shopping accessible and earned the trust of the people.  Using their unique tactics, they gained the confidence of a skeptical population, were able to circumvent regulatory roadblocks, and build credibility and brand value.  With this, came a depth of understanding of the Indian e-commerce and retail market. 

Background of the Problem

With India being the 2^nd largest internet market globally and an e-commerce worth of $38 billion in 2016.  By 2020 the Indian internet market is projected to be at $159 billion because initiatives like Digital India are connecting people in remote parts of India online (Flipkart.com, n.d.).  Amazon saw the opportunity after failing in China and went for it.  It didn’t take long before Amazon, the 10^th largest retailer in the world with $136 billion in revenue (The dailyrecords.com, 2019) valued at over $475 billion (Rothaermel, 2019), entered India as a latecomer and seized the opportunity to leverage Flipkart’s deep understanding of the retail e-commerce market with a transnational strategy.   A strategy that combines high local responsiveness and a low-cost position (Rothaermel, 2019) with the following advantages over Flipkart:

o   Amazon effortlessly copied the tactics developed and implemented by Flipkart. 

o   Amazon implemented additional offerings to customers that Flipkart cannot like their “fulfilled by Amazon” initiative and their sophisticated artificial intelligence technology, (Rothaermel, 2019). 

o   Amazon’s deep pockets and swift initiatives have enabled the e-commerce giant to build a relationship with India and offer the lowest cost products in the fastest time frame resulting in $1 billion in sales after one year (Rothaermel, 2019).

The advantages Flipkart has to offer are; a depth of understanding of the people, their culture, and their ability to offer “made in India products”, and user-friendly web apps to assist buyers in their product search (Flipcart.com, n.d.), however, as a result of Amazon’s entry, they continue to gain market share in India at a much faster rate than Flipkart, Snapdeal, and others ever have.  Amazon edged out Snapdeal for the 2^nd highest market share.  At this rate, Flipkart will not be able to sustain its early lead over Amazon despite Flipkart’s current advantage over Amazon as the leader in market share. 

Alternatives

Flipkart will have to take a look at the competitive market and analyze their disadvantages to regroup and formulate a new business model, taking a hard look at their triple bottom line to come up with a sustainable strategy. Flipkart has options if they want to keep and sustain their competitive advantage.

Possible Option 1

Flipkart could leverage its core competencies outside of India in neighboring countries as a test market with long term plans to go global.  Performing a market analysis in neighboring countries would be a start to determine which markets to penetrate first.  If Flipkart can penetrate India, they can penetrate countries with the same barriers to entry.  Bangladesh borders India and has the same initial barriers as India and the same characteristics, especially access to credit.  Flipkart was able to build a successful business model working within India, where credit card penetration was only 1% (Rothaermel, 2019).  Countries that would provide the best opportunities would be bordering countries where Flipkart can expand their hub and spoke distribution network outward, including Bangladesh, Nepal, and Pakistan.  This idea is a continuation of their new warehousing strategy of investing in “company-owned mega size logistics hubs with smaller size fulfillment centers which will act as spokes” (Mukherjee, et al., 2018).  As a start, Flipkart could run a test market in a transnational strategy.  This strategy combines a localization strategy catering to the needs of the market with a global-standardization strategy (Rothaermel, 2019) out of necessity with the lowest cost position.

Pros - Online payment is still inadequate but is growing as a result of an increase in mobile and internet penetration (Export.gov, 2018).

- The prominent international logistics company, DHL has announced plans to invest in cross-border eCommerce in the future (Export.gov, 2018).

- Flipkart has the experience working through the same barriers to entry and can implement already tried and true tactics used in India.

Cons - Cash is still the primary method of payment, including cash-on-delivery.  Over 90% of eCommerce users prefer cash-on-delivery payments (Export.gov, 2018). 

- Foreign currency exchange, cross-border e-commerce remains inhibited due to lack of an online transaction system as well as capital controls (Export.gov, 2018). 

- A weak logistics infrastructure and unreliable customs disrupt the growth of cross-border eCommerce (Export.gov, 2018).

- Bangladesh still ranks 147 out of 176 on the International Telecommunication Unit’s ICT Development Index 2017, an annual report that captures the level of ICT development (Export.gov, 2018). 

Possible Option 2

Flipkart could explore the option of being acquired by or merging with an already dominant e-commerce giant in, preferably a rival of Amazon.  An acquisition is a situation whereby one company purchases most or all of another company's shares to take control. Acquisition occurs when a buying company obtains more than 50% ownership in a target company (Kenton, W., 2018).

Pros - Walmart would want to acquire Flipkart because Walmart and Amazon are fierce rivals. Walmart may see value and opportunity in teaming with Flipkart to rival with Amazon India for market dominance (Chen, C. & Hooper, C., 2017).

- Flipkart could benefit from Walmart’s massive distribution network and subsequent economies of scale (Chen, C. & Hooper, C., 2017).

- Walmart has significant capital to invest in and upgrade the supply chain network and could bring of e-commerce to the most remote areas of India and beyond, creating a vital and possibly sustained strategic advantage in the market.

Cons - Investopedia defines acquisition as a situation where one company purchases more than 50% of another company's shares to take control (Kenton, W., 2018).  Essentially, this means Walmart would take the majority of all profits going forward, and Flipkart would lose its ability to make strategic decisions.

Possible Option 3

Flipkart could revisit their previous ideas of working together with Snapdeal to compete against Amazon more effectively. However, they could acquire Snapdeal for a dollar amount, they could form a non-equity strategic alliance which is an agreement to pool together their capabilities and resources (CFI.com, n.d.).  It would be possible to and easy to implement, and both companies would remain intact.

Pros - A strategic alliance with Snapdeal would streamline market penetration by increasing the sales volume as opposed to Amazons and would be possible because the two companies would share their customer base. 

- This strategy would help to overcome uncertainty at least for some time as they work together to determine an effective business model to gain and sustain competitive advantage. 

- It would also allow them to share in expenses such as research and development to speed up the development of new tactics. 

- As a low-risk strategy, they don’t merge their capital.  Merging of Internal capabilities, certain assets, core competencies, technology, and intellectual property could all be leveraged and give customers value (Bashin, H., 2018).

Cons - There is no exchange or pool of monetary assets binding each company for the long run, which tends to create a feeling of cohesiveness’ and security, which could create a sense of distrust among each organization.

- Proprietary information could be compromised if one decides to split from the alliance or likewise, the fear of sharing proprietary information may create an uneasy relationship.

Proposed Solution

            The idea of partnering with Walmart in some way seems like the best viable and worthwhile solution thus far.  All the pros of going in with Walmart seem better alternatives to the pros considered in the other two options.  Being that Walmart and Amazon are fierce rivals, Walmart may see value in teaming with Flipkart to go head to head with Amazon India for market dominance (Chen, C. & Hooper, C., 2017).  Flipkart would also benefit from Walmart’s massive distribution network and subsequent economies of scale (Chen, C. & Hooper, C., 2017).

Additionally, Walmart has substantial capital to invest in and upgrade the supply chain network in India and would open e-commerce to remote areas of India, creating a significant strategic advantage.  The only hesitation with this idea is Flipkart’s interest in the powerhouse e-commerce company they created from a grassroots humble beginning. Instead of selling out the majority of their stake to Walmart, my proposed solution is to ask the world’s leading online retailer (The Daily Records, 2019) to invest in Flipkart.  Flipkart could continue to own their interests, keep their devotion in Flipkart, and the strong leadership they’ve built.  They could continue their mission of serving the customer’s needs and expand on it, and it would be the best solution and therefore eliminate all the cons and keep all the pros.  It would be a win-win for both Flipkart as well as for Walmart but a shock to Amazon India.  With one of the fastest growing economies in the world, the future for Flipkart looks promising with this solution not only in India but globally. 

Recommendations and Conclusion

            With Flipkart being the 6th largest startup in the world and the number one online retail platform in India with a 45% market share (Flipkart.com, n.d.) have held a competitive advantage from the beginning.  They’ve continually increased the e-commerce momentum by being solution-oriented, and customer focused and have sustained competitive advantage because of it.  Amazon saw the opportunity after Flipkart created a path for them into the market and entered as a latecomer by leveraging Flipkart’s deep understanding of India’s e-commerce retail market. As Amazon closes in on Flipkart’s competitive advantage, Flipkart needs to decide on what direction to go or lose a vast majority of what they have worked hard to build.  With a sizeable investment from Walmart, Flipkart could continue to own their interests, continue their mission of serving the customer’s needs throughout the far reaches of India and the world, and seize their market share and competitive advantage back from Amazon.

 

References

Bhasin, H. (2018). What are strategic alliances? purpose, risks, advantages & examples. Retrieved Mar 5, 2019, from https://www.marketing91.com/strategic-alliances/

CFI.com. (n.d.). What are strategic alliances? Retrieved on March 4, 2018 from: https://corporatefinanceinstitute.com/resources/knowledge/strategy/strategic-alliances/

Chen, C., and Hooper, C. (2017). Flipkart and indian E-commerce. Retrieved Mar 5, 2019, from https://www.johnson.cornell.edu/Emerging-Markets-Institute/Research/EMI-at-Work/Institute-at-Work-Article/ArticleId/47232/Flipkart-and-Indian-E-Commerce-Case-Discussion-and-Write-Up

Export.gov. (December 10, 2018). Bangladesh – eCommerce. Retrieved Mar 5, 2019, from https://www.export.gov/article?id=Bangladesh-ECommerce

Flipcart.com (n.d.). Ecommerce in India. Retrieved on March 4, 2019 from: http://www.flipkartcareers.com/work-in-india.php

Kenton, W. (2018). Acquisition. Retrieved Mar 5, 2019, from https://www.investopedia.com/terms/a/acquisition.asp

Mukherjee, W., Sarkar, J., Chanchani, M., Hariharan, S., Mishra, D. & Perlroth, N. (2018). Flipkart reworks logistics strategy, to own large hubs. Retrieved Mar 5, 2019, from https://economictimes.indiatimes.com/small-biz/startups/newsbuzz/flipkart-reworks-logistics-strategy-to-own-large-hubs/articleshow/63388060.cms

Thedailyrecords.com. (2019). Top 10 largest retail companies in the world. Retrieved Mar 4, 2019, from http://www.thedailyrecords.com/2018-2019-2020-2021/world-famous-top-10-list/highest-selling-brands-products-companies-reviews/best-largest-retail-companies-world-clothing/11213/

The Daily Records. (January 3, 2019). Top 10 largest retail companies in the world. Message posted to http://www.thedailyrecords.com/2018-2019-2020-2021/world-famous-top-10-list/highest-selling-brands-products-companies-reviews/best-largest-retail-companies-world-clothing/11213/