Amazon India is welcoming a small businesses to procure supplies from a new website opening this week, the first country outside the US where the e-commerce major is offering the service.
The pilot service will be tested in Bengaluru before being offered in other cities, marking the entry of the Seattle-based company into wholesale e-commerce, an online business segment where foreign direct investment is permitted in India. Amazon’s entry into the wholesale business in India comes as its Chinese rival Alibaba, regarded as the pioneer in this category, is widely expected to begin operations in the domestic market.
So far, the Chinese behemoth, which has set up offices in India, has focused on connecting small and medium enterprises in India to global buyers, and not on domes tic sales. “Small and medium businesses suffered because of inefficiencies in the supplies procurement system,” said Amit Agarwal, country head at Amazon India. “Either the fill rates were poor, or the pricing was not transparent, or the delivery options were inconvenient and vendor lead time was huge. These are the problems we are looking to address.”
Amazon’s new business division will be led by Kaveesh Chawla. He will report directly to Agarwal. The website, which will go live in the second half of May, will allow registered members to buy a variety of products — office, kitchen and home supplies, health and personal care products as well as food and beverages — with a minimum order value of Rs 1,000.
Amazon will negotiate wholesale rates directly with manufacturers and sell to its members. ET was the first to report in September that Amazon India would launch a website for business e-commerce this year. The Indian website will mostly be modelled on AmazonSupply, the website focused on business consumers in the US that was launched in 2012.
The website, which does not have a minimum order size, offers products ranging from office supplies to electrical equipment. In India, Amazon is launching a members-only website, which means initially small and medium businesses have to be invited by the company to trade online.
“We don’t have a membership fee to start with, but we will evaluate that later,” said Agarwal. The company will seek to onboard online kirana stores, hospitals, schools and home entrepreneurs — anyone who has a valid business licence. Experts are of the view that the Jeff Bezos-led company will enjoy a first-mover advantage in this category in India as there are, as yet, no significant competitors. Last year, business e-commerce website IndiaMART set up Tolexo, a transaction arm for merchants.
“(Also) from a regulatory standpoint, it’s a win-win situation. The model is government-approved and a great opportunity for Amazon,” said Udit Aggarwal, partner at consultancy EY.”They will be closely watched.” Jack Ma-led Alibaba, in China, is primarily built on the back of business-to-business transactions. In India, too, the online channel is expected to be a disruptive force in wholesale trade.
US retail giant Walmart has estimated that India’s wholesale market will grow Rs 42.5 lakh crore) by 2020 to $700 billion (from $300 billion now.
In 2014, Walmart launched a business focused website bestpricewholesale.co.in. Retail consultancy Technopak estimates that the retail market in India will double in size by 2020 from $525 billion now. Despite the exuberance about the size of the opportunity, internet entrepreneurs are wary about the challenges in business e-commerce.
Typically, companies have to develop strong business and logistical connections with exporters, businesses and banks to ensure smooth delivery. Worse, margins can be thinner than in online consumer retail. “The key would be how well we execute on our product and our promise to the customer,” said Brijesh Agrawal, co-founder and director of IndiaMART who estimates that Alibaba will bring its business-to-business website to India in the next few years.
EY’s Aggarwal estimates that Amazon could encounter “some pain points” which include a need to keep a strict vigil to ensure that only businesses are transacted on its website, while also offering flexible payment methods.”Businesses are not used to net banking or paying by credit cards. They have a standard account payable process for 30-60 days, which (Amazon) may need to address,” he said.
