Editor’s Note: This article was first published on May 11, 2018.
Amazon is facing a powerful new challenger on the world stage: Its biggest retail rival in the United States is joining forces with its biggest e-commerce competitor in India.
Walmart (WMT) said this week it would spend $16 billion to buy 77% of Flipkart, the most valuable startup in India that has managed to hold its own against Amazon in one of its largest overseas markets.
The opportunities presented by the fastest growing major economy in the world may explain why Amazon reportedly tried to spoil Walmart’s plans with a counteroffer for Flipkart. Amazon declined to comment at the time.
Although Amazon (AMZN) may have lost a battle, it’s not about to concede defeat in the fight for an online shopping market that could quadruple in size over the next decade.
“India is too important for either company to ignore. There is no other opportunity as big,” said Siddharth Shekhar Singh, an associate dean and professor of marketing at the Indian School of Business. “The competition between the two would certainly intensify in India.”
Amazon has plenty of firepower. CEO Jeff Bezos, currently the world’s richest man, has made his commitment to India clear, pledging to invest at least $5 billion in Amazon’s business in the country.
The company has already funneled more than $3 billion into its main Indian subsidiary, according to Indian government data. The latest infusion of nearly $400 million took place in late April, according to local media.
Amazon’s recent investments are “indicative of its continued strategic focus on the Indian market,” Nainika Singh, a consumer analyst at BMI Research, told CNN.
Too big to ignore
BMI Research expects the Indian market to grow from about $48 billion in 2017 to more than $80 billion by 2021, at an annual rate of about 19%.
And it’s projected to keep growing. Morgan Stanley estimates that the market will be worth $200 billion by 2026.
One key area where the looming battle may play out is groceries. Amazon already sells groceries in India after getting government approval last year, and Flipkart is looking to expand its grocery offerings.
“Walmart has the expertise needed to help Flipkart build its online grocery platform, which is still in the nascent stages,” said Singh of BMI Research. “However, Amazon is well positioned as well,” she added.
Walmart’s purchase of Flipkart has taken a serious chunk out of its cash reserves. The $16 billion Walmart is paying is almost five times what it spent on Jet.com in 2016, its last big e-commerce acquisition.
And it may have to commit more money to boost supply chains and logistics as part of “a long term strategy to compete with Amazon,” said Satish Meena, an analyst at Forrester Research.
Flipkart’s hefty price tag could also mean high expectations for India from Walmart’s investors. The company’s stock dropped more than 4% when the deal was announced, and has barely moved since.
“Walmart is going to be under pressure here due to the premium they paid for this deal for access to the Indian market,” said Meena.
Amazon declined to comment on its future plans for India. But it will soon have another new rival to contend with. Ebay, which sold its India business to Flipkart last year, said this week that it would relaunch Ebay India after selling its stake in the company to Walmart.