As we mentioned in the latest edition of our Amazon News Roundup, Amazon has begun actively encouraging sellers to expand globally. And if Amazon India is one of the marketplaces you’ve considered entering, then it’s important you understand their new e-commerce guidelines.
First, some background.
In late December the Indian government announced a series of laws that now affect Foreign Direct Investment (FDI).
Basically, this refers to a company based in one country but that operates in another. This type of business affects the Amazon India marketplace, as well as their direct competitor Flipkart (owned by Walmart), so the guidelines are meant to safeguard India’s economy by limiting the competition between online and offline retailers.
These limitations allow a greater opportunity to improve the profitability and growth of India-based businesses, startups, and brick-and-mortar stores.
But the new rules apply to all online retailers across the entire e-commerce landscape. It just seems like an issue for FBA sellers because Amazon (and Flipkart) account for 60-70% of all online sales in India.
Now, the new rules.
The document that outlines the new FDI policies can be condensed into five key takeaways, with the greatest impact:
- A seller can’t have more than 25% of their sales coming from one marketplace. Otherwise, that marketplace will control all of their inventory.
There’s a bit of grey area here as to how this would be measured and regulated.
- A seller can’t do business on a marketplace if any of its equity is owned by the marketplace or by any of its group companies.
Amazon has equity investments in group companies that run Cloudtail and Appario, two of the biggest sellers on Amazon India.
- Marketplaces can’t, directly or indirectly, give discounts on products.
- The marketplace cannot require any merchant to sell any product exclusively on its platform.
- Marketplaces will have to submit a compliance report to the Reserve Bank of India by September 30th each year.
How will this affect third-party sellers on Amazon India?
A lot of what happens to third-party sellers on the Amazon India marketplace (post-ecommerce rules update) will stem directly from Amazon’s actions. And, thus far, Amazon remains committed to its investment in India’s marketplace, continuing to make the necessary adjustments in order to comply with the new FDI guidelines.
For example, Amazon sold much of its stake in Cloudtail after thousands of products were suspended. Thankfully, by relinquishing their equity, Cloudtail was able to resume selling.
But, there are still thousands of products missing from Amazon India’s shelves as Amazon continues to re-work their traditional business model to find loopholes and eliminate conflicts of interest. They are working to operate within the confines of the new rules.
Does any of this actually affect third-party sellers though? Generally speaking, no.
There are no immediate actions sellers need to take. But, new sellers (like you?!) need to know they won’t be able to offer deep discounts during their product launch. Otherwise, you risk losing sales. India already has a price-sensitive market, which does make balancing quality and cost difficult for sellers.
There are different schools of thought on the implications of foreign investments. When international companies enter a marketplace, they bring money, skills, and technology. And they often shake up the industry by providing more competition for domestic companies. They’ve also created thousands of jobs, just by localizing supply chains in order to manufacture, warehouse, package, and ship products.
But, when foreign companies begin to control key industries, it can lead to messy politics. That’s why the Indian government is jumping in now, to prevent any such dominance. The government policy changes for FDI intend to level the e-commerce playing field in order to drive the industry forward, and we’ll be tracking the progress closely.
Do you think the new policies make sense? Will they stop you from expanding your Amazon business into India? Concerned about the future of third-party selling on Amazon’s global platforms? Let us know in the comments!
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