Announcing an additional $2 billion investment into India, Amazon founder and CEO Jeff Bezos recently said: “At current scale and growth rates, India is on track to be our fastest country ever to a billion dollars in gross sales.”
Effectively, in next to no time, Amazon has established itself as a leader in one of the largest markets in the world alongside local champions Flipkart and Snapdeal.
The contrast with French retailer Carrefour, which decided to exit India at roughly the same time, couldn’t be starker. Amazon’s success in a notoriously difficult market illustrates what it takes to succeed in emerging markets.
There are three reasons why the American online giant is winning in India.
CEOs like Bezos understand that markets like India should be seen through the lens of their potential rather than short-term ups or downs. “In every country that we are present in, we don’t look at one year or two years from now. Everything we are doing is so that we are happy five to seven or 10 years from now,” Diego Piacentini, Amazon’s senior vice president for its international division, explained earlier this year.
This long-term view is critical in a business where profits are no where in sight; Amazon’s patience and deep pockets may eventually trump Flipkart’s.
Winners like Amazon also understand that to succeed in emerging markets, they need to adapt their business model to the market rather than expecting the market to adapt to their model. For instance, India still doesn’t allow majority foreign ownership in retail. Instead of waiting for regulations to change, Amazon operates in India as a marketplace rather than a retailer. (This may be a fine line; Amazon is being investigated for whether it exerted control on prices of products sold on its website.)
Few Indians have credit cards; fewer yet are comfortable using their cards online. So Amazon, like other local e-commerce companies, offers customers cash on delivery service. To achieve distribution reach in a vast country, Amazon is racing to build warehouses and has partnered with the Indian Postal Service, the largest in the world. It is also partnering with small local grocery stores to be their local shipment pickup and delivery points to overcome the problem of failed deliveries.
To woo buyers in a notoriously price sensitive country, Amazon offers a comparison shopping website called Junglee, where consumers are able to compare prices from 100,000 offline and 2,000 online sellers. Contrast this with companies that simply replicate their rich country model, get surprised at their lack of success and go on to blame the market for their failure.
To win in emerging markets you have strike a delicate balance between being mindlessly global and helplessly local.
The right local leadership and the right organisation structure are critical. Amazon keeps the organisation structure flat and simple. The country manager Amit Agarwal is a seasoned, senior and trusted Amazon executive. To succeed in high growth and chaotic emerging markets, you need to be able to move quickly and also bend the standard operating model. This requires two things. First, a simple organisational structure where the country manager is a real CEO with real accountability and authority. Second, a high degree of trust in the country manager so that every trivial decision doesn’t have to be debated and approved by someone at the global headquarters.
Emerging markets like India or Indonesia aren’t easy places to do business: They are bedeviled by corruption, bureaucracy, volatility of politics and policies, and poor infrastructure. This is why they are called “emerging.” But this is where a lot of the future growth lies.
The unwillingness to make a long-term commitment to the new market or to adequately trust local leadership, combined with the propensity to rigidly replicate the products, business models, and operating systems that have worked at home, drives many companies to a “midway trap.” This means that the emerging market remains an irrelevantly small contributor to global growth and profits.
But a handful of companies like Amazon have shown that it is possible to succeed despite the chaos.