How Flipkart dodged India’s e-commerce laws

23 June 2014
Sachin Bansal (left) and Binny Bansal (right), the founders of Flipkart.
Courtesy Flipkart
Sachin Bansal (left) and Binny Bansal (right), the founders of Flipkart.
Courtesy Flipkart

At the end of May this year, the news broke that Flipkart—India’s largest e-commerce company—had acquired the online apparel store Myntra for between $300 million and $330 million, the largest deal to date in the history of India’s nascent e-commerce sector. Journalists compared the deal to the American e-commerce giant Amazon’s 2009 purchase of clothing and shoe e-retailer Zappos for $1.2 billion. In fact, Flipkart’s founders, Sachin Bansal and Binny Bansal (they are not related), are former Amazon staffers who quit their jobs in 2007 to launch their company.

However, at a press conference announcing the deal, Sachin discounted this comparison with Amazon. “Our role model today is actually the Alibaba Group more than Amazon,” he said, referring to the Chinese internet behemoth, which made business headlines when it filed documents in preparation for its IPO, expected to be in August. Experts have claimed that Alibaba could be worth around $200 billion by the end of the year, far more than Amazon’s current market cap of around $154 billion.

But there is more to the Bansals’ disavowal of Amazon comparisons than their aspirations to Alibaba’s scale. Since Amazon’s India launch in June 2013, the company has become Flipkart’s primary competitor. Many believe the Myntra–Flipkart deal is a sign that the companies are ramping up to hold their own against Amazon. As Abhash Kumar, a writer who covers e-commerce for YourStory.com, a Bangalore-based business website, put it to me: “Rather than have a three-way fight between Flipkart and Myntra and Amazon, why not consolidate both of them, and just fight off Amazon?”

In most countries in which it operates, Amazon runs both an inventory and marketplace model simultaneously—that is, it serves both as a seller of its own product stock and as a platform for other vendors to sell their products. The inventory model allows the company to take advantage of economies of scale, acquiring products in bulk and offering lower prices than competitors. Bejul Somaia, the India managing director of Lightspeed, a venture capital firm that invests in numerous technology companies, explained in a post on VCCircle.com that in India, too, an inventory model could provide Amazon a better post-purchase user experience because it allows “control of the product” and “enables you to deliver faster and with higher accuracy, and respond effectively to customer inquiries about shipping status,” by cutting an additional player out of the sales equation.

Since Amazon entered India in 2013, it has restricted its operations to the marketplace model because Indian laws do not currently permit online retailers with foreign funding to sell directly to consumers. Yet companies like Flipkart seem to sell a range of products to customers while successfully having procured hundreds of millions of dollars in foreign funds over the past few years.

Adam B Lerner  is a former Henry Luce Scholar at The Caravan.

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