In a January trip to India, Jeff Bezos doubled down on Amazon’s rapid growth in the highly fragmented Indian e-commerce and retail market, pledging a billion dollar (USD) investment for Indian operations amidst a bitter regulatory environment. India faces challenges to regulating, policing, and maintaining competitiveness with top tech, especially as its massive one billion plus user population continues to increase their digital reliance on the messaging, payment, and media capabilities of giants like Facebook and WhatsApp as well as online retailers like Flipkart (owned by Walmart). Larger companies with deep pockets can directly access and undercut mass pools of tech-savvy customers, especially for tech products such as smartwear, smartphones, and software. While marginally better for the average consumer, this has negatively impacted local sellers who once had price setting capabilities from their control over hardware supply and network access.
Understanding the potential impact of Amazon’s intentions in India and the rest of the world is impossible without a quick look at the history of disruptive and consolidative technology (via platforms, products, or services) in the country. This narrative isn’t simply one of market metrics and amassing a certain critical mass of educated and digitized customers making ad-based choices. Instead, it’s a tricky maze involving confusing legislation, local interests, and high fragmentation from both the regulatory and consumer end.
From India’s perspective, these generally protectionist moves come from a place of long-term economic vision for both the consumer and businessperson. China, India’s neighboring economic giant and closest comparison, used restrictive policy and protected its domestic companies after they committed foreign technological theft while building now-household names like Baidu and Alibaba. This prioritization of domestic leadership and disregard for international law and precedent came before even the CCP’s development of a competitive military, and surprisingly these tactics were left practically unchecked (outside of finger-wagging business school pieces) until the now-ongoing trade war.
Against this backdrop, India’s intentions to develop inhouse tech talent and firms is clearly a logical one, as it aims to emulate China’s success in building a middle class of hundreds of millions beyond the hard manufacturing industries like in other “industrialized” nations. To aspiring Indian founders, it asks for significant tax contributions, promises of domestic employment, and loyalty (in the form of pride and adherence to ruling parties) to the growing nation. In return, India offers unbridled access to the invaluable data of a billion consumers and a local market with increasingly favorable navigation, such as the unwritten promise of boxing out foreign tech competitors. For a country with “sovereign, socialist… republic” written in its founding, this stance is also ideologically feasible, with a constitutional framework that directs government involvement in the market economy.
So, how exactly has India been pursuing this protectionist dream? Primarily, by targeting top companies by name. Starting in 2019, WhatsApp’s planned money transfer services have been indefinitely paused in protection of startups and local remittance services like Paytm. On the supply-chain side, new regulation requirements targeted inventories of both Amazon and Flipkart to increase fulfillment and distribution presence domestically. Even on the services side, government bailouts for telecommunications partners of local initiatives have provided pricing and positioning protection against entry from international providers.
Second, India competes by prioritizing national security — mainly by valuing data more than its Western counterparts. Data sovereignty, the idea that data collected in a certain nation is subject to that nation’s law and governmental practice, is a concept that is hard to find in a diluted, multinational content-based world. Yet, is a directly stated goal of the Indian Republic. This has contributed to the server localization requirements currently vexing top Flipkart and Amazon officials, because the data in this case that regards Indian citizens and businesses can be processed overseas, but not stored there. Interestingly, government access to the data supersedes international company rights at the same time. These clauses, however don’t share data access in a way that empowers individuals — unlike proposals for data property rights — and instead gives data authority to the government, similar to China’s policies.
The resulting system is one where e-commerce and digital platform providers must employ or source data privacy, encryption, and access infrastructure domestically in India, which would align their user growth interests with the protectionist (employment and foreign investment-related) priorities of the government. This leaves them at a scale disadvantage to disruptive Indian firms as they would have to reconstruct existing infrastructure and processes from other markets before growing within India. Domestically, there are still shockingly few such disruptive companies that can serve their countrymen with high-valued tech in a known landscape, with only 19 or so unicorns — or startups valued at a billion dollars — in 2019.
Another factor to consider amongst all this is the Indian macroeconomy. Similar to the US, the Indian equities market is on a bullish run, yet the gains are scarcely shared with the national economy, which is constantly under “slowing growth rate” and “shrinking global trade” headlines. As Damodaran says, increased globalization increases disconnects between earnings numbers and economic health. Yet, this leads to a national economic solution based on sheer hope and belief in local growth. This creates a dilemma when considering which foreign investments to take: on the one hand, companies like Amazon will put in heavy money and create well-paying, brand-name jobs for underserved communities at a speed at which few can do. They have little financing issues, and their efficiency is unmatched because of client-customer-sales metric targets.
Yet, their investment dollars come at a much larger local economic cost. In India, family-run or franchised cellphone shops are the direct suppliers of most Apple, Samsung, and other Chinese models, facing little competition outside of malls, which themselves are fairly recent players in the tech space. Now, a user-hungry Amazon will sell an even newer version (surprise, their supply chains are more efficient) of these phones at a steep discount, as customer acquisition comes before profitability. Even after price comparison laws have targeted steep undercutting, the convenience and knowledge access of online shopping and optionality have greatly hurt local competitors like these family shops.
This is an unfortunate sacrifice for the greater good of society, yet as a government or leader who must take care of the old with the young, I can see how accepting Foreign Direct Investment and “progress” in this form can fuel some bad choices. Indeed, especially in a fragmented governance system like India, economic-fueled localism is easily envisionable — and techie consumers who follow the Bezos’ of the world will hurt for it.