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Amazon May Violate India’s New Rules on Foreign E-Commerce Amazon May Violate India’s New Rules on Foreign E-Commerce
(about 11 hours later)
SEATTLE — For Amazon, no country is more important to its global growth ambitions than India, the second-most-populous nation in the world behind China, where online shopping is in its infancy and growing explosively.SEATTLE — For Amazon, no country is more important to its global growth ambitions than India, the second-most-populous nation in the world behind China, where online shopping is in its infancy and growing explosively.
But Amazon’s India plans just ran into a hitch.But Amazon’s India plans just ran into a hitch.
Late last month, the Indian government issued additional rules governing foreign ownership of e-commerce companies operating in the country. The government added regulations related to pricing and the sourcing of sales on sites that Amazon and several rivals appear to violate. What is more, the new policy was effective immediately, giving Amazon and others no time to comply.Late last month, the Indian government issued additional rules governing foreign ownership of e-commerce companies operating in the country. The government added regulations related to pricing and the sourcing of sales on sites that Amazon and several rivals appear to violate. What is more, the new policy was effective immediately, giving Amazon and others no time to comply.
“They’ve not given any timeline for enforcement,” Satish Meena, an analyst at Forrester Research in India. “There’s no proper instructions to companies about how to implement these things. That’s a very open-ended question the government has left.”“They’ve not given any timeline for enforcement,” Satish Meena, an analyst at Forrester Research in India. “There’s no proper instructions to companies about how to implement these things. That’s a very open-ended question the government has left.”
A trade group representing the Internet companies is considering sending a letter asking the Indian government for clarification or to delay enforcement of the rules until September.A trade group representing the Internet companies is considering sending a letter asking the Indian government for clarification or to delay enforcement of the rules until September.
Analysts and Internet executives in India say they do not expect an immediate government crackdown on Amazon and others, and it is not yet clear what the consequences would be for breaking the new rules.Analysts and Internet executives in India say they do not expect an immediate government crackdown on Amazon and others, and it is not yet clear what the consequences would be for breaking the new rules.
But the regulations were at least helpful to Amazon and its rivals because India finally clarified its murky policies regarding foreign-owned e-commerce companies.But the regulations were at least helpful to Amazon and its rivals because India finally clarified its murky policies regarding foreign-owned e-commerce companies.
Uncertainty is part of the tumult of doing business in India, which has had a flood of foreign investment in its Internet commerce sector and a corresponding wave of opposition from politically powerful domestic retailers. Online spending in India is expected to jump to nearly $75 billion by 2020 from a mere $12.1 billion last year, as more of the country’s 1.25 billion people get on the Internet, according to Forrester.Uncertainty is part of the tumult of doing business in India, which has had a flood of foreign investment in its Internet commerce sector and a corresponding wave of opposition from politically powerful domestic retailers. Online spending in India is expected to jump to nearly $75 billion by 2020 from a mere $12.1 billion last year, as more of the country’s 1.25 billion people get on the Internet, according to Forrester.
The stunning growth projections have led executives at Amazon, the e-commerce giant, to predict that India could be its second-largest market after the United States within a decade. In 2014, the company’s chief executive, Jeffrey P. Bezos, stood atop a bus in Bangalore wearing a jodhpuri-style Indian coat and holding a giant check for $2 billion, representing the amount Amazon pledged to plow into its business in the country.The stunning growth projections have led executives at Amazon, the e-commerce giant, to predict that India could be its second-largest market after the United States within a decade. In 2014, the company’s chief executive, Jeffrey P. Bezos, stood atop a bus in Bangalore wearing a jodhpuri-style Indian coat and holding a giant check for $2 billion, representing the amount Amazon pledged to plow into its business in the country.
“With a growing middle class and propensity to shop oinline, the revenue potential there is enormous,” said Colin Sebastian, an analyst at Robert W. Baird & Company. “With a growing middle class and propensity to shop online, the revenue potential there is enormous,” said Colin Sebastian, an analyst at Robert W. Baird & Company.
As in the United States, in India brick-and-mortar retailers have expressed alarm at the growth of e-commerce, and they have sued the Indian government to compel it to place more restrictions on the industry.As in the United States, in India brick-and-mortar retailers have expressed alarm at the growth of e-commerce, and they have sued the Indian government to compel it to place more restrictions on the industry.
For Amazon there is a special urgency to get India right after fumbling attempts to crack the e-commerce business in China, another huge emerging market dominated by domestic players.For Amazon there is a special urgency to get India right after fumbling attempts to crack the e-commerce business in China, another huge emerging market dominated by domestic players.
From the day it started in India in 2013, Amazon had to make big changes to comply with its restrictive rules governing retailing.From the day it started in India in 2013, Amazon had to make big changes to comply with its restrictive rules governing retailing.
India essentially bars companies with substantial foreign ownership from operating retail outlets that sell from their own inventories of goods. Although American multinationals like Amazon, Walmart and Apple have sought to overturn or soften those restrictions, the government has made few changes.India essentially bars companies with substantial foreign ownership from operating retail outlets that sell from their own inventories of goods. Although American multinationals like Amazon, Walmart and Apple have sought to overturn or soften those restrictions, the government has made few changes.
To work around the restrictions, Amazon and competitors billed themselves as e-commerce marketplaces, eBay-like websites that matched buyers with independent sellers. Amazon owns no inventory of its own in India, though it handles the warehousing and delivery of goods for many of its independent sellers, a model it also employs in the United States.To work around the restrictions, Amazon and competitors billed themselves as e-commerce marketplaces, eBay-like websites that matched buyers with independent sellers. Amazon owns no inventory of its own in India, though it handles the warehousing and delivery of goods for many of its independent sellers, a model it also employs in the United States.
Last week, Indian regulators confirmed that online marketplaces, which had operated in a gray era, are legal. But they added a rule saying that no single seller can account for more than 25 percent of sales on such an e-commerce marketplace. It also limited the influence that online marketplaces can exert over the prices set by their sellers.Last week, Indian regulators confirmed that online marketplaces, which had operated in a gray era, are legal. But they added a rule saying that no single seller can account for more than 25 percent of sales on such an e-commerce marketplace. It also limited the influence that online marketplaces can exert over the prices set by their sellers.
The new regulations appear to make Amazon’s dependence on one large seller on its site, Cloudtail, illegal, according to industry officials and analysts. While Amazon says it has more than 80,000 sellers on its India site, Cloudtail is estimated to account for 40 percent to 50 percent of the site’s sales, according to Mr. Meena of Forrester.The new regulations appear to make Amazon’s dependence on one large seller on its site, Cloudtail, illegal, according to industry officials and analysts. While Amazon says it has more than 80,000 sellers on its India site, Cloudtail is estimated to account for 40 percent to 50 percent of the site’s sales, according to Mr. Meena of Forrester.
The parent company of Cloudtail is a partnership between Catamaran Ventures, the investment firm of the Indian business magnate, N.R. Narayana Murthy, and Amazon, which owns 49 percent. India’s leading e-commerce company, Flipkart, also works closely with an affiliated large seller and faces a similar problem.The parent company of Cloudtail is a partnership between Catamaran Ventures, the investment firm of the Indian business magnate, N.R. Narayana Murthy, and Amazon, which owns 49 percent. India’s leading e-commerce company, Flipkart, also works closely with an affiliated large seller and faces a similar problem.
The agency that issued the new rules, the Department of Industrial Policy and Promotion, declined to comment on whether any violations had occurred. Ishtiyaque Ahmed, a director of foreign collaboration at the agency, said he was not familiar with the details of the two companies’ business arrangements “so I cannot discuss a hypothetical situation.”The agency that issued the new rules, the Department of Industrial Policy and Promotion, declined to comment on whether any violations had occurred. Ishtiyaque Ahmed, a director of foreign collaboration at the agency, said he was not familiar with the details of the two companies’ business arrangements “so I cannot discuss a hypothetical situation.”
Amazon is still evaluating the new rules, said Craig Berman, a company spokesman. “Through our amazon.in marketplace, we will continue to help small and medium businesses in India connect with consumers,” Mr. Berman said in a statement.Amazon is still evaluating the new rules, said Craig Berman, a company spokesman. “Through our amazon.in marketplace, we will continue to help small and medium businesses in India connect with consumers,” Mr. Berman said in a statement.
Flipkart declined to comment.Flipkart declined to comment.
One obvious course of action for Amazon is to form more joint ventures with Indian companies to reduce its reliance on any single seller like Cloudtail. Arjun Narayan, managing director of Catamaran Ventures, Amazon’s partner in Cloudtail, said in an email that he did not expect any “abrupt business changes” for Cloudtail.One obvious course of action for Amazon is to form more joint ventures with Indian companies to reduce its reliance on any single seller like Cloudtail. Arjun Narayan, managing director of Catamaran Ventures, Amazon’s partner in Cloudtail, said in an email that he did not expect any “abrupt business changes” for Cloudtail.
Snapdeal, one of the largest e-commerce companies, which has no large sellers, welcomed the regulations.Snapdeal, one of the largest e-commerce companies, which has no large sellers, welcomed the regulations.