Amazon-ian worries: Why Flipkart is not at all happy about FDI in e-commerce

Although online global retailers in India like Amazon and eBay are cheering Narendra Modi government’s planto open the e-commerce sector to foreign direct investment (FDI) as early as next month, it seems not everyone is happy about it.

India’s biggest online retailer, Flipkart, is opposing FDI in e-commerce as they believe it will only benefit ‘one company’– a veiled reference to Amazon.

“The only e-commerce player that will benefit from such a move is a company which is already operating in India as a marketplace and wants to enter the country through an inventory-based model,” a Flipkart spokesperson told Economic Times.

So, why is Flipkart worried? Because, if FDI is allowed, Amazon will be able to sell its own products in the country thus impacting Flipkart’s new marketplace strategy.With a marketplace model, it makes it possible for buyers to deal with sellers directly, while the delivery is carried out by Flipkart. This means that Flipkart will no longer have an inventory of its own. The model will be similar to eBay India. However, Flipkart does not expect to derive any great benefit from the expected change in FDI policy.

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In a bid to strengthen its position in the online space in the country,last month Flipkart hadacquiredMyntra Designs Pvt Ltd, the company which runs the online fashion and apparel store Myntra.com.

What is surprising is that though Flipkart hasbeen under the scanner for violation of FDI norms by attracting dollops of foreign venture capital money, it isopposing opening of the sector.Backed by investors like Naspers Group, Accel Partners, DST Global, ICONIQ Capital, Tiger Global, Belgium-based Sofina, US-based Morgan Stanley Investment Management, Dragoneer Investment Group and Vulcan Capital, Flipkart has already raised $750 million in funding to date, including $210 million early this year.

VC Circle explains that Flipkart is opposing FDI because it has already converted itself into a marketplace. The report notes that Flipkart had separated the ownership of the company (WS Retail) which previously ran its pure e-commerce property Flipkart.com from that of the firm which has attracted all the VC money.

“The key holding company of the group, in which VC firms along with strategic investors like Naspers now own majority stake, is incorporated in Singapore,” notes the report.

Of course, Flipkart doesn’t need FDI in e-commerce to attract more foreign money. Instead, opening up the sector would mean more competition for the company.

However, experts say Flipkart, Snapdeal and other online retailers shouldn’t be worried about FDI in e-commerce.Arvind Singhal, Chairman at Technopak Advisory, told Business Line_,_ “I see no logic why they should oppose FDI. Instead they should be bothered about Reliance Retail, which is readying an e-commerce entry. This might be a threat in coming years.”

In fact, many other e-commerce firms told Business Line that allowing foreign entities to invest in the sector would create healthy competition and give birth to a lot of small and medium enterprises. That is good news for consumers. Flipkart is not amused at this perceived threat to their business where it is the biggest player. Until now, that is.