By Jerri-Lynn Scofield, who has worked as a securities lawyer and a derivatives trader. She is currently writing a book about textile artisans.
Jeff Bezos visited India last week, bearing the gift of of an Amazon offer to invest one billion dollars and create jobs to an India that faces its worst economic prospects — slowing growth, rising unemployment, moribund investment – in at least twenty years.
He didn’t receive a fawning reception.
The day before he arrived, the Competition Commission of India initiated an investigation into Amazon, for alleged violations of competition law, as reported by livemint in Amazon, Flipkart to be probed for abuse of competition law
The Competition Commission of India (CCI) on Monday ordered a probe into alleged competition law violations by Amazon and Walmart-owned Flipkart over allegations that the e-commerce majors promoted and gave discounts to “preferred” sellers, entered into exclusive partnerships with smartphone brands and abused their dominant position.
CCI noted four alleged practices on both the marketplaces—exclusive launch of mobile phones, preferred sellers on the platforms, deep discounting and preferential promotion of private labels.
The antitrust body said such exclusive arrangements between smartphone or mobile phone brands and e-commerce platforms or select companies selling exclusively on either of the platforms merit an investigation.
“It needs to be investigated whether the alleged exclusive arrangements, deep-discounting and preferential listing by the OPs (opposite parties) are being used as an exclusionary tactic to foreclose competition and are resulting in an appreciable adverse effect on competition contravening the provisions of Section 3 (1) read with Section 3(4) of the Act,” the CCI order stated.
Bezos’ visit was his first to India in five years, and Prime Minister Narendra Modi declined to meet with him – even though last month, Amazon requested such a meeting. Other senior ministers followed Modi’s lead and also said no to meeting with Bezos, according to The Print in Why no one in Modi govt met Amazon’s Jeff Bezos this time and instead rudely snubbed him:
Amazon Inc. chief executive Jeff Bezos may have announced his e-commerce giant’s massive investment plans for India but that has not stopped the Narendra Modi government from giving him a cold shoulder, in a rare instance of the regime not welcoming a foreign investor.
Bezos, who is on a three-day visit to India, had sought meetings with top government leaders but the appointments were not given, sources told ThePrint.
During the ongoing visit, the world’s richest man has not met either Prime Minister Narendra Modi or any senior cabinet ministers. This is unlike his previous 2014 visit when the Amazon chief had met PM Modi. At the time, Bezos had committed to invest $2 billion in India.
Now, perhaps part of the reason for the snub was the government’s dissatisfaction with its coverage by the Bezos-owned Washington Post. As BJP official Dr Vijay Chauthaiwale tweeted:
— Dr Vijay Chauthaiwale (@vijai63) 16 January 2020
One Billion Dollars Doesn’t Even Cover Amazon’s Losses
Stinging comments by commerce and industry minister Piyush Goyal make clear that the Modi government’s stance toward Amazon is driven by far more than concern over its Washington Post coverage. As India’s leading financial paper, the Economic Times tells the story in Amazon not doing a favour by investing $1 billion: Piyush Goyal:
Commerce and industry minister Piyush Goyal said Amazon was not doing India any favours a day after the company’s CEO Jeff Bezos pledged to invest an additional $1 billion in the country, adding that this was probably on account of a need to fund losses, remarks that are likely to be seen as a stinging rebuke to the world’s richest man.
“How can a marketplace make such a big loss unless they are indulging in predatory pricing or some unfair trade practices? These are real questions which will need answers,” Goyal said. “They are investing money over the last few years also in warehousing and certain other activities, which is welcome, it is good, but if they are bringing in money largely to finance losses and those losses in an ecommerce marketplace model, a fair marketplace model in a turnover of $10 billion, if you are going to have a loss of a billion-billion and half dollars, it certainly raises questions, where the loss came from.”
Goyal elaborated further
“They may have put in a billion dollars but if they make a loss of a billion dollars every year, then they jolly well will have to finance that billion dollars,” Goyal said in the Capital on Thursday, underscoring the government’s hostility to marketplaces that allegedly violate rules. “So, it is not as if they are doing a great favour to India when they invest a billion dollars.”
The minister said he had told investors several times to follow the letter and spirit of the law and not to seek out loopholes when “we have very clearly articulated the ecommerce marketplace model”.
Bezos Performance Inept
Bezos performance in India was spectacularly inept – it was both mishandled and mis-times. He promised a billion dollars in investment, but by failing to acknowledging that this sum would also fund losses, his statement came off as being a mere stunt, made for effect. Given the scope and reach of Amazon’s activity he should have been more careful to understand the competition issues, and try and to build relationships with Indian regulators.
Bezos had the opportunity to figure out what he needed to say to Amazon India and about Amazon in India. Instead, the did a little soft shoe shuffle for the natives – this neither set either the right tone or achieve anything significant other than stir the hackneyed concerns of a new way of colonizing India.
Few need reminding that India has endured a long history of exploitation by foreigners – and remains understandably wary of their offerings. (For a fascinating account of a part of this history – the depredations of the East India Company, for example – I can highly recommend William Dalrymple’s latest, The Anarchy: The Relentless Rise of the East India Company.)
Now, Indians I’ve discussed this visit with – either via email or ‘phone – see Bezos ‘ performance as exemplifying a particular patronizing attitude towards doing business in India. I’m not sure that’s the case. Bezos is accustomed to having most politicians, and regulators, for that matter, accommodate him. So his “cowboy” swagger through India is just part of his way of doing business, his way of seeing the world. He might actually have accomplished something with his visit if he had taken a more considered approach. Google and Microsoft seem to have a better read on things. But he didn’t. And I think it’s because he just doesn’t’t have it in him to act in a more thoughtful way.
Protection for Small- and Medium-Sized Enterprises
Let’s step back and look at the problem the Modi government is confronting. Small and medium-sized traders are a crucial source of support for Modi’s Bharatiya Janata Party (BJP). Maintaining their allegiance is especially crucial in the run-up to Delhi Assembly elections. And here Goyal has a point, as a column in today’s Indian Express, Where Piyush Goyal is right: investments in infrastructure is different from money brought in to finance losses, makes plain:
It’s possible that the minister’s harangue against Amazon was aimed more at small shopkeepers and traders, the ruling BJP’s original support base, ahead of the Delhi Assembly elections. But the basic concern — that the price points on many products offered on Amazon’s or Flipkart’s platforms are below even the cost price for ordinary brick-and-mortar retailers — is a valid one. If much of the new investments are only funding the losses from such deep discount sales, which are simultaneously undermining the operations of traditional kirana stores, it is a serious allegation.
The column does delve into the weeds on the financing of those small mom-and-pop outlets, the kirana:
The viability of mom-and-pop outlets — the country has an estimated 12 million of them — has primarily rested on three things. The first is low overheads: Kiranas are predominantly family-run enterprises employing one or two hands (“chhotus”), not paying rent on their own little shopping premises, and avoiding taxes by dealing in cash. The second is maximum space utilisation: The small retailer’s focus isn’t his store’s layout or appeal as much as ensuring the highest possible sales per square foot. That would mean packing, say, 200 items or SKUs (stock keeping units) within a 200 sq ft area.
But it is the third USP — high inventory turnover and working capital rotation — that is least appreciated….
The column spells out in detail how these outlets operate, as well as the threat Amazon’s operations pose to them. due to space considerations – and my desire not to lose casual readers – I’m not going to explore these operations further here. This Indian Express column does the analysis, and I refer interested readers there.
The key conclusions is this:
India’s small retailers were badly bruised by demonetisation and the goods and services tax, while the ones in the mobiles and electronics business have simply been unable to take on Amazon or Flipkart. The Narendra Modi government is now seemingly trying to make amends. Goyal’s sanctimonious pronouncements are basically an outreach exercise to the BJP’s oldest constituency. By drawing a distinction between so-called genuine investment and investments to fund losses from heavily discounted sales, his government has put the big global e-retailers on notice.
I’ve written before about Modi economic policy missteps – such as the cackhanded and misguided demonetisation exercise, and the botched goods and services tax rollout. These smacked small and medium sized enterprises hard, due to a tax change implemented in an attempt to curb black money (see this accounting The Telegraph, DeMo levy hurts small units).
But the bottom line is that Modi’s government has not rolled over for Amazon (as I discussed in India Forces Amazon to Choose Between Operating e-Commerce Platform and Selling Goods on that Platform). And instead, the competition commission has initiated investigations of Amazon And Flipkart, which are ongoing.
Grey Lady Misses the Point, Chalks it All Up to Nationalism
I’ll point out that if you read the NY Times account, of Bezos’ visit you would not find any mention of the economic and political considerations discussed here. Instead, the grey lady emphaszes the Modi government’s beef with The Post, India Targets Jeff Bezos Over Amazon and Washington Post:
As to the economics issues affecting Amazon, and India’s small traders, the NYT ignores these and chalks the whole thing up to nationalism:
In the realm of business, the government has also taken a nationalistic approach, seeking to rein in the power of foreign technology giants like Facebook, Google, Amazon and Flipkart, an Indian e-commerce site purchased by Walmart in 2018.
Huh? That all these technologybehemoths just happen to be foreign companies seeking to operate in India isn’t the problem. The impact off their alleged anti-competitive practices on Indian markets and small- and medium-sized traders is.
To be fair, The NYT did cover the antitrust complaint in a separate and earlier article, Welcome to India, Mr. Bezos. Here’s an Antitrust Complaint. And Vindu Goel wrote both that article and the account of the Bezos visit. Which makes it all that more curious that the serious substantive dispute over Amazon’s business practices is reduced to a matter of “nationalism”.
In his latest Indian jaunt, Bezos exemplified the Ugly American – and left India, with little to show from his visit.. Next time, he should avail himself of better advance work, and perhaps seek to address Indian concerns, rather than thinking the Indian government would be over the moon about his vague promises. A billion dollars sounds like a lot of money, and it is. But the Modi government failed to be bamboozled.
Goyal received some criticism for his bluntness with Amazon, and expanded further on his thinking to the Economic Times, Remarks on Amazon won’t send wrong signal to investors: Piyush Goyal:
Commerce and industry minister Piyush Goyal said promises of job creation by foreign-owned ecommerce companies need to be seen from the perspective of potential job losses as well, adding his remarks on Amazon will not send a wrong signal to international investors.
A day after Amazon CEO Jeff Bezos had announced a $1billion investment to digitise small Indian businesses last week, Goyal said the US company was not doing India a favour and that it was doing the investment to primarily fund its losses.
Amazon has said it wants to create one million new jobs in India by 2025. Speaking to ET before he leaves for Davos for the World Economic Forum’s summit, Goyal said many people are talking about jobs. “But I still look at the jobs from the perspective of jobs lost also,” he said.
“So, I cannot create 700,000 jobs by breaking the law, breaking every anti-competitive restriction, monopolising certain markets, causing millions of jobs to be potentially lost, incurring huge losses which I am bound to of course finance, and bring in foreign direct investment (FDI) and then claiming that I have a right.”
Goyal discussed some of the competition law considerations:
“Can you imagine (companies) that are worth Rs 70 lakh crore, with deep pockets at almost zero-cost capital competing with small retailers who pay interest in double digits to the banks and are still trying to make a livelihood for their families?”
The minister restated that it is expected that large companies will respect the law of land.
Overseas-funded ecommerce marketplaces can’t engage in retailing goods themselves and can only function as platforms for buyers and sellers. Small shopkeepers accuse Amazon and Walmart-owned Flipkart of breaking the rules and driving them out of business through predatory discounts, prompting the government to tighten norms and increase oversight.
“It is a very clearly stated legal position. Now, if anybody in the garb of B2B creates associated companies, related parties, tries to find loopholes within the law through flash sales or through circumventing the restriction on B2C- through innovative structures, I certainly think it’s my duty to point that out to them,” Goyal said, urging all stakeholders to study the entire issue in the right perspective of the law of the land.
Would that US regulators cast a similarly jaundiced eye over Amazon’s promises.