The E-Commerce Battle: Why can’t Flipkart dominate its home market like Alibaba?
There’s a lot of talk about the similarities between India and China: they have a relatively stable economic and political climates, good growth rates, yada-yada. Essentially, we can say there’s a lot of insights to be drawn by businesses trying to expand and capture market share in these markets. I want to talk about something that has deeply intrigued me — E-commerce markets in China and India and a closer look at what Flipkart may be doing wrong.
Alibaba vs. Flipkart
First off, one cannot ignore — Amazon entered both countries with contrasting results, while implementing homogenous strategies. It was walloped by almost every player in China but is currently rapidly outpacing Flipkart in India. Of course, there are external variables at play (i.e. government, income levels, infrastructure), but drawing from Amazon’s lesson (as a “control group”), I want to focus on primarily the difference in which Alibaba and Flipkart has chosen to operate in their home markets.
Alibaba is a company I truly admire and respect. A lot of it has to do with the founder, Jack Ma. This guy (current net worth: 30.9 Billion) got rejected from a job at KFC; I mean KFC just sells average tasting fried chicken. A few years down the line he starts Alibaba, a China-based B2B marketplace. In 2003, he goes on to expand Alibaba with a payments platform (Alipay) and a B2C marketplace (TMall). TMall is a model that most resembles Amazon and Flipkart with the prime difference being that instead of selling goods directly to customers they only facilitate transactions between buyers and sellers, thus, prices are set by pure demand and supply. This is perhaps the most important contributor to TMall’s success: by simply letting the market take over, it drove better prices, services and eventually better products by encouraging competition amongst sellers.
Now Flipkart, on the other hand, was founded by two IIT grads (pretty much the MIT equivalent of India) who came back to India from the US to set up what they envision to be India’s version of Amazon. The way they went about creating Flipkart is through establishing a wholly-owned subsidiary “WS Retail”, which provides the wholesale supply of products to Flipkart. (Exactly what amazon did) What‘s troubling me is the fact that by becoming a giant wholesaler, you get to control and regulate the prices of pretty much everything. Imagine walking into a supermarket with aisles stretching 10km long, with the first 7.5km completely filled by one seller/brand. This puts you in competition with every other sellers on your platform but it also gives you the advantage of authoritative bargaining power. As the single largest reseller you will enforce your price and try and sell only those products from which you earn a sufficiently high margin. You end up stifling the market in terms of both prices and products. ( It’s great if you are a manufacturer or your own brand but detrimental to the market if you are just a reseller).
Amazon’s reseller strategy has worked particularly well in the US as product preferences and tastes have matured in a developed market. Similar to China, India has yet to find these sweet spots. The way to explore these “sweet spots” is letting resellers compete and innovate offerings over time. In such a huge market like India you can find so many different customer niches; but innovation cannot happen through a monopoly. Flipkart can offer discounts and absorb its losses to achieve price advantages, but they will not be able to tailor new products specifically for the market niches. Sure this works if you’re the only player, but guess what…enter Amazon, doing exactly what Flipkart is doing but with much more experience and money. The race is just a matter of time. There is no differentiation.
So, what’s Flipkart got to do?
In my opinion, Flipkart needs to abandon “WS Retail” and simply let a market place naturally form alongside a robust digital payment system. Collaborate with sellers to source and customize products for Indian consumers, perhaps from China. A more optimized feedback loop from market to manufacturer can also be built, leveraging years of data Flipkart has on the Indian market. Both will help maintain an edge for them in their home market, instead of swallowing the bitter pill of defeat to Amazon by opening up a “Flipkart store” on the Amazon India website. (Read: Amazon opens its own store on Tmall). Checkmate.
I don’t want to bring up a whole new topic but I want to address Paytm briefly as it’s become such an important pillar of e-commerce strategy in India. Paytm has built an advantage that is not only hard to take away but also will be crucial in the near future. Alibaba with its partnership with Paytm is poised to expand to Indian markets. Slowly but surely, I guess it will wait just a little bit for Amazon to exhaust itself in its war with Flipkart. I wish I could tell you when exactly the right time will be but that’s another topic and another cup of coffee…
I always welcome criticism/feedback to my opinions, which I don’t hold much value to, so please leave a comment if you have one.