Exclusive: Amazon Setting Up Indian Logistics Arm, Precursor To Launch Of ''

22 Dec, 2011

World's largest online retailer, Inc. has set the process rolling for creating a local logistics backend in India in what could be a precursor to launching full-fledged operations to sell products in the country. Amazon Asia-Pacific Resources Pvt Ltd, a Singapore-based arm of Amazon, is setting up a wholly owned subsidiary in India to provide 'courier services' for delivery of goods within the country.

The firm plans to initially invest $3 million and hire around 300 people for the independent Indian venture, according to a company proposal filed with the Indian authorities for approval. The registered office of the Indian logistics arm will be in Delhi-NCR.

Although foreign direct investment (FDI) up to 100 per cent in a company engaged in courier services is allowed according to the current policy, it requires prior approval of the foreign investment promotion board (FIPB), the nodal body monitoring foreign investment in the country.

The plan to set up a courier firm is part of a bigger plan where Amazon is planning to launch its marketplace under the domain name through a separate, wholly owned arm for its e-commerce activities. Incidentally, the domain name is not publicly online yet.

Besides the mother site, the company also operates various country specific e-commerce sites in Canada, China, France, Germany, Italy, Japan, Spain and the UK. Amazon's entry is expected to make a big splash in the nascent but fast-growing Indian e-commerce market that has been recording back-to-back venture capital investment deals in firms engaged in horizontal e-commerce like Amazon, as well as in product verticals like apparel and electronics, among others.

Amazon already has some operations in India that serve as a development centre for refining and redefining how Amazon creates and manages product information for all its retail sites.

Incidentally, some of the top e-commerce firms in India, such as Flipkart and Infibeam, have been founded by former Amazon employees.

The corporate structure through which Amazon chooses to start its online marketplace in India is keenly awaited as there is some ambiguity in interpreting how a foreign investment in Indian e-commerce firm is treated. Many Indian e-commerce sites have floated innovative corporate structures to attract foreign investment from venture capital firms without violating the current FDI norms that bars foreign investment in multi-brand retail in the country.

Although the government had initiated a process to allow FDI in retail with 51 per cent foreign equity, it was put on the backburner due to political opposition. See our earlier take on how Amazon could pitch against world's largest retail chain Wal-Mart that is also in the process of expanding its physical retail stores for whole-sellers or cash-and-carry format under a joint venture with the Bharti Group.

Seattle (Washington)-headquartered Amazon generated global revenues of $34.2 billion with net income of $1.1 billion for CY2010. It is also one of the most valued Internet services firms in the world with a market cap of around $80 billion on NASDAQ.

The popularity of Amazon and the consumer awareness among netizens in India precede its formal launch in the country. In fact, the latest comScore report says Amazon sites are the most visited online retail destination for Indians. Amazon sites clocked as many as 6.8 million visitors in India or roughly 14.7 per cent of the online population in the country. See our separate report on that here. This is particularly surprising as Amazon has not launched its Indian e-commerce operations yet although one can still buy products from its global site by paying in dollars and shelling out import duties as the product is shipped from abroad.

Amazon is followed by with 3.4 million visitors. Incidentally, the tall boys of Indian e-commerce are much behind, with (2.7 million visitors), (2.3 million visitors) and (2.1 million visitors) squaring up the top three positions among local e-tailers.