FLIPKART'S MANTRA IS Ab Har Wish Hogi Poori or Every wish fulfilled. For the time being,...

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FLIPKART'S MANTRA IS "Ab Har Wish Hogi Poori" or "Every wish fulfilled." For the time being, the Indian ecommerce company has fulfilled its own wish. With a valuation of close to $12 billion in 2017, Flipkart (www.flipkart.com) is one of the 10 most valuable privately held startups. It is in fine unicorn company along with Uber, Didi Chuxing, Airbnb, and SpaceX, all privately held startups valued between $12 billion and $70 billion. The stated goal of the co-founders, Sachin Bansal and Binny Bansal is to make Flipkart India's first $100 billion ecommerce company.¹ With $11 billion in sales in 2015, India's ecommerce market is still in its infancy. In comparison, China's ecommerce sales in 2016 were a whopping $900 billion. With rising internet penetration in India (see Exhibit MC19.1) and a rising middle class of young, well-educated urban professionals, India's ecommerce is expected to reach $130 billion by 2025. EXHIBIT MC19.1 / India's Internet Population (in million) and Penetration Rates (in percent), 2000-2016 Internet Ubers --% of Population 500 450 400 350 300 250 200 150 100 50 0- 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 SOURCE: Depiction of data from "India Internet Users," http://www.internetlivestats.com/internet-users/india/. 35% 30% 25% How Flipkart Took an Early Lead The leading ecommerce company in India is not one of the global giants such as Amazon or Alibaba, but the homegrown Flipkart. Founded in 2007 by Sachin Bansal and Binny Bansal (same last name, but unrelated), Flipkart began its life just like Amazon.com: selling books online at discounted prices. To many observers, this was not surprising because prices. To many observers, this was not surprising because the co-founders met while working at Amazon.com. They are also both graduates of India's most prestigious university system: the Indian Institute of Technology (IIT). Flipkart continues to recruit the best and the brightest engineers from IIT. Flipkart had humble beginnings, as Bansal and Bansal set up the company from their two-bedroom apartment in Bangalore with an initial investment of $8,000. What began as selling books is now disrupting retailing in India. In this land of over 1.2 billion people, more than 50 percent of its population is age 25 or younger and more than 65 percent is below the age of 35. In 2020, the average Indian will be 29 years old, while the average Chinese will be 37; the average American, 42; and the average Japanese, 48. page 513 In addition, English is the country's official language, and most younger Indians are well educated and moving rapidly into the middle class. As their disposable income increases, their time to battle the chaotic Indian traffic and inclination to haggle with obstinate vendors decreases. Instead, they are using the internet in ever larger numbers and are conducting more and more transactions online (see Exhibit MC 19.1 for growth in internet users). flipkart.com TOP: Sachin Bansal (left) and Binny Bansal (right; no relation) are the co-founders of Flipkart. Valued at close to $12 billion, it is India's most valuable retail company. BOTTOM: Jeff Bezos is making a major push into India, with Amazon investing billions. In 2013, Amazon did not exist in India. In the meantime, Bezos lost out to Alibaba in China. He promised not to repeat this outcome in India where Amazon now takes on Flipkart, the early leader in Indian ecommerce. (top): ©Mint/Hindustan Times/Getty Images; (bottom): ©MANJUNATH KIRAN/AFP/Getty Images While Flipkart is certainly benefiting from a first-mover advantage combined with the explosive growth in Indian ecommerce, it was unique tweaks to its business model that set it apart from other online retailers, including American online giants such as Amazon and eBay or the Chinese internet firm Alibaba. In a country like India where fraud is rampant and trust among vendors and customers is low, Flipkart had to first transform the way Indians shopped. It achieved this by tailoring its offerings to the idiosyncrasies of its domestic retail market. Unlike in the United States or Europe, retail transactions in India are mostly cash-based, so credit card penetration is very low (about 1 percent). However, as more of the population relies on the mainstream banking system, so grows its debit card usage. Even with the availability of plastic money options, many Indians are wary about the security of online transactions using credit or debit cards. Compounding this problem is that most Indians lack access to credit. To overcome these challenges, Flipkart became one of the first major ecommerce players in India to offer a cash-on-delivery (COD) service to online customers in 2010. This went a long way to build credibility and brand value for Flipkart. Some estimates peg the number of COD transactions in Indian ecommerce as high as 80 percent of all sales. A second and related problem Flipkart addressed is the custom in India for shoppers to buy goods only after a thorough physical inspection of the product at a brick-and- mortar store, often by multiple family members if a larger purchase is being considered. To overcome this challenge, Flipkart introduced a hassle-free return-and-exchange policy. This tactic allowed Flipkart to attract many first-time online buyers, who now make up a significant portion of the company's revenues, which were $2.3 billion in 2015, up from only $10 million in 2011. Flipkart's explosive growth in revenues equates to a compound annual growth rate of almost 300 percent! Third, Flipkart also introduced an option to purchase expensive items with its EMI (easy monthly installments) program. It accomplished this through associations with all major banks. In 10 urban areas Flipkart offers same-day delivery, and it guarantees next-day delivery in more than 65 metropolitan areas. page 514 While its business model provided solutions to unique Indian ecommerce challenges, Flipkart diversified quickly into many different product categories. Starting as just an online bookseller, Flipkart now hosts 75 product categories on its platform. Its major product categories include books, electronics and accessories, lifestyle and fashion, home decor, and do-it-yourself products. While books and electronics continue to be its strongholds, lifestyle and fashion are the fastest-growing segments. Because the Indian government continues to bar foreign direct investment in retail companies, Flipkart (which is financed by non-Indian venture capitalists from the United States, the United Kingdom, Russia, and Singapore) had to change its business model. It moved away from Amazon's model of shipping mainly merchandise it owns and that requires storage in its own warehouses to now be more akin to Alibaba, hosting third-party sellers. Flipkart morphed into an online platform that enables other merchants to sell on its website. It makes money by taking a fee on every transaction occurring on its site. Amazon Comes to India: The Empire Strikes Back After Amazon lost out to Alibaba in China, it entered India in 2013 to sell books, DVDs, electronic goods, and fashion accessories (www.amazon.in). This made Amazon.com a accessories (www.amazon.in). Ihis made Amazon.com a latecomer to the Indian ecommerce party. Indian ecommerce companies Flipkart and runner-up Snapdeal (www.snapdeal.com) enjoyed early-mover advantages over Amazon. Both domestic startups were able to leverage deep understanding of the Indian retail market and ecommerce into a competitive advantage (see Exhibit MC19.2). In the summer of 2017, Flipkart offered close to $1 billion to acquire Snapdeal. Snapdeal's largest shareholder, Japan's SoftBank Group, supported Flipkart's bid to merge both homegrown Indian ecommerce companies in an effort to compete more effectively against Amazon.com. Just a month later, Snapdeal terminated merger talks with Flipkart, and decided to continue going it alone. EXHIBIT MC19.2 / Market Share of Indian E- tailers, 2014-2016 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 2014 Flipkart Snapdeal Amazon Others 2015 2016 SOURCE: Depiction of data compiled and constructed from various newspaper articles in The Economic Times, Mint, and Business Standard, and Purnell, N. (2016), "Jeff Bezos invests billions to make Amazon a top e- commerce player in India," The Wall Street Journal, November 18. Jeff Bezos, Amazon's founder and CEO, himself visited Bangalore in 2014. In a Bollywood-like PR stunt, he stepped out of a colorfully decorated Indian truck, dressed in traditional white Nehru jacket, and hand-delivered a surfboard-sized check of $2 billion Amit Agarwal, Amazon's India head. Bezos' marching order to Agarwal: Do what it takes to succeed in India and don't worry about the cost We cannot allow page 515 India and don't worry about the cost. We cannot allow another failure like in China to happen. Amazon has added another $3 billion of investments in India since. Although Flipkart innovated with features to match the unique Indian retail environment, the features were easily imitated by Amazon. Indeed, it quickly matched many of Flipkart's tactics such as cash on delivery, installment payment plans, and same-day and next-day deliveries. Like Flipkart, Amazon also offers some 80 million products on its site, while runner-up Snapdeal offered some 50 million. Amazon also offers services that Flipkart cannot yet match, such as the "fulfilled by Amazon" service (in which items offered by a third-party seller on Amazon's site are shipped from an Amazon fulfillment center and all Amazon standard shipping rates and policies apply). Amazon also brings to bear several advantages that Flipkart cannot match. In particular, Amazon is using its sophisticated U.S. technology now in India, with a powerful search engine based on artificial intelligence that predicts what customers are looking for and what they might buy next. Besides its $5 billion investments, Amazon has a huge war chest of cash it brings to bear, being valued at $475 billion in 2017, making it one of the most valuable tech companies globally. Amazon quickly built a network of warehouses in India, especially near large urban areas, which helps with speedy and reliable deliveries. It is building relationships of trust with its customers, delivering products they want such as smartphones at low prices. As an indication of how fast Amazon is catching up: It reached sales of $1 billion just one year after it entered India. The same milestone took Snapdeal four years and Flipkart, as the first major entrant, seven years to accomplish. By 2016, Amazon had reached almost 30 percent market share, making it number two in the Indian ecommerce market, closing the gap with Flipkart (see Exhibit MC19.2). It is too early to count out the deep-pocketed and relentless Amazon and its CEO quite yet. On the other hand, there are some indications that Walmart, Amazon's biggest rival in the United States, is interested in investing or acquiring Flipkart. So the ecommerce battle for supremacy in India is far from over. In the meantime, India's consumers can benefit from more choice, lower prices, and better service. On the other hand, there are some indications that Walmart, Amazon's biggest rival in the United States, is interested in investing or acquiring Flipkart. So the ecommerce battle for supremacy in India is far from over. In the meantime, India's consumers can benefit from more choice, lower prices, and better service. DISCUSSION QUESTIONS 1. Why was Flipkart able to achieve an early competitive advantage in India? What is the basis of Flipkart's competitive advantage? Focus on external and internal factors. Separate factors unique to India from more generic factors (fast growth, for example) that may also hold true in other countries. 2. Will Flipkart be able to sustain its early lead over Amazon, given the deep pockets of the U.S. ecommerce giant and its intentions to invest further in India? What are some key advantages that Flipkart has over Amazon? What are some of Flipkart's disadvantages? What would Flipkart need to do to sustain its competitive advantage? 3. Should Flipkart leverage its core competencies outside India to "go global"? If so, which countries do you think would provide the best opportunities for Flipkart, and why? If Flipkart were to go global, what kind of global strategy should it pursue, and where? FLIPKART'S MANTRA IS "Ab Har Wish Hogi Poori" or "Every wish fulfilled." For the time being, the Indian ecommerce company has fulfilled its own wish. With a valuation of close to $12 billion in 2017, Flipkart (www.flipkart.com) is one of the 10 most valuable privately held startups. It is in fine unicorn company along with Uber, Didi Chuxing, Airbnb, and SpaceX, all privately held startups valued between $12 billion and $70 billion. The stated goal of the co-founders, Sachin Bansal and Binny Bansal is to make Flipkart India's first $100 billion ecommerce company.¹ With $11 billion in sales in 2015, India's ecommerce market is still in its infancy. In comparison, China's ecommerce sales in 2016 were a whopping $900 billion. With rising internet penetration in India (see Exhibit MC19.1) and a rising middle class of young, well-educated urban professionals, India's ecommerce is expected to reach $130 billion by 2025. EXHIBIT MC19.1 / India's Internet Population (in million) and Penetration Rates (in percent), 2000-2016 Internet Ubers --% of Population 500 450 400 350 300 250 200 150 100 50 0- 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 SOURCE: Depiction of data from "India Internet Users," http://www.internetlivestats.com/internet-users/india/. 35% 30% 25% How Flipkart Took an Early Lead The leading ecommerce company in India is not one of the global giants such as Amazon or Alibaba, but the homegrown Flipkart. Founded in 2007 by Sachin Bansal and Binny Bansal (same last name, but unrelated), Flipkart began its life just like Amazon.com: selling books online at discounted prices. To many observers, this was not surprising because prices. To many observers, this was not surprising because the co-founders met while working at Amazon.com. They are also both graduates of India's most prestigious university system: the Indian Institute of Technology (IIT). Flipkart continues to recruit the best and the brightest engineers from IIT. Flipkart had humble beginnings, as Bansal and Bansal set up the company from their two-bedroom apartment in Bangalore with an initial investment of $8,000. What began as selling books is now disrupting retailing in India. In this land of over 1.2 billion people, more than 50 percent of its population is age 25 or younger and more than 65 percent is below the age of 35. In 2020, the average Indian will be 29 years old, while the average Chinese will be 37; the average American, 42; and the average Japanese, 48. page 513 In addition, English is the country's official language, and most younger Indians are well educated and moving rapidly into the middle class. As their disposable income increases, their time to battle the chaotic Indian traffic and inclination to haggle with obstinate vendors decreases. Instead, they are using the internet in ever larger numbers and are conducting more and more transactions online (see Exhibit MC 19.1 for growth in internet users). flipkart.com TOP: Sachin Bansal (left) and Binny Bansal (right; no relation) are the co-founders of Flipkart. Valued at close to $12 billion, it is India's most valuable retail company. BOTTOM: Jeff Bezos is making a major push into India, with Amazon investing billions. In 2013, Amazon did not exist in India. In the meantime, Bezos lost out to Alibaba in China. He promised not to repeat this outcome in India where Amazon now takes on Flipkart, the early leader in Indian ecommerce. (top): ©Mint/Hindustan Times/Getty Images; (bottom): ©MANJUNATH KIRAN/AFP/Getty Images While Flipkart is certainly benefiting from a first-mover advantage combined with the explosive growth in Indian ecommerce, it was unique tweaks to its business model that set it apart from other online retailers, including American online giants such as Amazon and eBay or the Chinese internet firm Alibaba. In a country like India where fraud is rampant and trust among vendors and customers is low, Flipkart had to first transform the way Indians shopped. It achieved this by tailoring its offerings to the idiosyncrasies of its domestic retail market. Unlike in the United States or Europe, retail transactions in India are mostly cash-based, so credit card penetration is very low (about 1 percent). However, as more of the population relies on the mainstream banking system, so grows its debit card usage. Even with the availability of plastic money options, many Indians are wary about the security of online transactions using credit or debit cards. Compounding this problem is that most Indians lack access to credit. To overcome these challenges, Flipkart became one of the first major ecommerce players in India to offer a cash-on-delivery (COD) service to online customers in 2010. This went a long way to build credibility and brand value for Flipkart. Some estimates peg the number of COD transactions in Indian ecommerce as high as 80 percent of all sales. A second and related problem Flipkart addressed is the custom in India for shoppers to buy goods only after a thorough physical inspection of the product at a brick-and- mortar store, often by multiple family members if a larger purchase is being considered. To overcome this challenge, Flipkart introduced a hassle-free return-and-exchange policy. This tactic allowed Flipkart to attract many first-time online buyers, who now make up a significant portion of the company's revenues, which were $2.3 billion in 2015, up from only $10 million in 2011. Flipkart's explosive growth in revenues equates to a compound annual growth rate of almost 300 percent! Third, Flipkart also introduced an option to purchase expensive items with its EMI (easy monthly installments) program. It accomplished this through associations with all major banks. In 10 urban areas Flipkart offers same-day delivery, and it guarantees next-day delivery in more than 65 metropolitan areas. page 514 While its business model provided solutions to unique Indian ecommerce challenges, Flipkart diversified quickly into many different product categories. Starting as just an online bookseller, Flipkart now hosts 75 product categories on its platform. Its major product categories include books, electronics and accessories, lifestyle and fashion, home decor, and do-it-yourself products. While books and electronics continue to be its strongholds, lifestyle and fashion are the fastest-growing segments. Because the Indian government continues to bar foreign direct investment in retail companies, Flipkart (which is financed by non-Indian venture capitalists from the United States, the United Kingdom, Russia, and Singapore) had to change its business model. It moved away from Amazon's model of shipping mainly merchandise it owns and that requires storage in its own warehouses to now be more akin to Alibaba, hosting third-party sellers. Flipkart morphed into an online platform that enables other merchants to sell on its website. It makes money by taking a fee on every transaction occurring on its site. Amazon Comes to India: The Empire Strikes Back After Amazon lost out to Alibaba in China, it entered India in 2013 to sell books, DVDs, electronic goods, and fashion accessories (www.amazon.in). This made Amazon.com a accessories (www.amazon.in). Ihis made Amazon.com a latecomer to the Indian ecommerce party. Indian ecommerce companies Flipkart and runner-up Snapdeal (www.snapdeal.com) enjoyed early-mover advantages over Amazon. Both domestic startups were able to leverage deep understanding of the Indian retail market and ecommerce into a competitive advantage (see Exhibit MC19.2). In the summer of 2017, Flipkart offered close to $1 billion to acquire Snapdeal. Snapdeal's largest shareholder, Japan's SoftBank Group, supported Flipkart's bid to merge both homegrown Indian ecommerce companies in an effort to compete more effectively against Amazon.com. Just a month later, Snapdeal terminated merger talks with Flipkart, and decided to continue going it alone. EXHIBIT MC19.2 / Market Share of Indian E- tailers, 2014-2016 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 2014 Flipkart Snapdeal Amazon Others 2015 2016 SOURCE: Depiction of data compiled and constructed from various newspaper articles in The Economic Times, Mint, and Business Standard, and Purnell, N. (2016), "Jeff Bezos invests billions to make Amazon a top e- commerce player in India," The Wall Street Journal, November 18. Jeff Bezos, Amazon's founder and CEO, himself visited Bangalore in 2014. In a Bollywood-like PR stunt, he stepped out of a colorfully decorated Indian truck, dressed in traditional white Nehru jacket, and hand-delivered a surfboard-sized check of $2 billion Amit Agarwal, Amazon's India head. Bezos' marching order to Agarwal: Do what it takes to succeed in India and don't worry about the cost We cannot allow page 515 India and don't worry about the cost. We cannot allow another failure like in China to happen. Amazon has added another $3 billion of investments in India since. Although Flipkart innovated with features to match the unique Indian retail environment, the features were easily imitated by Amazon. Indeed, it quickly matched many of Flipkart's tactics such as cash on delivery, installment payment plans, and same-day and next-day deliveries. Like Flipkart, Amazon also offers some 80 million products on its site, while runner-up Snapdeal offered some 50 million. Amazon also offers services that Flipkart cannot yet match, such as the "fulfilled by Amazon" service (in which items offered by a third-party seller on Amazon's site are shipped from an Amazon fulfillment center and all Amazon standard shipping rates and policies apply). Amazon also brings to bear several advantages that Flipkart cannot match. In particular, Amazon is using its sophisticated U.S. technology now in India, with a powerful search engine based on artificial intelligence that predicts what customers are looking for and what they might buy next. Besides its $5 billion investments, Amazon has a huge war chest of cash it brings to bear, being valued at $475 billion in 2017, making it one of the most valuable tech companies globally. Amazon quickly built a network of warehouses in India, especially near large urban areas, which helps with speedy and reliable deliveries. It is building relationships of trust with its customers, delivering products they want such as smartphones at low prices. As an indication of how fast Amazon is catching up: It reached sales of $1 billion just one year after it entered India. The same milestone took Snapdeal four years and Flipkart, as the first major entrant, seven years to accomplish. By 2016, Amazon had reached almost 30 percent market share, making it number two in the Indian ecommerce market, closing the gap with Flipkart (see Exhibit MC19.2). It is too early to count out the deep-pocketed and relentless Amazon and its CEO quite yet. On the other hand, there are some indications that Walmart, Amazon's biggest rival in the United States, is interested in investing or acquiring Flipkart. So the ecommerce battle for supremacy in India is far from over. In the meantime, India's consumers can benefit from more choice, lower prices, and better service. On the other hand, there are some indications that Walmart, Amazon's biggest rival in the United States, is interested in investing or acquiring Flipkart. So the ecommerce battle for supremacy in India is far from over. In the meantime, India's consumers can benefit from more choice, lower prices, and better service. DISCUSSION QUESTIONS 1. Why was Flipkart able to achieve an early competitive advantage in India? What is the basis of Flipkart's competitive advantage? Focus on external and internal factors. Separate factors unique to India from more generic factors (fast growth, for example) that may also hold true in other countries. 2. Will Flipkart be able to sustain its early lead over Amazon, given the deep pockets of the U.S. ecommerce giant and its intentions to invest further in India? What are some key advantages that Flipkart has over Amazon? What are some of Flipkart's disadvantages? What would Flipkart need to do to sustain its competitive advantage? 3. Should Flipkart leverage its core competencies outside India to "go global"? If so, which countries do you think would provide the best opportunities for Flipkart, and why? If Flipkart were to go global, what kind of global strategy should it pursue, and where?