Amazon to invest $3 billion more in India's booming online market

The new investment was announced on Tuesday by CEO Jeff Bezos at a meeting between Indian Prime Minister Narendra Modi and U.S. industry, hosted in Washington by the U.S.-India Business Council.

“We have already created some 45,000 jobs in India and continue to see huge potential in the Indian economy,” Bezos said.

A company spokeswoman would not, however, provide details on how the company plans to spend the money in the country.

India’s online retail market is booming and a number of local companies, including  large traditional business powerhouses like the Tata Group, have set up online retail sales.

A report released recently by Google and A.T. Kearney has projected that online retailing will contribute as much as 25 percent of the total organized retail sales by 2020 and will reach $60 billion in gross merchandising value by then.

Amazon is up against established online retail startups such as Flipkart and Snapdeal, which have proven to be quick to adapt to Indian conditions and consumer demands, and have also been able to raise cash so far to compete with Amazon in a market where heavy discounting is prevalent. The entry of established companies into online retail could prove to be another big challenge for the U.S. retailer.

In line with Indian rules governing foreign ownership of retail companies, Amazon does not sell directly in India but operates as a marketplace for vendors. The company has 21 fulfillment centers providing 5 million cubic feet of storage space. Under a new program called Seller Flex, introduced in India, some sellers need not send inventory to Amazon but instead stock it at their own facilities. Amazon configures the site as a fulfillment center in its network to receive and fulfill customer orders.

The company has tried a number of strategies in India to popularize its Marketplace platform. It ran a program called Amazon Chai Cart that used three-wheeled mobile carts to do the rounds of the business districts of cities, serve tea, water and lemon juice to small business owners and teach them about selling online.

“In a period of four months, the team traveled 15,280 km across 31 cities, served 37,200 cups of tea and engaged with over 10,000 sellers,” Bezos said in a letter to shareholders in April. 

The company found that although sellers were keen on getting online, they felt that the process was complex, tedious and time consuming. So was born “Amazon Tatkal,” a program offering launch services such as registration, imaging and cataloguing services, as well as basic seller training, to get small businesses online in less than an hour.

The company, which launched its marketplace three years ago in India, now claims to sell over 55 million products from 85,000 sellers, the majority of whom are traditional Indian retailers.