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East meets West. The battle for supremacy in India’s e-commerce market

While China and the US currently dominate in terms of e-commerce spending, India is one of the world’s fastest growing internet markets. It is also the fastest growing country in the Asia Pacific region in the retail e-commerce space. The rapid pace of growth of e-commerce in India creates a huge potential opportunity and attracts not only local players but foreign e-commerce giants, like Amazon and Alibaba.

The largest local players, Flipcart and Snapdeal, initially seen as the dark horses in this race and attracting serious investment, are now losing their positions, caught in between two global e-commerce behemoths. After a couple of years of hyper growth fuelled by a funding boom, India’s largest Internet companies, home-grown Flipkart and Snapdeal, have had their wings clipped of late, struggling to secure more funds for further growth. New government legislation banning platforms from using cash to subsidize products or offer deep discounts, has contributed to the struggle.

After failing to capture the massive Chinese market, Amazon moved its expansion plans to India. Heavy investment ramped up its Indian operations and since entering the market in 2013, the company has secured a market share of 15% as of 2016. It plans to expand fast using its deep pockets. It also has less to worry about in terms of valuation and operating costs. Amazon’s rapid expansion, especially its aggressive pricing, threatens the position of the local market leaders.

As Amazon aggressively increases its investment in India, following its ambition to become the country’s number one e-commerce player, its Asian rival Alibaba is not far behind and is looking at consolidating its position in the country. While Amazon has poured billions into growing its own India-based operations, Alibaba has looked to expand with a little help from local friends. It first tried to ally with Snapdeal and Flipcart. However, as Amazon’s dominance in India has grown and local players faced financial issues, Alibaba turned to Paytm, an Indian digital wallet and online retailer, which owns the largest mobile payment service in the country with a huge client base.

To fight Amazon, the might of a strategic player may be necessary and therefore it makes sense for the companies to align. This may mean the possible start of consolidation in the Indian e-commerce market.