Doing a Jio in e-com, taking on Amazon won't be easy

An epic battle for dominance in the e-commerce space in India, which is regarded as a lucrative market, with a growing population and economy. Reliance Industries Ltd (RIL) Chairman Mukesh Ambani’s decision to enter the ever-expanding online retail space with a $24 billion behemoth is bound to shake-up the market. Existing players, US-based Amazon and Walmart–Flipkart, which control over 80% of the online retail market in India, valued at an annual Rs 5 lakh crore, are likely to feel the heat.

There’s no denying the fact that Mukesh Ambani, Asia’s richest man with a personal wealth of $56 billion, would make life difficult for the global biggies that currently have a free run of the Indian e-commerce market. But will Ambani succeed in this battle of wits, nerves, technology and capital is a billion-dollar question. The stakes certainly are huge.

READ: An epic e-com battle in the offing

While preparations for Reliance’s full-blooded entry into e-commerce and the expected corporate warfare began two years ago, the first move was made with Ambani’s announcement of taking Reliance Retail online through an e-commerce company riding on his telecom arm Reliance Jio Infocomm. Ambani also said that he would clear the ground for take-off for this new venture by putting Jio under a new holding company for all ‘digital services businesses,’ and by infusing some $15 billion in fresh capital, in addition to its current about $9 billion, as well as taking Jio’s debt on the parent company RIL’s books. The massive restructuring exercise signals the massive ambition behind it.

But several top executives of the Reliance Group privately concede that the task at hand is herculean and the battle for market supremacy will turn mean as Reliance begins to rollout online services, products and partnerships.

There’s near unanimity amongst top corporate analysts that it will not be easy to disrupt the well-entrenched American biggies in the Indian e-commerce space as it was in telecom services. Even there, Reliance took years to roll out the service after suddenly snapping up 4G spectrum from a nearly unknown player who had won it. The ‘delay’ had made Ambani’s ambitions a butt of rivals’ jokes. But Ambani had the last laugh. Within three years of launch, Reliance Jio has zoomed to prime position, with over 355 million subscribers, and profits to boot.

Taking on Amazon, which has retail operations in over 15 countries and a market capitalization of over $1.1 trillion, is not going to be easy by any stretch of imagination. Amazon’s reach can well be gauged from the fact that it ships products and services – about 45 million items each day -- to customers in over 100 countries. Walmart-owned Flipkart will not be an easy walkover, either. With over $500 billion in revenues, Walmart has the muscle to keep its Indian subsidiary in the race for a long time.

Even in a virgin Chinese market, Alibaba, started in 1999 by the teacher-turned-entrepreneur Jack Ma, did not have a smooth run for years. Two decades later, of course, Alibaba is valued at $459 billion, with annual revenue of $56 billion and profit of $13 billion, aided in no small measure by the Chinese government’s policies.

Mukesh Ambani’s move to build an Indian version of Alibaba may be born out of the resounding success that Reliance Jio has had. To the Indian mind, the $24 billion war chest he has announced could be big. But it looks modest when one realises who he is up against.

Walmart invested $16 billion in buying Flipkart and has committed another $10 billion to expand in the Indian market. Amazon, with deep pockets, has committed another $5 billion as it prepares to take on Ambani.

Interestingly, Amazon.in and Flipkart are market leaders in e-retail across segments like groceries, consumer electronics, lifestyle and several other categories of products and services. Displacing them from this position would be tough. Yet, they will remember, too, that Reliance Retail’s offline operations, modest that it may be compared to Walmart’s, have been most profitable, growing 12-13% annually while the industry as a whole trotted at 3-4%.

Ambani’s India-centric operations would also mean putting all eggs in one basket. In contrast, Amazon and Walmart’s multi-geography operations mean business risks are spread out. This could be Reliance’s Achilles heel.

What could give him big heft is the 355-million-and-growing customer base that Jio has. Reliance will have to build on that for Ambani’s plan for retail to contribute 50% of the group’s revenues to come true. That will need seamless integration of existing offline businesses under Reliance Retail as well the media and entertainment businesses on the online platform, along with continued footfalls at its supermarkets and retail stores, in all some 11,000 of them currently. Indeed, the offline presence gives Ambani an edge over Amazon and Walmart, which under current FDI rules cannot operate physical stores.

Deloitte estimates that digital purchases could hit a whopping $200 billion in India within five years. Reliance will have to bid for relevant assets aggressively and take on competition.

The unorganized offline retail market in India, with mom-and-pop stores in every street corner, is valued at a humungous Rs 48 lakh crore. Reliance will have to rope in millions of these outlets, enhance their capacities and profitability as a precursor to its own success.

Sewing up partnerships across product and services classes may actually define the success or failure of Reliance’s e-commerce business in the first two years itself. What would finally make or break it is the kind of money the group can throw around through schemes, offers and deep discounts to beat Amazon and Walmart at their own game.

Perhaps completing the sale of a 20% stake in its flagship energy and petrochemicals major, Reliance Industries Ltd., to Saudi Aramco for $15 billion will provide Ambani the extra cash he needs to be able to do that. Reliance may also have to think in terms of spreading across South and South East Asia to gain heft and spread risks.

From being a petro and petrochemicals-focused company to becoming a force in telecom, IT, media and entertainment and retail, the Reliance Group has shifted gears swiftly, and successfully, in the last four decades. But what Mukesh Ambani proposes to achieve through e-commerce could well catapult Reliance into the ranks of the top 20 global enterprises.

(The writer is a senior business journalist based in New Delhi)