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Amazon plans $3 billion investment in India to challenge Flipkart, Snapdeal

Amazon will invest $3 billion in India this year, chief executive Jeff Bezos said on Tuesday, as it looks to step up its challenge to local e-commerce players.

The new money comes on top of the $2 billion announced in 2014, bringing Amazon's total investment in India to $5 billion.

"We have already created some 45,000 jobs in India and continue to see huge potential in the Indian economy," Bezos said in a statement after the U.S.-India Business Council's forty-first Annual Leadership Summit in Washington, which Indian Prime Minister Narendra Modi attended.

Jeff Bezos, CEO of Amazon,(R), is presented with the 2016 USIBC Global Leadership Award by Indian Prime Minister Narendra Modi during the forty-first Annual Leadership Summit at the Mellen Auditorium, June 7, 2016 in Washington, DC.
Mark Wilson | Getty Images
Jeff Bezos, CEO of Amazon,(R), is presented with the 2016 USIBC Global Leadership Award by Indian Prime Minister Narendra Modi during the forty-first Annual Leadership Summit at the Mellen Auditorium, June 7, 2016 in Washington, DC.

Amazon's investment comes as it looks to stoke growth in international markets which have lagged North America. In 2015, Amazon reported a $2.75 billion operating profit in North America but logged a $91 million operating loss in its international markets. Sales internationally also significantly lagged North America.

In India, Amazon operates a marketplace model where it only sells goods offered via its website by third parties due to local foreign direct investment rules.

The U.S. e-commerce giant is facing stiff competition in India from local start-ups which have managed to raise sizeable funding rounds. Earlier this year, online marketplace Snapdeal raised $200 million at a valuation of around $6.5 billion, while Flipkart got $700 million last year, valuing it at around $15 billion.

But it has not been plain sailing for either company. Major investors in Flipkart including Morgan Stanley, wrote down the value of their investment in the start-up earlier this year, while Snapdeal announced a round of layoffs in February.

Competition is stiff and these start-ups are burning through cash to compete. Amazon will be hoping its latest investment will allow it to take advantage of that. Still, Flipkart has a 45 percent market share in terms of gross merchandise value (GMV) – a key metric for online retailers – while Snapdeal comes in with 26 percent and Amazon with 12 percent, according to Morgan Stanley.

Amazon has been trying to localize its efforts in India, a move seen as key to success in a market where many people don't have bank accounts, infrastructure is not as well developed and internet can be patchy.

"We're adapting to the local model," Bezos said at the Code Conference last week, adding that Amazon does its own deliveries in India, a different model than in the U.S. where it relies on third-party services.