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Large Investment in India Led Amazon to International Losses

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Amazon commits to invest $5 billion in India

Amazon (AMZN) considers India (EPI) to be one of its most important markets. The company has even called India the next trillion dollar market, according to a report from Fortune. According to a report from the Economic Times, Amazon has committed to invest $5 billion in India over the next few years after having committed to invest $2 billion in 2014. However, these large investments mean that Amazon is still not able to break even on a consistent basis in the International segment. As the chart below shows, Amazon’s operating loss in the last quarter was about $121 million.

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Amazon also faces a few regulatory risks in India

The growth potential of the Indian e-commerce market is large. According to a report from the Economic Times citing Goldman Sachs, the Indian e-commerce market could grow from $23 billion in 2016 to $69 billion by 2020. Amazon has stepped up these investments, as the competition from the Indian e-commerce leaders is stiffening. Flipkart is the leading local player in this market while Snapdeal and Paytm have also become aggressive. Alibaba (BABA), China’s (FXI) biggest e-commerce player, has invested in both Snapdeal and Paytm to tap this growth.

Despite strong growth, Amazon faces a few regulatory risks in India. According to the new regulations, marketplaces in India will not be allowed to have more than 25% of their sales coming from one seller. Another regulation states that these companies can’t influence the product prices by offering deep discounts. These regulations will impact all the e-commerce players in India like Flipkart, Snapdeal, eBay (EBAY), and Amazon.

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