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Amazon to Inject Additional $3 Billion Investment in India

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Amazon.com, Inc. (AMZN - Free Report) plans to invest an additional $3 billion in India on top of the $2 billion announced in 2014, increasing its total planned investment to $5 billion.

CEO Jeff Bezos announced this plan on Tuesday at the U.S.-India Business Council’s Leadership Summit in Washington in presence of Indian Prime Minister Narendra Modi.

The move appears to be well timed as the company’s major competitors in India – Flipkart and Snapdeal are struggling to attract investors.  Steps like deep discounts and workers’ lay-off are said to be creating discontent among investors.

Immediate Reason

The move underscores Amazon’s growing confidence in India that has been emerging as a key growth area for the company.

Amazon’s expansion efforts in China didn’t go off as well as it would have liked. That’s because there was fierce competition from local company Alibaba Group Holding Limited (BABA). Bezos has also said that an unsuccessful local market was also a reason for its lack of success in the region.

But the company has no such fears in India. Indian local players haven’t had the same level of success nor the reach and government support as Alibaba in China. They’ve also had difficulties raising funds (in Flipkart’s case, it’s been choosy about valuation), which is a great backdrop for a company like Amazon that has the wherewithal to capture a market very aggressively.  

Future Plan

Amazon’s Web Services (AWS) Cloud Region in India is proceeding per plan and Bezos says that the software engineering and development center in Hyderabad would be the largest of its kind outside the U.S.

He also said that AWS will be able to create lots of jobs and other career development opportunities in India going forward.

Long-term focus

Amazon has a two-pronged plan for India. First, it strives to tap and expand in the rapidly growing online shopping market in India. According to UBS AG, India’s e-commerce market is expected to grow to $60 billion by 2020 and Amazon would like to be the leader here.

Second, Amazon sees huge supply-chain opportunities in the country. It has plans to source goods directly from India and China and sell them to the rest of the world especially the U.S. and Europe through its fulfillment centers.

Amazon in India

Amazon was launched in India in Jun 2013 and with its global repute, took little time to emerge as a tough competitor to established local players. The greatest strength of Amazon in India is its business model that focuses on adapting to local preferences.

The company allows only those third parties to offer goods through its website that are capable of meeting local needs and requirements.  The payment systems are flexible and products are delivered to doorsteps.

Currently, Amazon is a Zacks Rank #3 (Hold) stock. 

Some better-ranked stocks include Extreme Networks Inc. (EXTR - Free Report) , Netgear Inc. (NTGR - Free Report) and Radcom Ltd. (RDCM - Free Report) , each sporting a Zacks Rank #1 (Strong Buy).

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