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Amazon’s invincibility is showing some cracks — and a big one is in India

Regulations have put the company’s already tenuous international growth plans at risk.

Amazon CEO Jeff Bezos, right, is presented with the 2016 USIBC Global Leadership Award by Indian Prime Minister Narendra Modi.
Amazon CEO Jeff Bezos, right, is presented with the 2016 USIBC Global Leadership Award by Indian Prime Minister Narendra Modi during the 41st Annual Leadership Summit at the Mellen Auditorium, June 7, 2016, in Washington, DC.
Mark Wilson/Getty Images

It’s tough to look at a growing, profitable company that generated $72 billion in revenue just over the holiday season and find problems with its business. Especially when that company’s name is Amazon.

But when you look at Amazon’s core online shopping business, there is some reason for concern — and new regulatory changes in its most critical international market of India is a big reason why.

First, it’s hard to overstate how important the Indian market is to the future of Amazon’s long-term ambition in its main business of online retail.

That’s because at some point, Amazon’s business in North America will have little new room for growth. The growth in the number of products Amazon sold decelerated once again during the holiday quarter, to just 14 percent year over year, down from 23 percent last year.

So Amazon has announced more than $5 billion in investments in India — and that’s just what the company made public between 2014 and 2016 — in an effort to make sure it doesn’t stumble in the international market with the most long-term growth potential since China, where it has failed to make any real impact on the market.

Since Amazon entered India in 2013, it has had to operate differently than everywhere else in the world due to rules there dictating how foreign-owned online businesses can operate; namely, Amazon has only been able to offer products for sale on its platform from other merchants, rather than also acting as a retailer itself.

Worldwide, 48 percent of the physical products Amazon sells are ones it sells itself. In India, that number has been zero.

But Amazon has circumvented those rules by selling goods through big online merchants in which it has an ownership stake. The problem is that new regulations implemented this week ban that practice, too.

The new Indian regulations also restrict Indian e-commerce platforms from offering deals from brands that are exclusive to just one site. Amazon also may not be able to offer heavy discounts on products in the way it has in the past.

Arvind Singhal, a consultant with Technopak Advisors Pvt, told Bloomberg on Thursday he estimates that Amazon’s “revenue growth could fall to 15 percent in coming months from 25 to 30 percent previously.” Amazon’s main rival in the country, the Walmart-owned Flipkart, will also be impacted.

On Amazon’s earnings calls with both reporters and analysts on Thursday, Amazon’s chief financial officer Brian Olsavsky sounded concerned.

“[T]here is much uncertainty as to what the impact of the government rule change is going to have on the e-commerce sector there,” he told analysts, according to a transcript of the call.

And on a call with reporters, Amazon said it would abide by rules, but stressed that the rules are not conducive to how the company best likes to operate: by offering the biggest selection of products at the best prices. Again, Amazon does not make points like this unless it is concerned.

The moves in India would not be so critical if Amazon’s main e-commerce business were growing rapidly in other parts of the world — but it’s not. Amazon’s international business is growing just 15 percent year over year, and that number could very well decrease as a result of these changes.

Olsavsky said Amazon remains committed and hopeful about the long-term prospects of its business in India. Over the next year, we’ll learn whether there is reason for that optimism or whether it was wishful thinking.

This article originally appeared on Recode.net.