Amazon.com Sets Up India Warehouse

Amazon.com (AMZN) is putting up its first warehouse in Mumbai, India’s largest city, practically announcing just how serious it is in breaking into the market of second most populous country in the world.

Mumbai alone has a 12-million-strong population and more than 3 million active users on the Web. It’s an e-commerce market worth more than $5 billion in 2010 – and it’s expanding at a double-digit rate year after year!

Admittedly, most of this value comes from the Internet travel industry, which is not (yet) Amazon’s line of business. Nonetheless, India’s e-commerce sector is also growing at a rapid pace. 

What Amazon will probably do is acquire a significant local Indian retailer, fold the acquired retailer into Amazon, and then grow from there. 

That’s how they did it in China, remember? Amazon bought Joyo.com for $75 million and turned it into Amazon.cn. 

In India, Letsbuy.com, FlipKart, and Specifically.in – all trusted local online retailers – are reportedly in talks with Amazon as we speak. (There are reports, though, that FlipKart has recently received a $20 million funding, causing it to turn down Amazon's offer.) 

So who’s selling out? We don’t know. But somebody will, that’s for sure. And once that deal is over, Amazon will be expanding in India. Warehouses will be built in Delhi, Bangalore, Kolkata…

Of course, Amazon will need to modify its payment system, as many Indian consumers do not use payment cards, and those who do – well, they have a tendency to share such cards with their family and friends, magnifying the risk of fraud.

But alternative payment options are nothing new to Amazon. In China, for instance, they offer cash on delivery. 

The biggest challenge for Amazon would probably be how to build trust with the Indian online customers, who sometimes entertain this nagging suspicion that what they see in the e-commerce platform is not the same as what the courier will hand them.

But so far, Amazon has been able to build a solid reputation for its trustworthiness and customer service. If they are able to keep their current track record when they do business in India and other emerging markets, customer trust is something they should not have much trouble in building.