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Google-Reliance partnership heats up Indian e-commerce race

Local startups to find new funding strategies amid rising Indo-China hostility

Google announced it would invest $4.5 billion in Reliance Industries' Jio Platforms on July 15.   © Reuters

TOKYO -- Google's surprise decision announced on July 15 to invest $4.5 billion into Jio Platforms, the digital business arm of India's biggest family-owned conglomerate Reliance Industries, has so far not been accompanied by any announcement on Google's role in Reliance's newly-developing online retail business, dubbed JioMart.

But it is very likely that Google itself and its affiliates in India will work closely with JioMart.

"The decision by Google to invest into Jio is a game changer for both companies on many layers spanning devices, search, apps and commerce," said Sanchit Vir Gogia, founder and CEO of Greyhound Research, in a blog post.

Google's addition to the Jio alliance will therefore make JioMart an even more formidable challenger to India's two incumbent e-commerce leaders -- Flipkart, a subsidiary of Walmart, and Amazon India.

For example, apart from providing its ubiquitous keyword search service in various Indian local languages, Google has been working hard to increase penetration of its mobile payment service Google Pay among Indian consumers.

There are various statistics on the customer base size of the country's top mobile payment services, but it is safe to say that Google Pay is among the top three Indian mobile payment services, the other two being Paytm -- India's most valuable independent startup backed by Softbank Group, Alibaba Group Holding-affiliate Ant Group and Berkshire Hathaway of the U.S. -- and PhonePe, owned by Flipkart.

Local media reports say that Google is about to roll out a service enabling Indian consumers to order food from restaurants they find in Google searches, with payments to be settled by Google Pay and the foods delivered by Dunzo, a hyper-local delivery service startup in which Google has a minority stake.

It could also be safe to assume that Reliance and Google will link the U.S. group's new food ordering, payment and delivery ecosystem to JioMart's wider-scope e-retailing platform.

"One of the weakest links of JioMart's e-retailing platform has been its last-mile logistics," Gogia pointed out. The combination of Google's map technology and Dunzo's local delivery network will surely help JioMart to address its last-mile issue.

A Dunzo spokesperson said there was "no reason to believe at this point" that there were any ongoing discussions on a collaboration under the Google-Jio alliance.

Soon after Facebook invested $5.7 billion in Jio Platforms in April, its messaging subsidiary WhatsApp started sharing its more than 400 million users with JioMart.

If Google's ecosystem joins WhatsApp in backing JioMart operations, it will present a threat to India's current top-two e-commerce players.

Walmart and Amazon are, of course, not standing still in the country.

One day before the Google-Jio announcement, Flipkart announced that it was raising $1.2 billion from existing shareholders led by its parent Walmart.

Amazon, meanwhile, has made two capital infusions of a total 48 billion rupees ($640 million) into its India operation this year. It has also set up a partnership with Future Group, the second-largest retail group in India after Reliance Retail, the retail division of Reliance Industries that runs JioMart.

Both Flipkart and Amazon have been trying to increase the amount of small and micro retailers in their partner networks, preceding JioMart's adoption of the same strategy.

The emerging three-way rivalry between Flipkart, Amazon India and JioMart, with the big U.S. groups in the background, is also having a wider impact, urging local second-tier e-commerce startups to reinforce their war chests and accelerate growth via investments in order to stay in the race.

But at least two of them are facing a new problem: the acute deterioration of the Indo-China bilateral relationship after the two countries' armies started conflicts in their disputed border areas in May.

Especially after a scuffle in mid-June that resulted in 20 casualties in the Indian army, anti-China sentiment in India rose steeply, putting startups backed by Chinese money in a difficult position.

One of these is Paytm's e-retailing affiliate Paytm Mall, which is regarded as one of the top contenders among second-tier e-retailing services in India. Its biggest backer is Alibaba, while Softbank of Japan and eBay of the U.S. also hold stakes.

Another is BigBasket, the largest online grocery store in India, which is also backed by Alibaba.

Some venture capitalists believe it is unrealistic for these companies to expect to be able to raise capital from their Chinese backers in order to stay relevant in the Indian market.

Other second-tier e-retailers, online grocer Grofers and general online store Snapdeal are backed by Japan's Softbank, which is in the process of reviewing its investment portfolio.

As Softbank and Alibaba are long-term allies, Indian local media frequently report on the possibility that some of the Indian startups they back could merge. So far none of these theories have been proved correct, but, as the Flipkart-Amazon India-JioMart race heats up, such mergers look ever more realistic options.

Of India's roughly $792 billion retail market, only 3% was carried out online in the year ended March 2019, according to rating house CARE Ratings. With the entire retail market predicted to grow at double-digit speed, the online portion of that is expected to see important expansion, with projections of 30% growth over the next few years, according to consulting firms.

While this rapid growth is good news, meaning there will be room for more than three players to grow and thrive, it also means participants must be able to quickly invest just to maintain their existing market share.

So, against the backdrop of this totally new business environment, created by the enhanced presence in India of the big U.S. groups, Indo-China tensions and the post-COVID-19 funding difficulties, those second-tier local startups therefore have no time to waste to come up with new capitalization and growth strategies in order to survive.

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