After Reliance disrupted the telecom industry with the introduction of Jio in September 2016, in only two years, Jio shook established telecom giants including Airtel, Vodafone & Idea, forcing them to reduce prices or merge with each other as it crunched on their subscriber base with significantly cheaper data plans. Moving on, the telecom giant now wants to shake the e-commerce industry by launching a service that would rival Amazon and Flipkart.
At RIL’s 41st annual meeting in July 2018, Chairman and Managing Director Mukesh Ambani hinted to the possibilities of Reliance venturing into e-commerce.
“With Jio, we have built a digital connectivity platform of unparalleled capacity and a nation-wide reach which has enabled Reliance to strategically re-invent itself as a Technology Platform Company,”
5 months later, at the Vibrant Gujarat Summit, Ambani declared that two of his group’s companies including Reliance Retail & Reliance Jio Infocomm would launch a hybrid (offline-online) e-commerce platform that would enable small merchants to sell online.
India’s richest man also confirmed that the platform would be launched in Gujarat, and would ‘empower and enrich 1.2 million small retailers and shopkeepers‘ in the state. Gujarat is the home state of Ambani’s father and founder of Reliance Industries Dhirubhai Ambani.
The New Rules favor RIL’s entry
In 2018, Reliance took part in the government consultations preceding the formation of new guidelines for e-commerce players in India. It has been reported that Flipkart & Amazon representatives were absent from the same.
The new rules upend the model pursued by Amazon and Flipkart as both companies own wholesale entities that provide goods to merchants, who in turn sell the products on their marketplaces. From February 2019, no seller on a foreign-funded marketplace will be allowed to source more than 25 percent of its goods from a company affiliated with the marketplace.
These restrictions will not apply to any new marketplace created by Reliance because it is an Indian company, noted Satish Meena, an analyst at Forrester Research. Being able to control the supply of goods that are sold on its marketplace “will certainly benefit them”, he said, while adding that the company could find it difficult to match the customer satisfaction levels achieved by Amazon and Flipkart. Reliance’s established focus has been on oil products, which still provide the overwhelming majority of its sales.
Reliance’s Stock price rises
In results published after the market closed on Thursday, Reliance reported a net profit of Rs 103 billion ($1.4 billion) for the final quarter of 2018 — up 8.8 percent year-on-year, driven by higher oil prices.
Revenue at Jio rose 51 percent to Rs 104 billion. Jio has amassed more than 250 million subscribers by offering cheaply priced data packages on its high-speed 4G mobile network, the heart of a $30bn investment programme.
Indian data must be conserved within India
In his speech, Ambani also weighed in on the Indian government’s controversial push for data ‘localization, which aims to block foreign technology and financial groups from processing citizens’ data offshore.
“Mahatma Gandhi led India’s movement against political colonization, today, we have to collectively launch a new movement against data colonization. India’s data must be controlled and owned by Indian people, not by corporates, especially global corporations. We will have to migrate the control and ownership of Indian data back to India.”– Mukesh Ambani at the Vibrant Gujarat Summit in January 2019
Major US groups have criticized the rules, saying that it would lead to unnecessary cost increases. While the new policies and economics favor Reliance’s entry into the e-commerce market, they potentially discourage foreign players operating within the market who committed a large resource base for the Indian market after FDI policies were eased by the ruling party in 2014-15.
While it is going to be a tough battle, Indian customers are sure to benefit once Reliance disrupts the industry and scales its operations to other states of the country.