Saturday, March 20, 2021

Reuters Special Report: "Amazon documents reveal company’s secret strategy to dodge India’s regulators"

There was a story a couple months ago that Amazon operatives in India had asked a court to jail one of their competitors.

From Reuters, February 17:

Amazon favored big sellers on its India platform – and used them to maneuver around rules meant to protect the country's small retailers from getting crushed by e-commerce giants, internal documents show. As one presentation urged: “Test the Boundaries of what is allowed by law.”

NEW DELHI – It was early 2019, and senior Inc executive Jay Carney was preparing for an important meeting. The former press secretary to U.S. President Barack Obama, Carney was scheduled to talk with India’s ambassador to the United States in Washington, D.C. In Delhi, the Indian government had just announced foreign direct investment regulations that threatened to disrupt Amazon’s business in the world’s second most populous country.

Before the meeting, Amazon employees prepared a draft note for Carney. The note, reviewed by Reuters, advised Carney what to say – and what not to say.

He should highlight the fact that Amazon had committed more than $5.5 billion in investment in India and how it provided an online platform for 400,000-plus Indian sellers. But he was cautioned not to divulge that some 33 Amazon sellers accounted for about a third of the value of all goods sold on the company’s website. That information, the note advised, was “Sensitive/not for disclosure.”

Other company documents reveal equally touchy information: Two more sellers on the e-commerce giant’s India platform – merchants in which Amazon had indirect equity stakes – accounted for around 35% of the platform’s sales revenue in early 2019. That meant some 35 of Amazon’s more than 400,000 sellers in India at the time accounted for around two-thirds of its online sales.

All this information was indeed politically sensitive. If it got out, it could give fresh ammunition to small Indian retailers who allege that Amazon harms their businesses by flouting federal regulations and favoring a few big sellers. It could have annoyed Prime Minister Narendra Modi, whose political base includes millions of these small retailers. And it would have undercut Amazon’s public messaging that it is the friend of small business in India. As the company says in one marketing slogan in India, it is “transforming lives, one click at a time.”

What Carney wound up telling the ambassador is unclear. A meeting did take place in April 2019, but neither side would comment on the specifics of the gathering.

The briefing note for Carney is contained in hundreds of internal Amazon documents that are reported here for the first time. News of their contents could deepen the risks facing the company as it encounters intensifying government scrutiny in one of its fastest-growing markets. The documents lay bare that for years, Amazon has been giving preferential treatment to a small group of sellers on its India platform, publicly misrepresented its ties with the sellers and used them to circumvent increasingly tough regulatory restrictions here.

Indian traders, both brick-and-mortar and smaller online sellers, have long alleged that Amazon’s platform largely benefits a tiny number of big sellers and that the American giant engages in predatory pricing that has crushed legions of retailers. Amazon rejects this: It says it complies with Indian law, which stipulates that an e-commerce platform can only connect sellers to buyers for a fee, unlike in the United States, where Amazon can both act as middleman and sell goods directly to consumers.

The company also says it runs a transparent online marketplace and treats all sellers equally. The internal Amazon documents contradict those claims, revealing how the e-commerce giant has helped a small number of sellers prosper, giving them discounted fees and helping one cut special deals with big tech manufacturers such as Apple Inc. The documents also show that the company has exercised significant control over the inventory of some of the biggest sellers on, even though it says publicly that all sellers operate independently on its platform.

The documents reviewed by Reuters are dated between 2012 and 2019. They include drafts of meeting notes, PowerPoint slides, business reports and emails. One of the notes contains a frank appraisal of Modi’s “straight forward” style of thinking, sizing him up as “not an intellectual.” Together, they provide a look inside a cat-and-mouse game Amazon has played with India’s government, adjusting corporate structures each time the government imposed new restrictions on foreign e-commerce firms, amid growing agitation from small retailers.

Amazon “does not give preferential treatment to any seller on its marketplace” and “has always complied with the law,” the company said in a written response to questions from Reuters. “The reporting appears based on unsubstantiated, incomplete, and/or factually incorrect information, likely supplied (maliciously) with the intention of creating sensation and discrediting Amazon.” The company added that it “treats all sellers in a fair, transparent, and non-discriminatory manner, with each seller responsible for independently determining prices and managing their inventory.”

Modi’s office and India’s Ministry of Commerce and Industry didn’t respond to questions from Reuters.

Amazon has become one of the two biggest e-commerce platforms in India, with close to $10 billion in sales in 2019, according to Forrester Research. The American giant knows it faces significant regulatory risks here.

In recent years, Amazon has stated in its annual U.S. Securities and Exchange Commission disclosures that its business structures and activities comply with Indian law, but that there are “substantial uncertainties” regarding their interpretation. It is possible the Indian government “will ultimately take a view contrary to ours,” the disclosure states. And a violation of any existing or future regulations or a change in their interpretation could result in the business “being subject to fines and other financial penalties” or being forced to restructure or “shut down entirely.”....