Why foreign companies cannot sell goods directly to consumers via Amazon India and the concept of cross-border merchandising

 

Have you ever exported or sold products overseas through Amazon, the world's largest e-commerce company? Amazon is widely known as an "Online shopping mall" that sells products directly by Amazon itself, but also being perceived as an "open market" where other companies (third-party companies) participate as sellers and meet consumers. For the second quarter of this year, the percentage of open market sales was 53% of the total sales. So as of now it’s safe to say that Amazon is an "open market platform."

 

The open market boom has hit India as well. As of 2019, more than 500,000 third-party companies have registered as sellers and are selling more than 2,000,000 products on Amazon India. However, all these companies are Indian companies locally based in India. If a foreign company wants to become a seller who can sell goods directly to Indian consumers in Amazon India, one must establish a business entity in India.

 

In other words, foreign companies are not allowed to sell goods directly to consumers in Amazon only after they register their business entities in India. Today, I will tell you why and how to sell products through Amazon India.

 

Amendments of the Indian Government on Electronic Commerce Act to Protect its National Commerce

 

Cut to the chase, it’s because of the Indian government's amendments on Electronic Commerce Act, which went into effect from 1st of Februray, 2019. On December 26th, 2018, the Indian government announced the policy via press release, saying that as of now Indian government will restrict foreign companies from directly operating retail operations (B2C retails) over the Internet in order to protect its local businesses. The key part of the policy is as follows :

 

1. Subject to provisions of FDI policy, e-commerce entities would engage only in Business to Business(B2B e-commerce and not in Business to Consumer (B2C) e-commerce.

 

2. E-commerce entity – E-commerce entity means a company incorporated under the Companies Act 1956 or the Companies Act 2013 or a foreign company covered under section 2 (42) of the Companies Act, 2013 or an office, branch or agency in India as provided in section 2 (v) (iii) of FEMA 1999, owned or controlled by a person resident outside India and conducting the e-commerce business.

 

3. Inventory based model of e-commerce – Inventory based model of e-commerce means an e-commerce activity where inventory of goods and services is owned by e-commerce entity and is sold to the consumers directly.

 

4. Marketplace based model of e-commerce – Marketplace based model of e-commerce means providing of an information technology platform by an e-commerce entity on a digital & electronic network to act as a facilitator between buyer and seller.

 

5. 100% FDI under automatic route is permitted in marketplace model of e-commerce.

 

6. FDI is not permitted in inventory based model of e-commerce.

 

In summary, in India, foreign companies (incorporated under foreign direct investment only) are not eligible to engage in certain types of  B2C-based e-commerce activities, which indicates stocking up their products in local inventories and selling products directly to consumers. What foreign companies can do is to inform Indian consumers about their products and promote sales through the platform on the Internet, as per the law revised by Indian government.

 

How to use Amazon India as a foreign company : Establishing a New Company in India

 

So, is there no way for a foreign company to sell its products directly in Amazon India? Not really. As mentioned at the beginning, establishing a business entity in India could be the way.

However, it is not an easy job to do; You need to rent an office space somewhere and follow procedures to register a business in India. They might require you to visit India in person to do all these works and it can be quite burdening as a foreigner. In addition, if the product you want to sell requires an approval from the Indian government, the actual timing of launching your products in India could be postponed, even far behind your plan.

 

How to use Amazon India as a foreign company : Having a partnership with a local company registered in Amazon India (Cross-Border Merchandising)

 

As a result, it may be wise to have a partnership with an Indian business entity that has already been registered as Amazon sellers, and at the same time holding certificates that let certain types of products to be imported as per regulations. It means to upload product information on Amazon under the name of a local partner registered in Amazon India, and export the product to India as per the order quantity.

 

After that, once the product becomes viral and the volume of orders explodes through marketing, it may be reasonable to ship and export products in large quantities to India at once, managing the inventory locally. This is called Cross-Border Merchandising. Of course, it will be possible only after both your company and Indian companies have solidified their trust as ‘partners’.

 

In conclusion, if you want to export/sell your products to Indian consumers, registering and selling them through a partnered Indian local business entity already registered in Amazon India is an effective strategy.

 

Also, if you want to export/sell your products to Singaporean consumers, it is a good idea to sell them through a partnered Singaporean local business entity already registered in Shopee, a renowned online marketplace in Singapore.

 

The Ekimport team has offices all around the world. In India there are 2 companies, including Aibrid Importers and Distributors Pvt. Ltd., which has obtained certification for importing food products(FSSAI). Not only in India, but also there are 2 offices in Korea(Ekport Korea Co., Ltd.) and a company in Singapore(Elan Enterprise Pte. Ltd.).

Please feel free to contact our Ekimport team if you want to explore the Indian market or Singaporean market with your products.

 

Leave a sales inquiry through : https://ekimport.com/contact-us