Flipkart among world's 5 biggest tech startups

Qatar Investment Authority (QIA) has picked up a $150-million stake in India's e-commerce poster boy Flipkart, which closed a $700-million fund-raising on Wednesday, sources directly involved with the matter said.

QIA is the new investor buying into Flipkart, valued at around $11 billion, taking it among the top five privately held technology startups in the world. TOI had earlier reported that existing investors had committed $500-600 million in fresh financing.

Middle East sovereign funds have been looking at India's e-commerce sector for a while. QIA, the owner of Harrods department store in London, joins GIC of Singapore as another sovereign investor in Flipkart. Deutsche Bank advised QIA on the just concluded investment, said sources cited earlier.

The investment in India's e-commerce sector, which is projected to grow seven-fold to $22 billion by 2018, adds to QIA's spree of acquisitions. QIA has investments in Tiffany, Barclays, Credit Suisse and a $1.2 billion stake in India's biggest mobile phone carrier Bharti Airtel.

A Flipkart spokesperson offered no comments at the time of going to press.

This is Flipkart's third fund-raise this calendar, taking the year's total mop-up to $2 billion. The domestic e-commerce leader, which is battling Amazon in an intense marketplace rivalry, has projected a $4-billion revenue run rate by March next year.

This year's capital raising binge also makes Flipkart one of the most heavily funded startups. Founded in 2007 by Sachin Bansal and Binny Bansal, the Bengaluru-based company is being chased by private investors in anticipation of a huge initial public offering in the next three years.

India's rapidly expanding internet user base, estimated at 250 million currently, is fuelling interest of global investors in domestic e-commerce. Flipkart, Amazon and Snapdeal are burning significant cash to be at the forefront of an attractive growth story.

Amazon asks government to allow 49% FDI in e-tailers selling directly to consumers

Ahead of US President Barack Obama's visit to India next month, ecommerce major Amazon has asked the government to allow 49% foreign direct investment in e-tailers selling directly to consumers.

It has also asked the Centre to amend the law on value-added tax to overcome clashes with local tax authorities that have dogged its operations in Karnataka.

Amazon raised these demands at a meeting between officials from the industry ministry and US companies. The meeting was to address the concerns of USbased MNCs ahead of the first meeting of the inter-ministerial committee set up to fast-track investment proposals from the US.

Obama is the chief guest for Republic Day celebrations next year.

Amazon, which has invested $300 million in India so far, argued that the current policy permitting only business-to-business (B2B) sales to foreign investorfunded companies restricts investments and local sourcing from manufacturers.

"Clarify and remove FDI restrictions in ecommerce. Allow at the minimum 49% FDI in business-to- consumer ecommerce," Amazon said, according to a document prepared for the meeting.

Agovernment official privy to deliberations confirmed that Amazon has sought FDI in businessto- consumer (B2C) ecommerce. Amazon also said the current VAT laws make it an agent, bringing its activities in direct conflict with restrictions on FDI in B2C ecommerce.

FDI up to 100% is allowed only in B2B ecommerce. While 51% FDI in multi-brand retail was permitted by the previous UPA government, the policy is effectively on hold as the ruling BJP had opposed it in its election manifesto. As a result, proposals on FDI in ecommerce are not being entertained.

Representatives from Amazon, Morgan Stanley, BAE Systems and Ford, among many other companies, met with the DIPP secretary at the meeting, which was attended by officials from related ministries.

Ford raised the issues of connectivity and logistics which are affecting its Chennai and Gujarat plants. BAE, meanwhile, wanted the offset policy to be made broad-based while Flextronics Technologies asked for 100% FDI in defence.

"It was an excellent and successful meeting. All issues related to procedural delays were referred to the respective departments. Policy issues raised by the American companies were taken note of by the officials (concerned)," said another government official. He did not disclose the government's response to Amazon's proposal.

Amazon operates through the so-called marketplace model in India, where sellers use the company's platform to reach out to buyers. The American etailer's demand could put the BJP government in a difficult situation. Commerce & Industry Minister Nirmala Sitharaman has said in the past that the government was examining whether opening up ecommerce will amount to a backdoor entry for foreign multi-brand players.

The government would also need to take into consideration complaints by traditional brick-andmortar players against recent mega sales by online retailers.

Amazon also raised the tax problems faced by it in Karnataka and sought an amendment to the VAT law, which does not recognise it as a service provider. As a result, tax authorities in Karnataka have asked the company to pay taxes on products sold from its warehouse.

Further, tax authorities have asked sellers not to store products in Amazon's warehouse near Bangalore as it was not paying VAT on the products sold from there. Ford sought a meeting with officials from the Gujarat government and the railway ministry to work out a plan for development of rail infrastructure from its plant in Sanand.

It also asked the National Highways Authority of India and Tamil Nadu government to expedite the completion of the highway to improve connectivity to Chennai Port.

Online retail giant Amazon scouts for office space in Bengaluru

Amazon is on the lookout for 1.3 million sq ft of office space in Bengaluru to support its “aggressive hiring outlook” over the next 3-5 years.

At present, Amazon occupies 5.5 lakh sq ft of office space spread across 15 floors at Brigade Gateway’s World Trade Centre, Bengaluru, which can accommodate 5,000 employees.

Builders shortlisted

According to sources, the builders shortlisted by Amazon for its current requirement of office space are Brigade Group, Embassy Group and Bagmane Developers. This time around, the online retail giant is looking to lease office space on a build-to-fit model where the builder will build office space as per international standards set out by the company including safety, security and sustainability. Amazon had leased office space at the World Trade Centre on a “shell” basis where it was given a shell or open space by the Brigade Group.

With 1.3 million sq ft of additional office space, Amazon will be able to accommodate approximately 13,000 employees over the next 3-5 years that will support its India and global operations. On being contacted, Amazon said, as a company policy, it does not comment on what it may or may not do in the future.

Other centres

Amazon entered India in 2004 with the opening of a Development Centre in Bengaluru. In 2005, the company expanded to Hyderabad and in 2006 to Chennai. Amazon teams in India support its websites across the world. The teams also support: payments, transportation and digital products and services like the Kindle family of tablets, e-readers and the store.

Last month, Amazon was awarded the highest new jobs creator in Karnataka in the Information Technology-enabled Services category by Software Technology Parks of India (STPI) Karnataka IT Exports Awards for financial year 2013-14.

The company does not divulge its headcount in India, however, on receiving the award, Raj Raghavan, Director Human Resources, Amazon India, said: “Amazon has been in India since 2004 and we have a long-term commitment to the country. Our employee base in Karnataka serves both our India and global operations and has grown by 37 per cent in 2014 compared to the previous year. We continue to be aggressive in our hiring outlook as we scale up our operations in India in our endeavour to be India’s most customer-centric company.”

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With 1.3 million sq ft of additional office space, Amazon will be able to accommodate approximately 13,000 employees over the next 3-5 years that will support its India and global operations.

Govt set up panel to bring clarity on e-commerce rules Committee, with representatives from finance and commerce ministries, to study global models to derive lessons for India

 The government is learnt to have set up a committee, with representatives from the finance and commerce ministries, to devise a clear mechanism for the e-commerce sector. The move comes against the backdrop of some mega discounts by online retailers lately evoking protests from traditional chains.

The newly constituted committee is understood to have been tasked with studying e-commerce models in other countries and assessing what lessons could be drawn for the Indian market. The panel is expected to come up with its first view in a few weeks. At present, most online retailers follow the marketplace model, where traders are hosted on the websites of companies like Flipkart, Amazon and Snapdeal.

THE DISCOUNT AFTER-EFFECT

    Move comes after the mega discounts by online retailers lately, evoking protests from traditional chains
    Big companies running offline retail chains recently wrote to both the commerce and finance ministries, seeking clarity on guidelines for the sector
    India’s e-commerce sector, worth about $4 billion, is estimated to grow to $15 billion in two years
    The panel is expected to come up with its first view in a few weeks


Though India does not permit foreign investment in e-commerce, there are no such barriers for the marketplace format. Big companies running offline retail chains, such as Reliance Industries and the Aditya Birla group, recently wrote to both the commerce and finance ministries, seeking clarity on guidelines for this emerging sector. Indian e-commerce has been attracting significant funding from across the world, despite the total size of the country’s online retail still being only about one per cent of China’s e commerce market.

“Mega festivals and even day-long offers can mean death for traditional retailers. The government has, therefore, formed a joint committee to look into the issues regarding e-commerce and iron out those issues,” said a source. India’s e-commerce sector, worth about $4 billion, is estimated to grow to $15 billion in two years. Brick-and-mortar stores account for the bulk of the country’s $600-billion retail market, a majority of which remains unorganised. The e-commerce sector’s share in total retail is only three-four per cent at present. This year, investments in this sector have been about Rs 20,000 crore, four times as much as last year. After protests against deep discounts offered by online retailers like Flipkart, Amazon and Snapdeal in their mega sale events — Flipkart’s ‘Big Billion Day’ sale and Amazon’s Diwali Dhamaka Week, for example — the recently concluded three-day Google online festival, too, caused much irritation to offline traders, especially the small and medium-sized ones. Last month, the Retailers Association of India held a meeting with the Confederation of All India Traders in Mumbai to discuss the need for clarity on rules for online retail.





“Offline retailers are not against a blanket ban of e-commerce companies but a balanced outcome has to come, to enable long-term existence of both online and offline platforms,” the source quoted above said. After consumer fury on Flipkart’s ‘Big Billion Day’, the government had said it would look into complaints from consumers.

It recently said the competition regulator was investigating into the Flipkart sale fiasco.

Even so, some brick-and-mortar retailers have already started exploring business opportunity online as well. Future Group’s Kishore Biyani was among the first to express resentment towards below-cost sales by e-commerce companies, especially Flipkart. However, within weeks, Biyani tied up with American e-tail giant Amazon for three years. In a recent interview with Bloomberg, Aditya Birla Group Chairman Kumar Mangalam Birla also indicated interest in venturing into e-commerce.

Online retail spending to touch $16 bn by 2018: Report

The online retail spending in the country is expected to reach $16 billion (around Rs 1 lakh crore) by 2018 with the number of people buying online touching 128 million, a report said today.

Billions of devices will be connectable with an ability to drastically enhance the quality of living and change the way products are experienced, the report by industry body CII and KPMG said.

"Digital infrastructure is a key enabling technology for a connected and instrumented world. It is expected to create tremendous opportunities for various technology players across verticals like smart cities, smart utilities, smart healthcare, smart transportation and more in India," KPMG India Partner K Raman said.

Industry players and society need to leverage digital infrastructure to create more opportunities and economic value, he added.

According to the report, there could be about 1.4 billion mobile sensing health and fitness app downloads worldwide by 2017.

"Also, Indian online retail spending will may reach $16 billion by 2018, where online retail in India grew by 67 per cent in 2013. The number of Indian online buyers is expected to grow to 128 million by 2018," it added.

As digital infrastructure goes mainstream, there can be challenges like security, data breach and interoperability which may pose as a barrier for the overall framework, the report said.

Long-term success of digital infrastructure in a country like India could depend on the how well infrastructure operations work along with technological challenges, it said.

India, as a growing nation, could be looking to invest continuously in newer technologies and capabilities, while also driving their mass deployment, overcoming the challenges that manifest as hard and soft issues, it added.

South India's three big mobile retail chains team up to take the fight to e-tailers

Following a drop of more than 40% in smartphone sales since the festive season due to aggressive online discounting, three of south India's largest cellphone retail chains - Sangeetha Mobiles, Poorvika Mobiles and BigC Mobiles - have decided to pool resources. They're planning to fight online retail by creating a common back end to negotiate higher margins and launch exclusive models through their stores.

These three chains -which together control more than 65% of the smartphone market in offline retail in the south with 765 stores and cumulative sales of more than Rs 3,000 crore -have initiated discussions with Samsung, LG, HTC and Micromax and expect to launch their first such exclusive models next month.

Samsung is considering a brickand-mortar-only model in India after the backlash from large retail chains over online discounting and the difficulty of controlling this, two senior industry executives said.

"Coming together will help us to improve both topline and bottomline," said BigC Mobiles chairman and managing director Balu Chowdary . "As per negotiations with the brands, we expect to soon roll out one model each from Samsung and HTC next month," he said.

Smartphone sales in modern retail have been hit by discounts offered by online marketplaces, such as Flipkart, Amazon and Snapdeal, since early October. While there was a pickup in sales in the week preceding Diwali, sales have now flagged due to occasional offers from online retail and the current Great Online Shopping Festival, which is a Google initiative. As per estimates, ecommerce accounts for 12-14% of total smartphone sales in India.

Creating a common back end will help get better margins since volumes have slumped, said Sangeetha Mobiles MD Subhash Chandra.

"The smartphone brands too are happy since they too are breaking their heads on how to control online discounting which is unsettling the brick-and-mortar stores," he said.

Poorvika Mobiles CEO N Yuvaraj said the three are trying to create a complete portfolio of exclusive models, right from entry to high end. "We together can purchase much more than online stores or any other retail chain and hence can command better bargaining power with the brands," he said.

Micromax CEO Vineet Taneja said the brand is interested in partnering with retail chains, including the three in the south, but wants a com mitment on sales volume to make such a move commercially viable."We are flexible and have the capabilities to develop a new model at the fastest pace," he said.

A Samsung India spokesman said the brand is continuously evaluating and introducing exclusive promotions and programmes to expand sales through large retail partners.He declined to provide details but said the brand has several differentiated plans for the future.

E-commerce marketplaces have launched exclusive models. Motorola handsets available exclusively through Flipkart have racked up sales of more than 2.5 million.Xiaomi also sells phones only through the site.

The MobileStore CEO Himanshu Chakrawarti said the chain also wants to sell exclusive models after the successful launch of the BlackBerry Z3 through its network.

"However, it may be a temporary respite since consumers in India have a natural gravitation to online due to increased internet penetration and discounting. We need to evolve a long-term strategy," Chakrawarti said.

UniverCell founder D Sathish Babu said his company is also evaluating such a strategy but the risk is that it has to give the brand a commitment on sales volume.

Fresh fund-raising values Flipkart at $11 billion, Hong Kong-based Steadview Capital invests $180 million

Flipkart India's largest e-tailer which is in the midst of a third round of fund-raising this year has received an initial investment of $180 million led by Hong Kong-based investment firm Steadview Capital, according to two people directly involved in the deal.

"Steadview has committed $100 million of the $180 million and as the subsequent tranches close, more new investors will come in," said one source.

This latest deal, which when complete could bring in about $700 million in fresh funding, values the Bengalurubased firm at about $11 billion (Rs 69,000 crore) making it worth more than some of India's largest consumer companies. While Godrej Consumer is estimated to be worth Rs 31,000 crore, Dabur India is valued at about Rs 41,000 crore.
"The commitment for this round is $700 million, but as talks keep evolving that amount might vary slightly," said the second source aware of the talks.

The sources also told ET that the current investment round could see a few of the existing investors cash out from the seven-year-old company in what is called a secondary sale.

Steadview, an India-focused alternative asset management firm, did not respond to email queries on the development while a spokeswoman for Flipkart declined comment.

Over the past couple of months speculation has been rife over Flipkart's fundraising plans, as the e-tailer soaks up cash to stay ahead in India's fiercely competitive ecommerce market that, according to Nomura, is estimated to grow to $43 billion by 2018.

Flipkart is now worth nearly half of India's fourth-largest IT services firm Wipro, which has a market capitalisation of Rs 1.34 lakh crore, and nearly seven times the mid-sized IT services firm MindTree that is valued at Rs 10,000 crore.

In May, Flipkart received $210 million led by Russian billionaire Yuri Milner's DST Global and in July it raised a mammoth $1 billion led by existing investors Tiger Global and South Africa's media group Naspers. The July fund-raising valued the company at $7 billion, a first for an Indian Internet firm.

This latest round, when complete, will again see contributions from all existing investors including DST Global, Naspers and Tiger Global Management. Multiple sources have told ET that Flipkart is being very choosy about the new investors it will welcome on board.

While Flipkart has raised a total of $1.2 billion so far this year, rival Snapdeal received $627 million from Japan's Soft-Bank in October. Amazon founder Jeff Bezos has committed $2 billion to grow his company's Indian operations.

For Steadview, which has this year picked up stakes in furniture e-tailer Urban Ladder and taxi aggregator Olacabs, this will be the first investment in an Indian online retail firm.

In recent weeks, India's ecommerce sector has been on fire, as the top three contenders vied with each other to offer deep discounts to customers in the year's biggest online sales during the Diwali season. The sale season also saw a lot of backlash from customers who were aggrieved at the level of service.

The companies are now expected to increase the reach of their logistics services and invest in improving back-end technology support. "Flipkart will (continue) to primarily invest cash for discounting and upgrading technology," said one person, who works with the company at a strategic level.

Flipkart, which is moving fast to launch a range of private label brands in electronics, fashion and accessories, is widely expected to launch furniture and packaged food by early 2015.

While Amazon India is already present in gourmet and specialty foods categories, it is yet to start selling furniture. Delhi-based Snapdeal, meanwhile, has a presence in both categories.

"India is about to experience an Internet boom like the world hasn't seen-with more than 500 million people coming online over the next 3-4 years," said Vivek Wadhwa, a fellow at Stanford Law School and a director of research at Duke University. "Flipkart has built a powerful brand and distribution network. It could be transacting business in hundreds of crores of rupees soon."

eBay lags behind Amazon and Flipkart in commission revenues

eBay India, one of the earliest online marketplaces in the country, has slipped behind both Flipkart and Amazon on revenues from seller commissions as its two rivals along with Snapdeal have been aggressively pushing sales with big discounting events and high-decibel marketing.

eBay India posted revenues or income of Rs 107 crore calculated on commission earned from sellers along with advertising revenues for fiscal 2013-14, according to its annual filing to the Registrar of Companies.

In comparison, Amazon Seller Services posted revenues of Rs 169 crore and Flipkart Internet that manages the portal reported income of Rs 179 crore. A year earlier, eBay's revenue was Rs 81 crore while Flipkart trailed with Rs 15.4 crore.

These numbers are not sales from actual goods sold on their portals but are transaction and listing fees from the sellers as well as advertising revenue which is the actual revenue of e- commerce sites. eBay declined to comment on its financials.

While eBay and Amazon don't disclose income from merchandise sales, Flipkart India, the website's wholesale arm, said sales more than doubled to Rs 2,846 crore in the year ended March 2014, against Rs 1,180 crore in the previous year.

Experts feel that the aggressive strategy of Flipkart, Snapdeal and Amazon has affected most others including eBay.

"These three companies are playing a game for market dominance and their aggressive stance has taken options away from rivals," said Devangshu Dutta, CEO at retail consultancy Third Eyesight.

"These Indian players (Flipkart and Snapdeal) are funded well to continue that strategy while Amazon seems to have clearly seen a huge opportunity in India," he added.

In July, Amazon announced it would invest $2 billion (approx Rs 12,400 crore) in the company's India operations that have exceeded gross merchandise sales of more than $1 billion within a year of the launch.

San Jose-based eBay bought local auction platform baazee.com for $55 million (about .`344 crore) to enter India back in 2004, at a time when online retail was unheard of in most of the country.

The Indian e-commerce industry picked up in a big way in the last couple of years, triggered by deep discounting strategy from newer players even if that meant incurring heavy losses.

Soaring sales and rising losses bear witness to this. Combined losses of Bangalorebased Flipkart, Delhi-based Snapdeal and Amazon India was more than Rs 985 crore for the last fiscal. Flipkart and Snapdeal which counts eBay, Azim Premji and Ratan Tata as investors together sold goods worth more than $4 billion. eBay India has been mostly lying low and hasn't been actively participating in recent mega sale events. Yet, the company has posted Rs 83 crore net loss during year to March 2014, a 15% increase from a year ago period.

Frequent change in its leadership team may have also affected eBay. Its current managing director Latif Nathani is its fourth India head in the past five years.

Parent company eBay Inc is trying to sort out issues in its home market by spinning off its PayPal unit into a separate business in an attempt to negate the slowing growth of traditional marketplace business.

Experts, however, aren't discounting eBay India yet and feel the Indian online retail market, which is estimated to grow over four-fold to touch $14.5 billion (over Rs 88,000 crore) by 2018 can absorb a handful of large players including eBay.

GST will boost e-commerce

Summary Tax rules should not make a distinction between the real and the digital economy

Significant strides in technology have led to a gradual shift in the manner in which goods/services are marketed and sold by various players to the end-consumers. E-commerce is one sunrise sector which has tapped this technology and has gained considerable space in the last few years.
In India, like in the European Union (EU), digital economy is growing at a rapid pace. According to an estimate, 53% of over 380 million internet users within the EU area buy products and services online. The e-commerce sector has, of late, been attracting lot of investments by the private equity players.
The act of purchasing online is comparable to “normal” trade in that the sellers offer their products on the internet and the customers choose according to their preferences. Then, by making a selection on the monitor, the customers express their wish to purchase the selected items. As part of the process, consumers choose a method of payment from those offered—credit card, cash on delivery, debit card and other comparable methods.
For such trades, there are generally two operational models: one wherein the e-commerce player owns the goods and sells the same to the end-consumer; the other model is wherein the e-commerce player provides a marketplace to the other sellers to display and sell the goods directly to the end-consumers on the web portal, in exchange for a commission on sales.
Another differentiation that is immensely important from a GST perspective would be between physical supplies of goods (tangible goods) and supply of digital goods/services (digital goods). Taxation of e-commerce transactions continues to be a controversial issue globally with its own set of challenges.
If one were to consider the example of the EU, the bloc has a comprehensive value added tax (VAT) system in place to tax such transactions since 2006. The Sixth Directive defines a taxable transaction within the EU VAT scheme as a transaction involving supply of goods, supply of services and importation of goods.
Although VAT was introduced in the EU long ago, it is still struggling to cope up with the ever-changing business scenarios such as e-commerce.
With effect from January 1, 2015, new rules for calculation of VAT on broadcasting, telecommunications and e-services would come into effect across the EU. These changes are referred to as VAT on Electronic Services (VOES) and, in principle, VOES supplied to consumers will no longer be calculated based on the place the service was supplied from but rather on the place in which it is now consumed. The fact that even under the proposed new rules there are various challenges and issues around the operational mechanism is a pointer to the intrinsic difficulties in taxation of the e-commerce sector, especially around supply of digital goods and services.
The e-commerce sector in India has, of late, been facing challenges on the State VAT front with some notices being issued by Karnataka VAT authorities to one of the leading players. The impending issue(s) stem from the fact that India does not have any specific laws to regulate the e-commerce sector and the various tax laws do not have any enabling provisions to cater to the complex and rapidly evolving e-commerce space.
The proposed implementation of Dual GST could be a big boost for e-commerce sector which may not only alleviate the existing challenges but also bring about significant efficiencies to the e-commerce sector, giving them a much more competitive advantage vis-a-vis the brick-and-mortar stores. The pertinent point that needs to be kept in mind while drafting the law for e-commerce is that tax rules should not make a distinction between the real and the digital economy. This is necessary in order to ensure that goods sold online suffer the same tax treatment as the goods that are sold in brick-and-mortar stores.
One of the most important pillars for the Dual GST structure would be the rules determining the place of supply of goods/services. To ensure a coherent Dual GST mechanism involving both the Centre and the states, adoption of same place of supply rules for goods/services would be a prerequisite. It is expected that the Centre would be framing the place of supply rules for goods/services in due discussions with the states and common rules would find place under the Central GST, Integrated GST and the various State GST laws.
With regard to supply of tangible goods, the determination of place of supply of goods would be relatively easy depending on the movement and the destination of the goods. Having said so, one of the principal issues would be the rules for place of supply of services by the e-commerce players to the vendors under the marketplace model.
The much larger challenge under GST would be taxation of supplies of digital goods and services (goods supplied over the internet such as digital books, music, etc) by the e-commerce players. Considering the meteoric rise of the e-commerce sector and the revenue potential involved for the government, the Indian revenue authorities would expectedly come up with specific rules governing supplies of digital goods/services by the e-commerce sector based on global best practices.
On a global basis, the implementation of GST would reduce tax costs in the overall supply chain and provide tax advantage to the players in e-commerce space. On the business front, implementation of GST would provide a lot of flexibility to the e-commerce players to structure their supply chains on business considerations and achieve further efficiencies in business operations.