Amazon.com began removing a wide array of products from its India website late on Thursday to comply with the country's new foreign investment curbs that kick in from February 1, two sources with direct knowledge of the matter told Reuters.
The rules will reportedly play as a major advantage for small retailers who have been longing for tougher competition rules, considering how their biggest competitors Amazon and Flipkart had an unfair advantage. The rules, which kick in on Friday, do not allow e-commerce sites to "exercise ownership or control over the inventory" of sellers.
Amazon's shares slid as analysts pushed the company for answers on India, a market the e-commerce titan regards as the best frontier for global expansion.
E-commerce players may also be forced to give up the word "exclusive" when they launch products such as smartphones on their platforms, as the rules mandate that an online retailer can not push vendors to "sell any product exclusively on its platform only".
The inventory model, which Walmart and Amazon use in the United States, is where the goods and services are owned by an e-commerce firm that sells directly to retail customers.
Effective February 1, online marketplaces - Walmart-backed Flipkart and Amazon - will have to undertake a massive restructuring of their operations in India to ensure compliance.
Flipkart said it doesn't violate this rule as it holds no stake in any of its vendor entities such as WS Retail or Omnitech Retail.
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Marketplace entities also can not take any step to influence the selling price of goods and services on their platforms. Amazon India, for example, may have to sell its stake in sellers such as Cloudtail and Appario, which form a majority of Amazon's sales in India, once the new rules are implemented.
Flipkart expressed disappointment with new rules but said it would comply.
The new regulation replaces a rule that said an e-commerce firm could not permit one vendor's retail sales to overshoot 25 percent of the overall sales of the marketplace by value in a fiscal year.
Both Amazon and Wal-Mart have taken a major bet on the Indian growing markets.
For example, the Huawei Mate 20 Pro, which was launched in November 2018 in India as an Amazon.in exclusive and which was widely sold on the platform up until yesterday, is no longer available for purchase.
Clothing from Indian department store chain Shopper's Stop was also no longer available, as Amazon owns 5% of the company. It also disallowed ecommerce companies from entering into pacts for exclusive sale of products and from holding equity stakes in their sellers.
According to multiple industry executives, these two companies continue to engage - directly as well as through associations and trade bodies - with government officials seeking to convince them to push the deadline. They must provide services such as warehousing, logistics and advertising to all sellers in a fair manner.