New Delhi/Bengaluru: Online retailer Amazon.com Inc. has disclosed to the US stock markets regulator that the company owns an indirect minority stake in a third-party seller on its Amazon India marketplace, a move that comes after India announced a new set of regulations governing e-commerce companies.
Amazon made this disclosure in its quarterly regulatory filing with the US Securities and Exchange Commission late last month. “In India, the government restricts the ownership or control of Indian companies by foreign entities involved in online multi-brand retail trading activities. For www.amazon.in, we provide certain marketing tools and logistics services to third party sellers to enable them to sell online and deliver to customers, and we hold an indirect minority interest in an entity that is a third-party seller on the www.amazon.in marketplace," the company stated in its filing. It didn’t reveal the size of the stake it holds.
The disclosure points to Cloudtail India Pvt. Ltd, a joint venture between N.R. Narayana Murthy’s Catamaran Ventures and Amazon Asia, which sells products on Amazon’s Indian website.
In October 2015, Mint reported that Cloudtail was the biggest seller or merchant on Amazon India’s platform, generating at least 40% of the company’s sales in key product categories in some months.
Cloudtail is dominant in electronics and fashion sales, two of the three largest categories for Amazon India (promoted by Amazon Seller Services Pvt. Ltd).
In March, the Indian government allowed 100% foreign direct investment in online retail of goods and services under marketplace model but prohibited marketplaces from having one dominant seller. The new rules cap total sales of one vendor at 25%.
The expansion of Cloudtail underlines how the world’s largest online retailer has used the loopholes in the law to continue to have a direct-selling model in the country that bans e-commerce companies from selling goods directly to shoppers.
Amazon India declined to comment.
“Although we believe these structures and activities comply with existing laws, they involve unique risks, and the PRC (People’s Republic of China) is actively considering changes in its foreign investment rules that could impact these structures and activities. There are substantial uncertainties regarding the interpretation of PRC and Indian laws and regulations, and it is possible that these governments will ultimately take a view contrary to ours," Amazon said in the filing.
“If our international activities were found to be in violation of any existing or future PRC, Indian or other laws or regulations or if interpretations of those laws and regulations were to change, our businesses in those countries could be subject to fines and other financial penalties, have licenses revoked, or be forced to shut down entirely," it added.
To be sure, these disclosures were part of company’s “risk factors" statement. All companies are expected to disclose to the regulator and investors any possible risks to its business even if the likelihood of such events to materialize are bleak.
Amazon had made these disclosures first in regulatory filings in October 2014. However, the disclosure about Cloudtail was made for the first time last month after the new regulations that prevent e-commerce sites from generating more than 25% of their overall sales from a single seller.
The new regulations will likely force the likes of Amazon and local rival Flipkart, which also has a dominant seller in WS Retail, to restructure their corporate entities, Mint reported in March 2016.