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Amazon Invests Additional $2 Billion in India to Dominate Booming E-Commerce Sector

E-commerce giant Amazon said Wednesday that it would invest an additional $2 billion to expand its footprint in India, and the announcement came just one day after the country’s biggest e-commerce company, Flipkart, announced it received $1 billion in backing to fuel growth.

Amazon launched its online marketplace in India in June last year offering books and video content, and has since rolled out an aggressive advertising campaign, introduced same-day delivery and expanded its offering to apparel, electronics and beauty products. Currently, Amazon operates in India by charging third-party suppliers to sell products on its website as laws in the country don’t currently allow foreign direct investment of more than 51 percent in multibrand retail companies.

Company chief executive Jeff Bezos said in a statement, “With this additional investment of $2 billion, our team can continue to think big, innovate, and raise the bar for customers in India.” He added, “At current scale and growth rates, India is on track to be our fastest country ever to a billion dollars in gross sales.”

The e-commerce concept has only recently started to catch on in India as more citizens connect to the Internet, but the sector is growing quickly. According to a joint statement by consultants Digital—Commerce, the Internet Mobile Association of India and the Indian Market Research Bureau, India’s $13 billion e-commerce industry is expected to grow at a compound annual growth rate of 34 percent. By comparison, that rate of growth would still leave India well behind China, which saw e-commerce sales of $300 billion in 2013, according to iResearch. And analysts have revised growth estimates for China upward to $446.6 billion for 2014–a 45.8% growth rate–as Alibaba Group Holding Ltd plans to go public on the New York Stock Exchange.

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According to Reuters, Amazon plans to increase its presence in India by opening five additional warehouses, nearly doubling its storage capacity to half a million square feet. The company did not specify over what period the investment would be made.

“Amazon’s strength is they are a company which has figured this [e-commerce success] out in the U.S. They can come and replicate that technology capability in India,” Sanjeev Aggarwal, senior managing partner of venture-capital firm Helion Advisors told The Wall Street Journal. “But it won’t be a lift and shift. I’m sure they will still have to do a lot of customization to the local needs from a delivery, logistics and payment standpoint.”

Flipkart feels its inside knowledge of local needs will enable it to maintain a strong position in the sector. The company’s new funding milestone comes just months after it became the first Indian e-commerce firm to reach $1 billion in gross merchandise volume (GMV).

The company, founded in 2007, has nearly 22 million registered users and handles 5 million shipments per month. Flipkart said it would use the newly acquired funding for product and technology innovation, and to foster continued momentum for its e-commerce presence.

Flipkart’s founders Sachin Bansal and Binny Bansal commented on the funding in a statement: “India has 243 million Internet users — and this number continues to grow very fast. We want to enable every Indian to either shop or sell online. And we believe that the power of the mobile Internet is going to help us achieve this goal. By 2020 India will have more than half a billion mobile Internet users. Our intense focus on mobile and technology puts us in a unique position to take advantage of this massive opportunity.”