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How Amazon CEO Jeff Bezos’ $1 billion funding promise to MSMEs will impact small business investments

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By Prabir Chetia

Credit and Finance for MSMEs: Despite the economic downturn, Jeff Bezos, the world's richest man, is massively bullish about India. He said as much during his recent visit to India and is backing up his words by investing as much as $1 billion in India's small and medium business. You don't get to be the worlds' richest man without a sweeping vision. Jeff Bezos has one to win the hearts and minds of Indian SMBs. It's not a coincidence that the timing of Amazon's decision to create digital haats comes on the heels of Mukesh Ambani's plan to disrupt retail across India.

Reliance Retail has recognised the enormous untapped opportunity in India’s unorganised retail sector. While the country’s organised retail industry is only worth 5 lakh crores, the unorganised sector is worth 48 lakh crore. Reliance retail will deliver POS terminal to small retailers across India, thereby onboarding them to the company’s digital infrastructure. The terminals will run on Reliance's vast digital network and bring the company's digital services to every corner of India. Amazon is preparing to go head-to-head with Reliance Retail. Both companies are among the largest in the world, and small Indian retailers are to be their next consumers.

Amazon's Plan

Amazon plans is to establish 100 digital haats in Indian cities, villages, and communities. At the haat's, it will onboard companies to its e-commerce platform. The haats will help local businesses create images and catalogue their products. They will also provide warehouse space. Amazon's intentions are similar to those of Reliance Retail's, tapping the dormant value at the bottom of the pyramid. The 48 lakh crore rural retail market is an untapped reservoir ripe for disruption. Amazon has the scale to disrupt this sector and help business join the formal economy.

Jeff Bezos's long term vision is to digitalise small and medium-sized businesses, thereby capturing the dormant value in them. He believes his actions will lead to the export of goods from India worth $10 billion. To Indian leaders, the promise of exports worth an addition $10 billion from India is music to the ears.

No Charity

Bringing Indian SMEs into the digital fold is not charity, but business acumen. On his recent visit, Jeff Bezos stated that he believes the 21st century will be India’s century. He also thinks the country has something special. He doesn't want Amazon to miss out on the India story. India has the second-largest population in the world, making it one of the world's biggest markets. But the market in India is highly fragmented, and there has been no effort made to integrate it. Thankfully the middle class in India is growing larger and wealthier. Internet is penetrating even remote corners of the country, and the government has taken real action to bring economic development to rural India.

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Tapping the massive market in India’s interior is part of Amazon’s long term strategy. The company is here for the long haul and wants to integrate a large but fragmented retail sector. The indirect and benign consequence of such integration will be that SMEs will be able to sell to a more significant number of consumers. Amazon’s actions are sure to lead to more funding for SMEs.

Smooth Sailing?

There is a reason India’s rural market has remained free of disruption. Until recently, there were few companies capable of disrupting the market. Across India, anything connected to retail and consumers is hyperlocal. Meaning retailers sell to consumers who live nearby. Even more challenging is the fact that there is considerable diversity in the country. What works in one region won't necessarily work in another. This means marketers have to be incredibly innovative to sell pan India.

Other challenges abound. For instance, despite easy access to 4G connectivity across India, the e-maturity of Indian markets is low. Most use a mobile phone for little else besides entertainment. Also, cumbersome regulations make business difficult. Finally, local merchants who have plied their trade in the same way for decades will resist Amazon’s encroachment into their market.

Overcoming Challenges

If Amazon overcomes the mentioned challenges, what will happen? New jobs to the tune of 1 million are likely to be created. New profiles will open up in verticals like IT, skill development, content creation, retail, logistics and manufacturing. More importantly, local artists in India will have access to global markets. SMBs, in the interior of the country, will be able to sell internationally. If this happens, it will accelerate trade boosting the country's GDP. The government's 'Make in India' initiative will receive an impetus, and the future will become brighter for the entire retail sector.

Prabir Chetia is the Director-Business Research & Advisory at Aranca. Views expressed are the author's own.