Can eBay India Benefit From A Merger With Flipkart?

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Reports suggest that Indian e-commerce player Flipkart is likely to receive an investment of $1.5 billion led by eBay (NASDAQ:EBAY) and Tencent.  These reports also suggest that after this investment eBay could merge its Indian operations with Flipkart. The e-commerce landscape in India is extremely competitive, with Amazon investing nearly $5 billion in the country. Chinese e-commerce giant Alibaba has also started operations in India through its investment in PayTM, and will look to dominate the market along with Amazon going forward. While Flipkart has a leading share in the Indian market, reports in 2016 suggested that Amazon had surpassed it to become the largest player in the region.  Alibaba is still relatively new in India, but given its deep pockets the company could disrupt smaller players in the region. While eBay has had a presence in India long before Flipkart, Amazon and Alibaba, the company could not establish itself as a strong player in the market.  The top three e-commerce companies – Amazon, Flipkart and Snapdeal – command a nearly 75% share in the market, leaving little room for smaller competitors. With Alibaba’s entry, the space is likely to get even more crowded going forward.

While eBay is working on a transformation program and making its platform more efficient for buyers and sellers to transact, a merger with an established player may be the best route to success in India. Consolidation is likely in the Indian e-commerce segment, as smaller players will likely have to team up in order to effectively compete with Amazon and Alibaba. Flipkart is a pioneer in Indian e-commerce and was dominating the market until Amazon entered India. It is a local player and understands the nuances of the market, which would likely be beneficial for eBay. Given the huge potential of the Indian market, the country could become a major growth engine for eBay in the long term if it is able to effectively compete. Goldman Sachs estimates that the Indian e-commerce market will be worth $228 billion by 2030, while Amazon believes that the region is a trillion dollar opportunity.

We believe a merger with Flipkart would benefit eBay in India. The company may have a difficult time commanding a significant share in this region on its own, given the intense competition. Flipkart will remain a strong player and has a competitive edge over other competitors given its local advantage. eBay would benefit from this association and be able to tap into the huge growth potential of this emerging market.

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