There was celebration all over the country when Commerce Advisor Abdul Razak Dawood tweeted that Pakistan will before long be added to Amazon’s rundown of the list of seller countries. The celebration was for what it’s worth. Social media was flooded when this news broke as Pakistan in Amazon’s seller list is the key to all deep economic snags of the country. Even the country’s premiere, Imran Khan, took to Twitter to congratulate the nation.
Already in the flux of e-commerce and the novel COVID-19 made online platforms inevitable. Pakistan’s local entrepreneurs already have a way to sell their products online. Selling online internationally often comes with different criteria and ways of its own. Mainly, by registering an LLC in the U.S. setting up a bank account, and paying a fee for incorporation.
Amazon adding Pakistan space to its seller list will eliminate all these barriers, take less time, and cut down all the formalities at other channels. But, is this the right thing to celebrate? Is Amazon going to take Pakistan out of economic hell?
Let’s break down how Amazon operates, because it is not that simple as we think it is.
The biggest tech organizations around the globe like Amazon, Google, Facebook, and Apple, in their inescapable development and broadening, contain components of the entirety of the platforms like Transaction and Exchange Platforms, Ad-Supported Platforms, and Software Platforms. Amazon is best perceived as retail, transportation, and logistic dais that works as the foundation for twenty-first-century retail business.
Amazon goes about as a transaction stage through Amazon Marketplace by simplifying the transactions between third-party merchants and users. Amazon likewise works as an ad-supported platform that facilitates the promotions and accommodating ads all through its platform for the items sold on Amazon and outside items and services. Amazon is also structured as a software platform. It includes its Kindle device and application. It is a place where Amazon associates the digital book readers with the publication houses and writers.
Amazon additionally singlehandedly rules the infrastructure and logistics. Amazon no doubt is operating by a wide margin the biggest cloud-computing platform. For independent sellers, Amazon provides its services under the banner of Fulfillment By Amazon (FBA) which acts as a logistics and delivery service for autonomous merchants. All of these services when used in sequential order create an efficient framework that greatly benefits the consumers.
But, here lies the issue.
The third-party marketplace of Amazon, the world’s largest e-retailer with 31.3% of the e-commerce market, is similar to a traditional transaction network. It connects buyers and sellers of new and used goods via the company’s website and mobile app. But, one of the most notable rivals that sellers face is Amazon itself.
Amazon has separate agreements with suppliers to deliver goods directly to customers with free two-day delivery through Amazon Prime. Contrary to this, other Amazon Marketplace vendors, on the other hand, are not automatically provided this service. Amazon produces a subset of Amazon Prime products, most notably under the AmazonBasics product line. So, let’s suppose if a buyer wants to purchase a chair, a buyer can get an AmazonBasics chair or a chair of an outside-brand from a third-party seller on Amazon.
The list of all retailers is made available for goods that are available from a number of sellers, including Amazon itself. However, 82% of purchases are made without any consideration of third-party sellers. Amazon sells its product through Amazon’s “buy box.” The buy-box is simply Amazon’s add-to-cart button, which selects a default vendor for a customer based on an algorithm that updates in real-time.
The buy-box algorithm uses price as the most significant factor in determining the default seller. But it isn’t the only one. Consumer reviews and seller ratings are also taken into account. As of 2017, even the goods that Amazon sells directly are subject to the buy-box algorithm. As a result, Amazon Marketplace can be viewed as a transaction platform that also competes with its seller side.
Amazon provides a platform to buy and sell and still competing with the sellers with an edge over them. Still, due to the bulk of Amazon’s efficient services, both customers and vendors multi-home. For example, third-party sellers can opt for other platforms to sell their products and buyers can also look for other platforms but the services which Amazon provides at a single platform efficiently don’t make the buyers look for other platforms. That is the reason the vendors don’t consider other platforms sustainable enough to compete. The trust of quality and bulk of services leave vendors no choice but to sell on Amazon regardless of being in the competition which they are unable to compete.
Amazon does not only work on theories. Through vertical integration, Amazon gathers a range of customer data in real-time. Regarding which goods are sold to whom, at what price, and which packaging or promotions work. It assists Amazon miraculously in better understanding its customers. It also provides information about possible competitive risks, which Amazon will use to decide that what firms it should ban, which potential firm it should purchase, and how it should expand strategically.
However, Amazon is not doing it unreservedly. In the United States, Amazon has been accused of tying the marketplace and logistics services together. The real question is whether Amazon is taking advantage of its market supremacy in order to gain an advantage in another?
Antitrust in vogue
The original purpose of antitrust laws was to prioritize consumer welfare and competition protection. The main emphasis was on preventing cartels from setting rates and avoiding monopolistic mergers.
Amazon and Germany
According to a current complaint against Amazon. Third-party sellers in Germany argued that Amazon’s terms of service were unreasonable, and the German Cartel Office agreed. The power to suspend or threaten to suspend sellers is Amazon’s most threatening weapon.
When a retailer is removed from Amazon’s website, it will now be given 30 days’ notice and a justification of removing. Amazon was used to ban any seller without prior notice or clarification. The changes affect not only Germany, but also its marketplaces in the United Kingdom, France, Italy, and Spain, as well as its other international locations in America and Asia. Amazon also dropped price balance or most-favored nations (MFN) provisions in contracts with third-party European sellers as a result of European investigations.
Amazon and India
India being a billion-dollar economy has more than 650,000 sellers on Amazon. In India, a coalition of over 2,000 online merchants has filed an antitrust complaint against Amazon, claiming that Amazon favors certain retailers whose online discounts put independent vendors out of business.
According to the complainants, Amazon India’s wholesale division buys products in bulk from producers and resells them to sellers at a loss. These sellers then sell their wares on Amazon at steep discounts. Amazon, according to the seller community, charges lower prices to some vendors, essentially making it impossible for independent online retailers to compete on its platform.
According to the group’s filing, Cloudtail, one of Amazon’s largest India sellers, pays Amazon a 6.3% charge for electronic goods, while independent sellers pay roughly 28.1%.
As of the latest case filing against Amazon in India; some items, such as groceries and detergents, were listed with a discounted price by between 8% and 45% on Amazon’s website when compared to retail prices visible on the e-commerce website.
Having been said, Pakistani authorities shouldn’t celebrate at a high pitch of being indulged in the seller list by Amazon. Pakistani vendors while having to compete with the other vendors worldwide, but, have to compete with Amazon itself on its own platform to sell their products. Locally manufactured products also face barriers to being exported worldwide due to low standards.
Authorities, rather than congratulating the nation on this development should focus on B2B and B2C business and assure the quality of the product. Government should take the driving seat in getting the mid-range and lower manufacturer to the international markets. Ministry of Commerce through proper channels and negotiations deal with the Amazon team to safeguard Pakistan vendors before opening up the avenue to list their products through the lens of anti-trust practices and strict policies. Being relying on Amazon to expand the export band is mere ill-thinking.
Who would’ve thought that an e-commerce retail store would narrow enough to prevent any effect of the form on countries? Some analysts have already indicated that even these antitrust complaints may end up being insignificant. However, successfully alleging an antitrust violation is challenging enough. Governments have to step up to safeguard the rights of their entrepreneurs with long-haul parleys.
Pakistan has to learn from the anti-trust incidents of Amazon and its policies before pushing its citizens into another short-sighted and unsustainable retail business. Or, it’s too early to call the odds? Here’s to cautious optimism.