No time is as exciting as witnessing history unfold. I would have agreed a 100%, if the year was not 2020. Despite the initial shock, the markets have been hustling and bustling with activity in the later of the year, however. One such particular hustle that is being highlighted is the new clash of the titans, in the Indian E-commerce market, Reliance v Amazon.
Reliance vs. Amazon: The Backdrop
Reliance Industries was founded by late Mr. Dhirubhai Ambani, which was later divided among his sons Mukesh and Nobody-Cares Ambani. Under Mr. Mukesh Ambani, Reliance established its subsidiary Jio, which, within 3 years of inception has already broken the entire telecom market in India, caused players like Aircel to hasten their exit and giants like Vodafone and Idea to merge.
Since the beginning of the year 2020, Mr. Mukesh Ambani has been on fleek with securing investments in his brand Jio, which is in expansionary mode. The companies that did invest considerable sums include mammoths like Google, Facebook and Silverlake.
Amazon was found my Mr. Jeff Bezos, in which he pioneered and mastered the e-commerce business model. The company Amazon was started as a book-selling platform, which eventually moved on to selling everything and anything under the sun. Further, under the leadership of Jeff Bezos, Amazon has expanded into a ton of areas like streaming, logistics, web servers, and even personal assistants.
As quite evident, both the leaders involved believe in ever expansionary stage, and have both started companies on a single platform with long term visions and both of them understand that businesses and actions thereof have long term implications. Another similarity between both of these leaders is that both have a practice of entering into a vibrant market space and quickly becoming market leaders of that space. Let’s see what happened.
Reliance vs. Amazon: Future Group
In October 2020, Reliance acquired Future Group, which happens to be in the retail and wholesale business, with brands like Big Bazaar and Central in its portfolio. The primary intention behind this is in the fact that currently, as per his moves, it seems like Mr. Mukesh Ambani is focused expanding its retail space, which is under the brand Reliance Retail.
The problem with sudden expansion of Reliance Retail is simply in the fact that it has fewer stores compared to its competitors, and presence in even fewer cities. Now, there is a longer way to do this, by building stores all across. But not only it is time consuming, and ineffective cost-wise, it would be a waste of potential demand, given the fact Future Group was on the verge of liquidation, a fact pointed out by its promoters, and it would have gone through liquidation had it not entered the Rs. 26000 Crore acquisition deal with Reliance. And Reliance gets the distribution centres and supply chains for more than 1800 stores instantly, along with already skilled workers. This means that brands like Big Bazaar, Central and FBB would have their stores replaced with Reliance Retail and Reliance Trends.
Also read: How Mukesh Ambani made Reliance Industries debt-free?
However, in 2019, Amazon had bought 49% stake in Future Coupons, the promoter company of Future Group. Post this transaction, they also effectively own 3% in Future Group as well. One of the terms of was the fact that it prohibited Future Group into entering into contracts and selling its distribution centres to a list of companies. Among those names, was Mukesh Ambani led Reliance industries.
Their October deal stood in direct violation of this contract.
Reliance vs. Amazon: Singapore International Arbitration Centre
As is usually the case, the terms of the contract between Future Coupon and Amazon were really precise. One of these terms happened to be dispute redressal, in case of, well disputes. According to the terms dictated by the contracted, any legal dispute that arises between Future Coupons and Amazon has to be solved through arbitration, with the arbitration committee being Singapore International Arbitration Centre.
There could be several reasons why Amazon might have chosen to do so, however, one of the most likely reason has to be the sheer amount of time taken by Indian courts to address its cases, let alone resolve.
As per the terms, Amazon contacted SIAC. The general procedure of this, well proceedings is usually, is the fact both the companies appoint an arbitrator, and the third is agreed upon mutually by both companies. However, Amazon also requested for emergency interim arbitration, to put a stop order to the said sale.
In these interim arbitration, however, Amazon found relief, because the tribunal awarded the requested stop order to Amazon. Here’s where things get interesting.
As of the date of this article (November 16, 2020), both Reliance and Future group have blatantly refused to follow the stop order granted to Amazon, stating the obvious reason that international arbitrations are more suggestive, and not legally binding in Indian Subcontinent. Furthermore, Amazon has approached the Indian courts for upholding the arbitration order, and it is very likely that the legal representative of the company would state Section 9, of Arbitration and Conciliation Act, 1996.
The Clash of the ECommerce Giants: Key Takeaways
This case, particular is interesting to due to several reasons, more precisely ethical and moral implications of this decision, which would further shape the image of India’s foreign direct investment environment.
On one hand, if the deal between Future Group and Reliance does not go through, Future Group will have to pack up its bags and file for liquidation, which, by estimates of various analysts would result in over 29000 workers throughout the country losing their jobs. This would be obviously devastating to a pandemic struck economy.
On the other hand, if Indian courts decide to uphold the deal between Reliance and Future Group, it would be a signal to companies throughout the world that Indian government is biased towards its businesses, which to most companies seeking a fair environment, is a negative incentive.
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So, what do you think? What’s the best way out for these two e-commerce giants? Feel free to discuss.