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SoftBank sets foot in India’s e-commerce sector

Japan’s telecom giant SoftBank is eyeing opportunities to expand in South Asia. With its recent investment of USD627 million into Snapdeal – an Indian e-commerce firm – Softbank becomes its largest shareholder. It is one of the largest investments ever made by a single investor in an Indian e-commerce company. Flipkart, another Indian e-commerce player, has also received foreign investment. Does this mark the start of an investment spree? Leon Perera, Chief Executive Officer of Spire Research and Consulting shared his insights on the implications of these investments in Japan’s Diamond Magazine.

Softbank is a Japanese internet and telco behemoth. It is listed under 33 industries classification on the Tokyo Stock Exchange. Recent financial profits for Softbank’s Q2 2014 touched JPY560.7 billion in terms of net income. Softbank recently acquired the number three mobile service provider in the US – Sprint Corp – for USD21.6 billion. It has one third of shares in Chinese e-commerce giant Alibaba.

Perera opined that SoftBank has now set its sights on Indian shores through its recent investment in Snapdeal. This is only the beginning. It has embarked on an expansion drive, with a war-chest of USD10 billion to invest in the e-commerce industry in promising markets. Choosing SnapDeal means enabling it to create a stronger foothold in the Indian market. SnapDeal currently boasts of more than 25 million registered users as well as 50,000 business sellers.

India’s current e-commerce market is valued at USD2 billion which amounts to an overall retail market share of 0.4%. However, by 2020 this is expected to grow up to USD30 billion – contributing approximately 3% of overall retail sales.
However, restrictions on Foreign Direct Investments (FDIs) remain a significant impediment. Current laws restrict global companies from selling products directly to Indian consumers. Foreign companies can only invest directly into domestic companies as a means to expand. However, this has not deterred SoftBank. Other investors will no doubt follow its lead and attempt to play catch-up.

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