Alibaba vs Rakuten! Will India’s ecommerce be the new battleground for China and Japan?

After a lull in investments and a lacklustre IPO, the Indian ecommerce market is heating up once again. While China-based Alibaba had earlier invested in Snapdeal (ranked #2 in India by market share) and Paytm, it recently announced a direct foray into the Indian market, making the entire ecommerce sector sit up and take notice. Now Japan’s Rakuten seems set to follow suit into India.

The Tokyo-based company, led by Hiroshi Mikitani, already has a presence in India through a development center established in 2014 and is in the process of setting up a business development office in Bengaluru. Rakuten has started hiring mid and senior level employees from its competitors in India. In Japan, Rakuten is the biggest ecommerce player, often termed as Japan’s largest shopping mall.

When it comes to numbers, the equation between Alibaba and Rakuten is terribly lopsided, with Alibaba having a turnover several times that of Rakuten. In fact, Rakuten was forced to shutter its tie-up with Baidu in China because of stiff competition from Alibaba. Rakuten even closed its marketplaces in Singapore, Malaysia and Indonesia. It is reported to be on the verge of selling its stake in its joint venture in Thailand.

It is quite likely that Rakuten’s entry into India is an extension of the fight between Japan’s biggest internet companies- Softbank and Rakuten. Not only does Softbank (Japan’s largest internet company) have a close rivalry with Rakuten on its home turf, but it is also an investor in both Alibaba and Snapdeal. While Softbank has invested in several companies in India, its ecommerce venture Yahoo Japan only has a 6% market share, compared to Rakuten’s towering 24% market share.

India recently liberalized its FDI rules for B2C ecommerce. The new policy allows for 100% investment in online marketplaces by foreign investors. However this policy does not extend to inventory based companies. Currently, Amazon is the only major multinational company active in the Indian ecommerce market, which is currently sized at a total of $22 billion and is expected to grow to over $100 billion by 2020. It would be interesting to see how the rivalry between Alibaba and Rakuten plays off in India and how it impacts the likes of Amazon, Flipkart, Snapdeal and Paytm.