By Nandita Bose
BANGALORE (Reuters) - Free shipping on a 100 rupee book. Delivery times guaranteed to the minute.
These are some of the incentives the world's biggest online retailer Amazon.com Inc (NSQ:AMZN - News) is using to entice Indians to shop on the web, a sector where growth has been stifled by payment problems, low Internet usage and a challenging logistics environment.
Amazon's investors are counting on its international business and expansion to help drive growth and support its $165 billion market value, one of the highest among U.S. firms.
India is Amazon's third emerging market investment after Brazil and China, and one Vice President and Country Manager Amit Agarwal said would take time to pay off.
Most Indians do not own a credit card, and less than half the 152 million Internet users have shopped online. Then there are the bad roads, the snarled bureaucracy and the petty bribery that greases business.
The potential, however, is vast.
Online retail sales in India are forecast to grow more than a hundred-fold to $76 billion by 2021 from just $600 million at the end of 2012, retail consultants Technopak said. E-tail sales in China, by comparison, are expected to grow to $650 billion by 2020 from around $200 billion in 2012, consultants McKinsey predict.
"A lot of invention is required to capture the potential of this market and our focus is to build this," said Agarwal, who returned to India to head Amazon's business after 14 years with the company in the United States.
"We are going through a lot of trial-and-error to fix problems on the ground," he told Reuters at Amazon's India office in the technology hub of Bangalore.
CONVINCING INDIANS TO CLICK
Indians, on average, spend between $24 and $35 per online transaction, a figure dwarfed by the $150-$160 spent by U.S. shoppers online per transaction, according to data from U.S. based analysts comScore (NSQ:SCOR - News) and Retail Decisions.
Agarwal spent two years advising Amazon's founder Jeff Bezos at the company's Seattle headquarters, and believes Amazon's long-term strategy will work in India like it did in the United States, where the company ran up losses for years.
"Right now we are focused on giving customers great service and making sure they shop more," he added, sitting behind a large desk that he brought back with him from Seattle.
Amazon's biggest local rival is Flipkart, set up by two ex-Amazon employees in 2007 and which has yet to turn a profit.
Since July, Flipkart has raised $360 million from investors that include South Africa's Naspers Ltd (JNB:NPN). It said it aims to have $1 billion in sales by 2015.
Agarwal would not give any forecasts or figures, but said Amazon's investments in India have a 7- to 10-year horizon.
He said Amazon was building its own logistics network, which it can leverage when the rules change and it can sell directly to consumers. Indian regulations now prevent international e-tailers from making direct sales.
MADE FOR INDIA
Amazon's initial entry into India was through the 2012 launch of Junglee.com, a price comparison site that gave it insight on what consumers want to buy and are willing to pay.
Amazon's India website, set up in June, is currently a market place for other vendors, in line with regulations.
Amazon is working with these local vendors to ensure goods are packaged properly to speed up delivery, Agarwal said. It is also training local couriers to make good on its promised delivery times in Mumbai, New Delhi, Kolkata and Chennai.
"We receive items from sellers in all kinds of situations. Most of them are not packed properly, stickered properly and that increases the delivery time," Agarwal said.
"Even if you go to really large sellers they don't know how to describe their item because they have never had to have a digital catalogue."
An unstable Internet banking system means online payments often fail, frustrating buyers and leading to abandoned purchases. Agarwal said Amazon uses a made-for-India system that keeps orders active and allows the customer to try again. The option of cash on delivery is also offered.
To avoid shipments getting stuck at toll booths or held up by police demanding bribes, Amazon gets all the permissions and documents required, as well as extra permits, just in case.
"We are not cutting corners. It is taking a longer time to build things but compliance is important and that takes care of blockages on the road to a large extent," Agarwal added. (Editing by Tony Munroe and Miral Fahmy)