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E-commerce platform Shopee announces abrupt exit from India, what could be the reasons?

Is Shopee leaving India as a result of the government’s ban on Garena Free Fire?

E-commerce platform Shopee on March 28 announced that it will cease operations in India starting March 29. This decision comes just five months after the platform launched in India and a few weeks after another of Shopee-parent Sea’s major undertaking, the Garena Free Fire game, was banned by Indian authorities.

Within just weeks of its launch in October 2021, Shopee clocked 1,00,000 orders a day and had over a million app installs on the Google Play Store. This led to the platform being seen as a potential competitor to Amazon and Flipkart. But with this abrupt exit, many unanswered questions have emerged.

Did the ban on Garena Free Fire influence this decision?

The Indian government on February 14 banned 54 apps linked to China stating that they pose a threat to the privacy and security of Indians. Among these apps was the popular Garena Free Fire game owned by Sea Limited.

Garena Free Fire is one of the most-downloaded games in both Google Play Store and Apple App Store and its inclusion in this ban list was strange because Sea is a Singapore-based company and the list mostly targeted Chinese apps. Following the ban, the market value of New York-listed Sea dropped by $16 billion in a single day leading to concerns among investors. The ban also forced the Singaporean government to intervene and seek an explanation from the Indian government.

The Free Fire ban immediately raised fears that Sea’s Shopee would also be banned under similar circumstances but neither the Indian government nor the company indicated that to be the case and it still remains unclear if the two are connected, but an unnamed source told Reuters that the Free Fire ban did play a role in Sea’s decision to pull Shopee out. MediaNama sought clarity from Sea but the company did not directly address this issue and instead said that its withdrawal is due to “global market uncertainties.” Earlier this month, Shopee shut down its operations in France, so the Indian exit is not an isolated incident.

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Did the constant pressure from CAIT lead to Shopee’s exit?

The Confederation of All India Traders (CAIT) has been putting constant pressure on the government to ban Shopee since the platform’s launch. CAIT flagged the platform’s deep discounting practices as well as Sea’s Chinese affiliations as reasons for the ban.

Most recently, following the ban of Free Fire, CAIT issued a press release calling for the government to also ban Shopee for the following reasons:

  1. Chinese connection of Sea Limited: CAIT alleged that even though Sea Limited is Singapore-based, it is controlled by its Chinese founder Forest Li and Tencent, which owns an 18.7 % stake in Sea; and that Garena and Shopee store all of their data on Tencent Cloud. Sea has denied this allegation saying that it does not transfer or store any data of its Indian users in China.
  2. Sea violated investment rules of Press Note 3: In April 2020, the government issued Press Note 3, which mandated prior approval of the Government of India for any investment made in India by an entity of a country sharing a land border with India or where the beneficial owner of investment in India is situated in a land bordering country. This was seen as an indirect restriction on Chinese investments because of the border tension between India and China at the time. CAIT alleged that Shopee violated Press Note 3 by incorporating a company called SPPIN India Private Limited in India and launching its operations. However, it is not clear if Shopee needed permission from the government because Sea is still a Singapore-based company and Tencent is only one of its many shareholders.

Was Shopee under regulatory scrutiny?

Earlier this month, Shopee got relief from the Competition Commission of India (CCI), which dismissed two antitrust complaints filed against the e-commerce platform, stating that the platform is a new entrant and does not possess significant market power. Therefore, it’s unlikely that regulatory scrutiny led to Sea’s decision to pull Shopee out of India.

The complaints against Shopee were filed by Praveen Khandelwal, Secretary-General, Confederation of All India Traders (CAIT), and a consumer named Vaibhav Mishra, and they alleged that Shopee engages in predatory pricing, misuses consumer data, contravenes the FDI policy, and pushes small players out of the market in a bid to secure a monopoly.

Is the Indian e-commerce market not conducive to foreign players?

India’s e-commerce market is currently dominated by two US companies Amazon and Flipkart, but this does not mean the market is conducive to foreign players because the government has strict regulations for foreign companies looking to tap into this sector and is working on tightening these regulations further.

In June 2021, the government proposed amendments to the E-Commerce Rules in response to repeated antitrust complaints against Amazon and Flipkart, and many of the changes target foreign companies. These amendments are still under review by the government, but international trade bodies have made it clear that they are not happy with them.

Sea, however, told Reuters that “the decision regarding Shopee India has nothing to do with regulatory matters.”

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Separately, the legal battle between Amazon and Reliance over Future Retail does not inspire the confidence of foreign players because the battle has now largely shifted in favour of Reliance after the CCI suspended the approval it gave for Amazon’s investment in Future Coupons in 2019 and imposed a ₹200 crore penalty on the company.

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