Amazon has decided to taste Eastern retail waters. Amazon will start operations in India in 2012. According to the blogosphere, a team is being built, warehouses being commissioned and potential partnerships and acquisitions being secured. One thing Amazon doesn’t have to worry about is building the website, nor the storage for it. Amazon excels in both the areas already.

Amazon’s India entry announcement coincides with the approval of 51% FDI in multi-brand retail by Committee of Secretaries. Since India is a hot market to follow and Amazon has been eager to enter India for a while now, the announcement is no coincidence but a well planned press release. India limits foreign direct investment (FDI) in multi-brand retail to 49%. There has been pressure from all corners to increase it to 51%.

A change from 49% to 51% matters in ownership and key decision making. This allows Amazon to start operations and look for a Indian partner to work with. Amazon can either acquire incumbents like Flipkart, LetsBuy and Infibeam or it can find a brand new partner. There are rumors that Amazon plans to buy Flipkart and LetsBuy. The rumors could be true, but Amazon can’t buy the whole company.  The approval and other details of 51% FDI still needs to be ironed out. With what we have so far, Amazon can only do so much in the eCommerce space.

Flipkart and others have done well to bring eCommerce in India to a stage where it is now tantalizing for mega retailers like Amazon. eCommerce sites in India have already used the cash on delivery option, which was one of the reasons for the second boom of eCommerce in India. From supply chain to discounts to payment options, eCommerce sites in India have optimized it all. The value addition of Amazon from that front is very minimal.

What Amazon can do is pump in money, build more warehouses and undercut every online retailer in prices. That should be enough to keep some of the fledgling sites out of the game. As for the established ones, they have to think of new ways to deal with the 51% of the 800 pound gorilla in the room. Amazon will not kill any of the eCommerce sites in India. eCommerce isn’t a winner-takes-it-all game.

The most interesting development on this story would be, who would be Amazon’s India partner? If Amazon wants to grow at breakneck speed, then it needs someone who can pump in cash whenever Amazon pumps in. Even then I don’t see Amazon changing the landscape of eCommerce in India. At best it can make it slightly more competitive.