AMAZON AND FUTURE GROUP: RETHINKING THE ALLIANCE
STRATEGY
SYNOPSIS
The Amazon and Future Group case takes place in 2014–2016 and documents the environment (social,
political, and competitive) faced by companies in the global and Indian retail industry. The case
highlights the friction between online and offline retailers in the Indian retail industry. It documents the
alliance Amazon and Future Group created and the optimism shared by the companies’ leaders, Kishore
Biyani and Jeff Bezos, with respect to alignment of the alliance with each company’s overall strategy.
Within a period of a year and a half in partnership, differences of opinion over funding of discounts arose
between the two companies. The two companies need to decide: will they create more value by remaining
together or will they be better off independently?
TEACHING OBJECTIVES
The following objectives can be accomplished by reading and discussing the case
• understand how the institutional environment impacts a firm’s international strategy, especially when
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POSITION IN COURSE
RELEVANT READINGS
• Michael A. Hitt, R. Duane Ireland, Robert E. Hoskisson, and S. Manikutty, “Global Strategy” in
Strategic Management: A South-Asian Perspective (Delhi: Cengage Learning India, 2012), 176–204.
ASSIGNMENT QUESTIONS
1. Did Amazon follow the right strategy to enter India? Did Amazon use the most appropriate mode of entry?
2. Have Amazon and Future Group made the right decision with respect to selecting each other as
TEACHING PLAN
Part A: Initial Introduction (15 minutes): The initial part of the class session is used to understand the
importance of strategic alliances and how they can drive an organization’s drive to internationalize.
1. Did Amazon follow the right strategy to enter India? Did Amazon use the most appropriate
mode of entry?
The instructor may start the discussion with the benefits of internationalization, such as increasing the market
size, increasing return on investment, benefiting from economies of scale, learning, and gaining a competitive
Amazon is facing the pressure of falling international sales. The number of millennials in India is expected
to account for more than half the population by 2025. By 2020, India is expected to account for 5.8 per cent
of global spending as opposed to the current 2.6 per cent. India offers Amazon an opportunity to increase its
However, India presents a few challenges:
• government rules and regulations restrict foreign direct investment (FDI) in multi-brand retail;
The instructor can highlight the choices companies have with respect to the mode of entry in international
markets: exporting, licensing, strategic alliances, acquisition, and new, wholly-owned subsidiaries (see
Exhibit TN-1). The case highlights the restrictive FDI policy in 2014 with respect to multi-brand retail.
2. Have Amazon and Future Group made the right decision with respect to selecting each other
as alliance partners?
In this question, the instructor may highlight some of the criteria that can be used by firms when selecting
partners. These criteria can be used for assessing whether there is a fit between Amazon and Future Group.
Complementary Capabilities
Amazon and Future Group complement each other with respect to their capabilities. Amazon is known for
its customer-centric approach and has access to innovative technology. Future Group would get access to
customers in the postal codes that Amazon serves in India. It would also get access to Amazon’s expertise
Conflicts of Interest
The possibility of conflict of interest is high with cannibalization of brands available online and offline. A
Compatible Goals
• market access and product access
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Amazon and Future Group have compatible goals. Both have ambitious plans for the Indian market, not
only with respect to fashion but also with respect to fast-moving consumer goods (FMCG). Amazon has
Targets and Missions
Both companies want to score against their common online and offline competitors. Using each other’s
expertise, they plan to explore new markets such as FMCG. Amazon would also partner with Future Group
• Because e-commerce retailers are popular, the traditional bricks and mortar retail majors are changing
their approaches to business; they are looking for partnerships with e-commerce entities. One of the
The instructor at this point can encourage the students to consider whether Amazon and Future Group are
competitors. Was the alliance a case of “co-opetition”—a process of collaborating with competitors?
3
When evaluating the degree of competitive threat, competitors can be classified as current, near-term, and
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Going ahead with the above perspective, it may be proposed that the potential value of collaborating for
Future Group and Amazon can be summed up as an opportunity to:
3. Partners in an alliance should be aware of the various risks involved. What are the probable
risks faced by Amazon and Future Group? What can they do to safeguard against those risks?
The instructor may highlight that risks faced in an alliance can be broadly categorized into the following:
Performance Risk
The foremost risk that the alliance faces is the changing government rules and regulations. A stricter or
more lenient approach to FDI might tilt the balance and bargaining power in favour of one party or the
Relational Risk
Differences in organizational culture and differences in strategic motives might lead to an uneasy
relationship between the partners. They might not be committed to the alliance, and they may have hidden
The primary resources involved in this alliance are:
The challenge for both Future Group and Amazon is to protect against loss of their critical resources and
get the fullest use of the contributed resources.
The instructor may direct the discussion to risks in co-opetition.
4
The instructor may introduce the framework in Exhibit TN-2 with respect to managing the risks
discussed.
5
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In addition, there should be a clear decision-making protocol, with the key decision-makers identified so
that speedy decisions can be made.
4. Comment on the structure and details of the alliance. What do you recommend should have
been taken care of?
The instructor can highlight the different choices that partners have with respect to the structure of an alliance:
contractual (non–equity), equity, or joint venture. Some of the terms that form part of alliance negotiations are
The deal clearly specifies the fashion brands that come under the scope of the alliance. The roles and
responsibilities are again identified. Order fulfillment and customer service of the merchandise on the
portal is Amazon’s sole responsibility.
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In addition to the above, Future Group and Amazon should clearly define:
5. What action would you recommend for the Amazon–Future Group partnership? What are the
implications for your recommendations?
The various options for Amazon and Future Group are to grow the alliance on existing terms and
conditions; fix the alliance and evaluate alternate options of growing together; or exit from the alliance.
Both Amazon and Future Group have distressed profit margins and return on equity. In 2015, Amazon
had a net profit margin of 0.6 per cent and a return on equity of 0.9 per cent. In 2014, Amazon posted a
WHAT HAPPENED
Both Amazon and Future Group have been silent with respect to their approaches to the alliance. As of
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EXHIBIT TN-1: GLOBAL MARKET ENTRY OPTIONS
Type of Entry
Pros
Cons
Exporting
quick access to new market
high cost of export, low control
Licensing
low cost, low risk
little control, low returns
Strategic alliances
shared costs, shared resources,
shared risks
problems of integration and
governance
Acquisition
quick access to new market
high cost, complex negotiations,
problems of merging with
domestic operations
New, wholly owned
subsidiary
maximum control, potential above-
average returns
complex, often costly, time
consuming, high risk
Source: Michael A. Hitt, R. Duane Ireland, Robert E. Hoskisson, and S. Manikutty, “Global Strategy” in Strategic
Management: A South-Asian Perspective (Delhi: Cengage Learning India, 2012), 176–204.
EXHIBIT TN-2: STRATEGIC ALLIANCE ORIENTATIONS FOR PRIMARY RISKS AND RESOURCES
Relational Risk
Performance Risk
Control
Flexibility
Security
Productivity
Source: T. K. Das and Bing-Sheng Teng, “Managing Risks in Strategic Alliances,” Academy of Management Perspectives,
13 no. 4 (1999): 50–62.
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EXHIBIT TN-3: EVALUATING THE ALLIANCE FOR AMAZON AND FUTURE GROUP
Amazon
Future Group
Grow the alliance
on existing terms
and conditions
Pros
• Gets an opportunity to consolidate position in
India and learn from the expertise of Future
Group.
Pros
• Gets an opportunity to consolidate its position
with respect to online visibility of its brands.
Cons
• Amazon absorbs the loss with respect to
discount.
Cons
• Because of the exclusivity clause, Future
Group is dependent on Amazon.
Fix the alliance
and evaluate
alternate options
of growing
together
Pros
• With the new FDI policy, the government
restricts the influence that online retailers can
have on prices. Therefore, by fixing the
alliance, Amazon continues to get access to
the fashion brands.
• The possibility of profit margins on fashion
brands increases.
• The government restricts the share that a
company could have on an online platform.
Amazon’s Cloudtail, with having a major share
on the platform, might be forced to restructure.
• An omni-channel strategy might be worked
out with Future Group.
• Amazon also gets access to the vast network
that Future Group has.
• Continued access to Future Group’s fashion
brands.
• By working with Future Group, Amazon also
gets insight into managing bricks and mortar
outlets. Amazon opened its first physical
bookstore in Seattle and plans to open as
many as 400 more.
Pros
• With the new FDI policy, the bricks and mortar
shops get an upper hand.
• With Amazon’s help, Future Group can work
on the omni-channel strategy.
• Introduces categories that no other retailer
has ventured into.
Exit from the
alliance
Pros
• The government allows 100 per cent FDI in
the B2C online marketplace.
• Works independently.
• Leverages its own network that it has set up
with suppliers.
Pros
• Future Group has the choice to register its
private labels with any other e-commerce
retailer.
Cons
• Unlike other e-commerce retailers, does not
have its own fashion brands. Will have to build
network with suppliers of good brands. FDI in
inventory-based model not allowed.
• Will have to rework an arrangement with
Future Group for the brands. Because the
agreement would not be exclusive, Future
Group would have the choice to list its brands
with any other e-commerce retailer.
• Future possibility of working on innovative
products (based on customer insights) is ruled
out.
• Because Amazon does not have bricks and
mortar stores in India, independently
establishing an omni-channel strategy is ruled
out.
• The government’s rules and regulations are
still evolving. Need to buy time to get clarity.
Cons
• Will lose the opportunity to gain from
Amazon’s insights into various product
categories, etc.
• Will lose out on the expertise Amazon has
with respect to supply chain management and
logistics. In e-commerce trade, the speed and
reliability of delivery is critical.
• Will lose the opportunity of learning from
Amazon with respect to consumer goods
companies.
• Future Group will miss out on the reach that
the Amazon online platform provides. Need
technology to penetrate deeper into markets.