India's Flipkart Has an Amazon Problem

India isn’t an easy place to build an e-commerce company. The vast, multilingual nation suffers from creaky infrastructure, a sometimes myopic bureaucracy and an ingrained distrust of the merchant class. Yet homegrown Flipkart Ltd. has managed the impossible with a blend of Silicon Valley smarts—its founders worked for Amazon.com Inc.; key hires were lured from the Bay Area—and a canny understanding of local verities. Because few Indians use credit cards, Flipkart offered cash on delivery. In Mumbai, it deployed dabbawallas, the famed lunch delivery corps, to get packages to customers. Since its founding eight years ago, Flipkart has become the nation’s most valuable startup and introduced online shopping to the Indian masses.

Still, no one is celebrating at the company’s headquarters in suburban Bangalore. More like preparing for war. After years of scorching growth, Flipkart sales have plateaued. An attempt to go mobile-only backfired. Key executives have quit. Earlier this year a Morgan Stanley fund marked down Flipkart’s value from $15 billion to $11 billion. And those may be the least of Flipkart’s challenges. Amazon, already closing the gap with Flipkart in India, is now mobilizing for an all-out assault one of the world's fastest-growing internet markets. Last month, Amazon Chief Executive Officer Jeff Bezos pledged to invest another $3 billion in his company's Indian operations, bringing the total to $5 billion.