Ankit Singla (009-IB) PDF

Ankit Singla
19001703009
INTERNATIONAL BUSINESS ENVIRONMENT

Topic: Reasons for investment in Reliance Jio by Facebook.
Facebook had announced this week that it had invested $5.7 billion for a 9.99% stake in
Reliance Jio Platforms. This deal makes the social media giant the largest minority shareholder
in the Indian telecom network. It also marks the largest investment for a minority stake by a
tech company in the world, and the largest foreign direct investment in the tech space in India.
Jio had transformed India’s technology market when it started in 2016 by offering free calls and
cheap 4G internet service. Widely welcomed by users hamstrung by slow 3G connections and
high tariffs, Jio’s entry obliterated competitions, including Airtel and Vodafone.
Following are the possible reasons for this investment:
Collaborating To Grow Digital Platforms
India has been going through a rapid digital transformation over the last few years. It will not be
wrong to say that Jio has contributed a sizable chunk to this. Since it has played a big role in
bringing millions of Indians and small businesses online, Facebook, with this investment, will
have closer access to Jio users. Facebook sees a lot of potential through this collaboration. India
is home to 400 million WhatsApp users – Facebook’s global messaging app – and 300 million
Facebook users. So, Facebook is now working on collaborations in one of its biggest markets,
and with one of the biggest telecom service companies that is driving the same market.
Regulatory Woes and Facebook needs an Indian Protector
The second explanation doing the rounds is that Facebook’s investment in Jio is a safe bet on
avoiding the future wrath by India’s authorities. There has never been more scrutiny of ‘Big
Tech’ and the challenges posed by foreign companies in terms of law enforcement and how
they handle the sensitive personal data of Indian citizens and organisations. The theory here is
that COVID-19 pandemic will only accelerate these protectionist concerns and by picking up a
near 10% stake in Jio, Zuckerberg appears to be buying ‘protection’ in a manner of speaking. Or
at the very least, Reliance and Facebook may find more common ground when it comes to their
lobbying efforts in the future.
Mukesh Ambani’s Debt-Free Ambitions
This plan has had a few setbacks recently, with the delays in the Saudi Aramco deal and the
curious lack of regulatory approvals for Jio’s agreement with Brookfield to sell its mobile
network towers. Of the cash inflow from the Facebook deal, Jio Platforms is expected to retain
Rs 15,000 crores, while the rest will be used by RIL to lower debt by redeeming the optionally
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Ankit Singla
19001703009
convertible preference shares it holds. This investment, coupled with the Rs 7,000 crores
investments by BP in the oil marketing joint venture, is expected to peg back debt by Rs 50,000
crores. RIL had a gross debt over Rs 3 trillion and net debt of Rs 1.53 trillion as of December
2019.
Facebook wants More Data
The last and final incentive for Zuckerberg could be that even if all the projects that are
conceived as a result of the partnership end up flopping, it gives it a potentially direct pipeline
into the data of India’s small and medium businesses and Jio’s network of users. While Reliance
and FB officials insist there is no data-sharing agreement on the cards, this doesn’t preclude the
option and nobody can say how it will pan out in the coming months and years.
Why Facebook, Reliance Jio deal is a wake-up call for Amazon, Flipkart?
As Facebook, the world’s largest social media company, invests $5.7 billion for a 9.99 per cent
stake in Reliance Jio Platforms, the deal is also seen as a powerful alliance to take on formidable
players in e-commerce and payments space such as Amazon, Flipkart and Google.
The partnership is expected to help Mukesh Ambani-led Reliance’s e-commerce venture

JioMart to take on players such as Amazon and Flipkart in the Indian online commerce market,
backed by Facebook. According to industry insiders and analysts, the market opportunities for
online commerce in the country are expected to touch $200 billion by 2028 from $30 billion in
2018.
Facebook wants to use WhatsApp for e-commerce opportunities with small businesses.
Amazon, Flipkart can’t compete with Jio-Facebook because they don’t have an edge on data.
While in the short term, there may not be much market impact as due to Covid-19 nothing
significant shall happen in the next 3-6 months, however in the long term the alliance will not
only counter competitors like Amazon and Flipkart, but will rupture the entire e-commerce
ecosystem in the country.
The deal is also expected to help Reliance and Facebook to take on players such as Walmart-
owned PhonePe, Alibaba-backed Paytm, Google Pay and Amazon Pay in the Indian digital
payments space which is expected to rise five-fold to reach $1 trillion by 2023. India is the
biggest user base for Facebook with around 328 million monthly users while the company’s
WhatsApp messaging app has 400 million users in the country, also the highest in the world.
WhatsApp is trying to secure approval to roll out its digital payment service while the company
also has plans to come up with dedicated digital payment services to small grocers.

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Ankit Singla

INTERNATIONAL BUSINESS ENVIRONMENT

Following are the possible reasons for this investment:

Collaborating To Grow Digital Platforms

Regulatory Woes and Facebook needs an Indian Protector

Mukesh Ambani’s Debt-Free Ambitions

Facebook wants More Data

The partnership is expected to help Mukesh Ambani-led Reliance’s e-commerce venture

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