The two American giants’ fight for Indian territory has started to intensify. Amazon and Walmart have been competing to acquire majority stake in India’s largest e-commerce company Flipkart. Recent developments suggest Walmart has proposed a $10 to 12 billion offer for a 51% stake—the deal could close by the end of June. On the other hand, Amazon has marked its presence by attaching a breakup fee of up to $2 billion. A breakup fee is a penalty established in the deal process that requires payment if the purchaser or seller backs out. In this case, Amazon will pay a hefty fee if the deal is incomplete for whatever reason. Nonetheless, the deal structures emphasize the seriousness of both parties.

Flipkart is the third-most funded private company, being financially-backed by big names such as Morgan Stanley, SoftBank, and DST Global. On top of that, India’s retail market is estimated to be about $200 billion by 2026. With the rapidly growing economy, coupled with increased smartphone adoption and internet access, the Indian market is poised to be a highly lucrative market. The huge potential is unarguably a big factor, but Amazon and Walmart have their own reasons.

Amazon and Flipkart compete head-to-head in India as Amazon is second to Flipkart. Over the past 10 years, Flipkart has acquired several of its smaller competition and has dominated the Indian market as a result. Furthermore, their cash-on-delivery model—payment on delivery—has been an important factor in its dominance. Although Indian surveys indicate consumers trust Flipkart more than Amazon, Amazon is thought to offer a better shopping experience. Because both companies have been competing so aggressively, they have taken on incremental losses via discounts, advertising, and logistics. A unified entity would immediately improve both companies’ profit margins and produce a high level of synergy. This would mean that two of the largest e-commerce companies would join forces and utilize each other’s resources and deal with less competition. However, given that they are the two of the largest e-commerce businesses in India, a governmental regulation must also be considered.

A deal for Amazon would be a heartbreaker for Walmart, but a sealed deal for Walmart would also be a great victory. Despite having broken into the Indian market over a decade ago, Walmart’s presence has been limited by government policies and a failed joint venture with Bharti Enterprises. As a matter of fact, Walmart only has about 20 business-to-business stores in India. Walmart also is behind Amazon in the online shopping area, so integrating an established e-commerce business like Flipkart will be very advantageous. Moreover, this will also help Flipkart establish a brick-and-mortar presence. The traditional brick-and-mortar space is not as cut-throat in India as the United States, so a partnership with Walmart will be effective in expanding into areas such as grocery shopping. Additionally, Flipkart will receive counsel and aid from a business that has over $3 trillion in sales and 50 years of experience in the United States.

The successful acquisition of Flipkart will have a profound effect for all three parties involved. Flipkart stands to gain from both a partnership with Walmart or Amazon. Both offer different synergies but are, nonetheless, beneficial. Amazon and Walmart stand to gain and lose greatly if the other executes the deal. Which deal Flipkart will accept is still speculative, but at least one American retail giant will leave a footprint in the Indian market. Barriers to entry especially in foreign markets are high and very costly. Multinational corporations such as Amazon and Walmart often must compete with local businesses and often do not hold the competitive advantage. Local competitors know the market very well and may know how to increase demand for their product better. Therefore, businesses entering an unfamiliar consumer market must adjust accordingly and take measures that are more cost effective—buying out the local competition.