June 8, 2016    6 minute read

India’s E-commerce Market: The good, the bad and the ugly

   June 8, 2016    6 minute read

India’s E-commerce Market: The good, the bad and the ugly

Entrepreneurship has never been so accessible. Each night, people across the globe go to sleep dreaming that they will wake up with an idea that will change the world. In the UK alone, there were a record 5.4 million private sector businesses in 2015, with SME’s accounting for 99.9% of them, according to the Department for Business, Innovation & Skills.

Why is this relevant? Because the new era of globalisation has created a competitive environment that results in 50% of all new businesses failing within the first five years. This complicated, ever-changing landscape only rewards the brave. The people who are willing to look towards the emerging markets. With the fastest growing major economy in the world and the second highest population, India is the hottest ticket in which to make your fortune.

The Good

Every second, three more Indian’s experience the internet for the first time. At this rate, more than one billion of the population will be online by 2030, according to the Economist. It also boasts the largest population of millennials. Immediately, these statistics should excite, for these are the key ingredients required for a successful e-commerce market; a mass market of online users, and young people who are more likely to shop online than on the high street.

The Indian e-commerce market has potential, as aside from its substantial consumer base, it is easier for companies to receive faster financial development and loan support, than in other countries. Also, e-commerce can help the citizens of India to overcome poor infrastructure and bypass geographical constraints. Take a look at the success of Alibaba in China, for example. Alibaba effectively connected rural communities and offered a service to those who would otherwise find it difficult to access high street shops. Their reward for this? Revenues exceeding 100 billion CNY at the time of writing.

Of course, there are striking differences in the infrastructure of the Chinese e-commerce sector and the Indian one. China is home to a far greater number of manufacturers who are looking to shed excess inventory, while the base in India is far smaller. Currently, sales in India are somewhat unimpressive; totalling approximately $16 billion last year, however, forecasters see this figure increasing seven-fold by the end of the decade. This is indicative of the speed at which this market is expected to develop, and the companies who are ready for this will be the companies who reap the rewards.

The Bad

One question that an e-commerce company looking to establish themselves in India may ask themselves is: How can I effectively market my brand in a country that speaks more than twenty languages? The answer is not very easily. Another question would be: How will I advertise and ship my products to the rural communities, for which 68% of the population live? The answer, even more challenging.

For an e-commerce company to succeed, it must effectively tailor the sales experience to the individual and not the mass market. Alibaba’s early success was aided by three factors. Firstly, their platform was free, while competitors who were already operating before them charged more to balance out increasing operating costs. Secondly, the firm introduced a payment service which protected the money spent by the buyer, and finally their understanding of both the consumer base and retailers bested that of Western counterparts, such as eBay. The lesson to learn is that a company can overcome these aforementioned challenges if they are willing to go the extra mile to adapt to the varying needs of customers.

Another problem that a new e-commerce company faces is understanding that while in the west there is a preference for an online payment system, the same is not true for India. At this present time, there is still a strong demand for cash on delivery. In fact, cash on delivery exchanges accounted for between 50-80% of transactions in 2014, according to Ernst & Young. Many consumers lack the confidence in new businesses and therefore look to pay only when the product is physically in front of them. Another issue is that credit-card penetration is still very low. Thus customers are simply unable to record online transactions. This is predicted to change over time, however having a payment system that safeguards the money used to purchase an item, keeps costs low and is proven to be more efficient than cash on delivery is likely to go a long way in speeding that process up.

The Ugly

Currently, there are heavy restrictions on foreign companies operating in India, including a ban on e-commerce firms from having inventory in the country. With regulation this strict, it makes it very tricky for international firms to stabilise their operations. To make it worse, foreign companies are taxable up to 40%, according to KPMG, which is comfortably above the global average.

As with any market around the world, there is a danger of smaller players being crowded out by the behemoths, and the Indian e-commerce sector is no exception. Indiaplaza, Zipdial and Babyoye all examples of firms who have suffered a tragic demise. Even the household names such as Flipkart, Amazon and Snapdeal have struggled to break even. Without a collaborative effort between the government and private sector, the aforementioned restrictions may be too tight to minimise the time required to become profitable, thus leading to a market which is monopolised by those who invest the most.

Finally, another ugly side is the near absence of cyber security laws in India. In fact, before 2013 they didn’t exist whatsoever. Without stringent security laws, it is impossible to regulate transactions on the internet or maintain the safety of users. As an attempt to minimise cost, many business owners are also choosing to ignore the purchase of genuine online protection services. This circulation of unauthorised software is leaving sensitive information belonging to customers highly vulnerable, which will not help the pre-existing apprehension currently burdening this market.

What should I take away from all of this? 

Readers should be excited by the opportunity that the Indian e-commerce market presents. This is a sector that will be booming in a decade’s time, and if the government relaxes regulation on foreign companies, while also bolstering internet security, then it promises to be the centrepiece of global internet trade. Anyone thinking of venturing into this industry should air on the side of caution, however, for with every customer, so too is there a flaw which threatens to put an end to the Indian dream.

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