FDI in eCommerce in India- Journey so far & Trends

Posted in Finance Articles, Total Reads: 553 , Published on 23 July 2016
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India has seen a plethora of changes in the past decade and one of the remarkable transformations is the evolution of the Digital India which led to the birth of E-Commerce industry. This growth has been triggered with the increase of the penetration of mobile subscription and their alliances towards internet.

A few quick facts about the mobile industry are as follows.

• Mobile phone subscription in India stands at 937 million

• Internet subscribers stand at 354 million


Image: pixabay


The E- Commerce industry in India is at USD $ 16.4 billion which grew at 34% CAGR between 2009 and 2014. The industry with the support of mobile devices is poised to grow to USD $ 100 billion by 2020.



Characteristics of E-Commerce Industry

• Of all the categories electronics and apparel sectors are the major contributors to the industry

• Lagging behind nations like France and USA in terms of penetration of the industry

• Online shoppers grow at the rate of 35-40%, much higher than 8-10% of global growth

• Around 70% of the industry is travel related

• The most preferred mode of payment is Cash on delivery which records 75% of transactions

• To increase the last mile delivery few E-Commerce companies have tied up with Indian Post which is helping them to achieve better efficiencies

• Amazon bags second place by replacing Snapdeal while Flipkart still remains the biggest company

• Customers preference is towards deep discounts which has remained a challenge to the industry and also inhibiting major players like Flipkart achieving break even. Attached screenshot will provide the details about the losses that major players are incurring

• Show-rooming remains a trend where customers visits a brick and mortar store for product feel and appeal and then buys online owing to cheaper prices


 

Recent Trends

• FY 2016 has been really challenging as the industry has seen a downtrend in the funding. A lot of VC companies also have reduced the amount of funding in the second half of the year

• Fund starved companies like Tiny Owl, Foodpanda are downsizing operations in a few geographies. While Foodpanda withdrew its operations from 6 cities in December 2015, Zomato shut its operations from 4 cities in October 2015 and Grofers in 9 cities

• The crunch in the funds has also reflected in their talent hiring plans. Few startups like Ola & Peppertap are either turning down their offers or delaying the joining at IITs

• As per the report of Bank of America Merrill Lynch, industry is expected to tick a sales of USD $ 220 billion by 2025 from USD $11 billion in 2015

• Government is proposing to tax the e-commerce industry through “equalization levy”, specifically B2B for all online sales such as downloading music, accessing news, purchasing software and licenses and so on

• Lot of companies takes the aid of online channel for their new launch or special sale. Nestle Maggi strategic tie up with snapdeal and Royal Enfield took to online to sell 2000 vehicles of its special edition

 

Government has approved 100% FDI in E-commerce under marketplace model in March 2016. This has been welcomed by the entire industry, both online players and offline alike. The bill has defined the e-commerce industry and marketplace which has cleared the doubts of uncertainty which was prevalent till then. This enables the firms and law making bodies to operate and monitor under the set guidelines.

 

Opportunities

• Foreign companies like Alibaba & Rakuten(Japan) have lined up aggressive plans to invest in Indian E-commerce industry

• Industries to get a lot of foreign funds which would enable their scale up

• Boost in infrastructure development and spur manufacturing industry

• Consolidation of the small companies leading to few bigger players

• It will also provide more access to purchasers/sellers, give opportunity MSMEs etc to reach out to customers far beyond their immediate location, both locally within the country and internationally

• More automation into the industry, leading to better customer service


Threats

• The new rule mandates that no single seller should contribute to more than 25% of the company’s sales. This will forbid the e-commerce companies to offer deep discounts to the customers

• Further to add, the marketplace companies cannot keep the sellers from offering discounts through bonus schemes and cost reimbursements

• Though the new rule proposed to reduce the monopoly, the greater access to funds and scaling up will shift the power towards bigger players

• Monopoly will prevail in support functions like logistics which will make the standalone traders powerless in terms of bargaining power

• Survival of brick and mortar stores and small scale retail stores would be much severe pushing thousands of small retail stores to the brink of unemployment

 

This article has been authored by Karteek Kala from IIM Raipur

 

References

http://economictimes.indiatimes.com/small-biz/policy-trends/ecommerce-companies-say-gst-will-be-taxing-for-customers/articleshow/52247357.cms

http://timesofindia.indiatimes.com/tech/tech-news/Flipkart-taps-kirana-stores-for-last-mile-delivery/articleshow/52247134.cms

http://www.livemint.com/Politics/hglep85yZOQzChj6KRrrCK/Govt-allows-100-FDI-in-ecommerce-marketplace-model.html

http://economictimes.indiatimes.com/topic/FDI-in-e-commerce


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