Wednesday, May 21, 2014

E-commerce Adoption in INDIA – Tip of the Iceberg

Published in SME WORLD May 2014 Issue

With the new academic year approaching, my son walked up to me asking for a new and bigger school bag that has to be blue in color with a superhero figure. My mind went into an overdrive – when, which shops to check, where will we park the car - the specification, size and shape of the bag long forgotten. Meanwhile the weekly e-newsletter arrived from two of the online retail sites that I browse often. Both were promoting school bags, water bottles, tiffin box, notebooks and other stationary stuff. How did they know what I was looking for? Sneaky! 

Technology has truly advanced quite a bit. Analytics and other browsing behavior are being tracked and online footprints cross-mapped to serve us with things that we are either looking for or might be interested in. This is the age of E-commerce.

Recent media news reported on the possibility of Rakuten Inc., a Japanese online retail outfit entering the Indian space where reliable projections suggest about 38 – 40 Million shoppers by 2015 – 16. Changes in lifestyles, fewer kids, technologically sound double income couples, more disposable income, growing consumerism lesser free hours, longer travel and working hours are driving people to the comfort of E-commerce are all contributing to the growth of this segment.

E-commerce typically consists of Business to Consumer B2C and Business to Business B2B. Retail (Books, clothing, accessories, shoes, jewellery, electronics), hospitality, travel, music and videos fall under the B2C domain while online classifieds as promoted by sites like are B2B type. There are others like matrimonial sites with wedding planning offers. 

Source: Extracted from Infograph by (Most common type of Products purchased online)

Today we have many good players in the E-commerce segment with Flipkart and Snapdeal leading the pack. Amazon has also entered the fray. Most of the retail shoppers in India belong to the 19-24 and 25 – 40 age group with female having close to 40% contribution. There are other sites like FashionandYou, Myntra, Yebhi and Caratlane to name a few. Not only are they creating a sea change in the buying behavior and online purchasing trends amongst Indians but generating many lateral job opportunities. The B2B sites like Alibaba and Indiamart have helped many small scale players to access diverse markets and sell their products. Even the buyers now have a choice of connecting with multiple suppliers, comparing, negotiating and getting a sound deal – something that was not so straightforward in the physical world. 

The growth prospects in India seem good going by trends abroad and the size of market plus venture capitalists are also reposing their faith with investments steadily increasing day by day.  E-commerce performance is measured using the parameter Gross Merchandise Value (GMV). Accel Partners, a well-known venture capital outfit conducted an insightful study on the e-commerce trends in India. They identified an interesting feature. For instance – books have around 21% of transactions but the GMV is hardly 7% whereas mobile and tablets have 9% transactions and GMV is a whopping 35%. Thus, composite sites offering a range of products will probably be more profitable.

The current market is estimated at $ 13 billion as per a report of KPMG and Internet and Mobile Association of India (IAMAI). Compare this to the estimated sales data by Go-Globe - $ 383.9 Bn world-wide. The Chinese and Japanese market is huge and growing faster. $250 Bn plus of sales come from China! The opportunities are vast.

According to an Ernst and Young report, the Internet user base is expected to touch the 300 Mn figure by 2015. If we conservatively forecast 10% of the users as transacting online, it comes to a 30 Mn users. 

Source: Accel Report (Accessed from

Shift in Demographic profile, increase in disposable income is creating the thrust for e-commerce. It is all nice and shining but how many people are really out there comparing and shopping online. Indian online market is at a curious state where people are ready but the technology and accessibility is lagging. Internet availability and hence adoption is weakest in rural India as well as large parts of central and north-eastern India. Like other items, impetus for E-commerce will be more from the Tier II and III cities provided they are able to access. 

There is a tremendous scope for growth and adoption of E-commerce here if certain critical components are put in place. 

·         Infrastructure backbone including permeation of courier and door delivery services and technology for increasing the access to Internet are most critical. In 1997-98, I first started using Internet. The lines would snap every minute and I requested my friends abroad to write only 3-4 lines email. The other day at my factory located in a not so interior part of the country, I spent 25 minutes trying to connect the Internet and send a scanned document having 120 Kb size. Nothing much has changed I guess. We can buy all the raciest cars in the world but with roads riddled with potholes they will still move at 10 kmph. We need higher and continuous speed, good quality services. Internet penetration in India is lowest among BRIC nations.
·         Lower cost of accessing Internet and increase in use of smartphones will further aid in proliferation of E-commerce.
·         Providing innovative but very secure payment options – regular news of credit card frauds and online banking hacks are creating a dampener for a full fledged thrust to e-commerce. Accel’s study also reported that today around 60% of the payment is through the Cash on Delivery (COD) mode. Simply suggests that people in general are not comfortable transacting through cards online.
·         Government has to play a pivotal role in creating right modalities for enabling this form of trade mainly from taxation perspective and legal teeth for redressal for either parties
·         Logistics sector needs focused thrust, easing of labor and employment laws.
·         Wider range of products for people to choose – the online mall concept will work wonders

With the right kind of enablers, this market is only going to grow atleast in the near term (3-5 years).

Oh, I finally bought the bag online after comparing it with three other websites while sipping a chilled glass of nimbu paani leisurely on a Sunday afternoon in the peaceful confines of my room. No sweating, no dressing up, no parking hassles and in my own sweet time without the constant interruption of zealous salespersons trying to tell me what’s trendy and what’s not. And I got a good deal too. I hope many others get to enjoy this stress free shopping experience.

Goto SME WORLD and read the complete interview with eBay and Alibaba.

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