FDI in eCommerce: Understanding the Opportunities, Roadblocks and Workarounds

FDIinRetailHow will FDI change the face of eCommerce in India? What are going to be the key challenges for the existing online retailers after it is implemented? Will it be a boon or a bane for Indian Internet retail companies? These are few of the most hot topics of debate among Indian eCommerce industry people today.

Up until 2011, ownership in single-brand retail outfits was allowed to only up to 51 percent. In January 2012, India allowed 100 percent ownership in single-brand stores with 51 percent FDI in multi-brand retail got allowed by the end of last year. But amazingly enough, the government hadn’t yet thought of or figured out where eCommerce fits into all of this when it comes to FDI.

Talking of the growth, Indian eCommerce industry has indeed seen a dramatic shift in the last few years. But when compared to US and European markets, one can easily find that it is still struggling to attain impressive growth figures. Take Flipkart, India’s leading eCommerce company, for instance. Its revenue grew 10 times from 2011 to 2012, but its most recently reported annual sales were USD 217 million, an anemic 2.7 times the previous year’s numbers. For Flipkart the truth is that it’s reaching market saturation—but another truth is that the ecosystem is not growing at the pace it should be.

If FDI gets a green light in the eCommerce industry, it would not be very hard to see these numbers taking a high jump. Other than foreign players like Amazon and eBay, opening up of FDI in this sector is likely to benefit existing local companies who need more capital to expand their business in a rapidly growing market. It could also lead to a better work culture, information data and improved customer service by providing more responsive order-taking and after-sales service to customers, along with competitive pricing.

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But everything comes with a cost. Despite the benefits, FDI in eCommerce is feared to impair small-time traders with a possibility of monopolies in eCommerce, manufacturing, logistics and retail as the industry is in a nascent stage. Moreover, this might lead to manufacturers dumping their cheap products in the market, causing a negative impact on the manufacturing sector in general, especially to small and medium businesses.

Wondering how its going to affect your business? Attend Internet Retail Expo and learn from experts the Opportunities / Roadblocks of FDI in eCommerce.

The author can be reached at devesh@iamwire.com

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