Rakuten has opened a global unit called the Rakuten India Development and Operations Center (RIDOC) in Bangalore, as reported by TECHINASIA, the development centre would focus on operations, processes and resources. Before understanding why this is a big deal, let us understand Rakuten’s model and its role in Japanese e-commerce.
Japan is one of the largest e-commerce markets in the world. According to a report published by Ryohin Keikaku Company Limited the estimated size of Japanese e-commerce market is USD 113.01 Billion (or JPY 11.5 Trillion) and the e-commerce penetration in the country is 3.5%.
Amongst the biggest e-commerce players in the country, Rakuten Inc. is the leader leaving behind Yahoo and Amazon in amount of sales.
Rakuten: Overview and Major Businesses
Rakuten Group is famous for their marketplace, Rakuten Ichiba, which was launched in the year 1997. According to Hiroshi Mikitani, Chairman and Chief Executive Officer (CEO) Rakuten Inc., from 1997 till 2000 the company focussed on building their corporate culture and a unique business model of Internet shopping. In the second stage, from 2001 to 2013, the company worked to establish solid brand power in Japan and laid a foundation to build a truly global company.
In 2011, Rakuten Ichiba’s domestic gross merchandise sales (GMS) passed USD 9.82 billion (or JPY 1 trillion). This further surpassed USD 16.71 billion (or JPY 1.7 trillion) in the year 2013.
Also in 2013, Rakuten Ichiba and other services had a 19.8% year-on-year growth in gross merchandise sales as compared to 15.4% in 2012.
In 2013, the revenue increased by 30% from the previous fiscal year and amounted to USD 5.09 billion (or JPY 518.6 billion ).
The net income had increased by 106% to USD 427.47 million (or JPY 43.5 billion).
Besides operating in the B2C marketplace model globally, Rakuten owns a large variety of businesses. Here is a snapshot of the consolidated subsidiaries and affiliated companies of Rakuten.
Rakuten’s Business Model
Rakuten’s aim is to develop a global Rakuten ecosystem which is based on the concept “Single brand, single membership,”. Under this Rakuten members would be issued a single global Rakuten ID which would provide access to a wide variety of services offered by the Rakuten Group.
Rakuten’s Growth plans for 2014
Rakuten has been operating in two verticals – Internet Services and Internet Finance. In internet services digital content is an area where the company is focussing on.
In Japan, it plans to accelerate GMS growth with the firm membership platform, especially due to new members acquired by Rakuten Super Sales and the Baseball Victory Sales.
It’s enhancing Rakuten University to enable merchants to study online sales techniques starting with the basics.
In overseas markets its launching Rakuten Super Sales and the Rakuten Super Points loyalty points program.
The loyalty programmes would also give a boost to the Internet Finance business as it would help in credit card member acquisition.
Project V4: By this project the company plans to reduce cost by the following initiatives:
Cost reduction through optimization of expenses
Introduction of a global common e-commerce platform
Speedy, agile business operation by means of small teams
Strengthening of business operation by changing management, if necessary.
Rakuten Internet Services
The e-commerce business of the company has been growing, as mentioned above, gross merchandise sales (GMS) passed USD 16.71 billion (or JPY 1.7 trillion) in the year 2013. The developments are the following:
The brand penetration of Rakuten has increased.
Revenue from Rakuten Ichiba increased by 20.7% to USD 1.34 billion (or JPY 137.3 billion)
The number of unique buyers increased to 15.5 million an 18.6% year-on-year growth.
GMS via smart devices such as mobile and tablet grew by 50.7% year-on-year.
The company saw strong demand for leisure travel sales, car rentals, and inbound services (booking services from foreign-language websites)
Revenue at Rakuten Travel rose by 11.8% to USD 340.99 million (or JPY 34.7 billion) year on year.
Rakuten expanded their operations in two more countries. The company opened Internet shopping malls, Rakuten.es Shopping in Spain in October 2013 and Rakuten.com.sg in Singapore in January 2014.
Rakuten has decided to consolidate Rakuten Fulfillment Center (RFC) sites for the purpose of reinforcing collaboration with the e-commerce business and optimizing the logistics network.
Rakuten Digital Content
Rakuten is considering digital content to be a growth strategy for the future.
In 2012, Rakuten acquired two companies:
E-book subsidiary “Kobo”
Spanish video streaming company “Wuaki.TV”
The company didn’t stop there, in September 2013 it acquired Viki, an innovative video streaming company to further their growth in digital content.
Rakuten Internet Finance
In the Internet finance business the company plans to improve the consumer’s experience by developing synergies in the various businesses it operates in. Following are the developments:
Credit Card Business: Card members grew by a net 54.7% year-on-year.
Rakuten Card shopping transaction value reached USD 24.56 billion (or JPY 2.5 trillion)
Banking Business: The number of accounts at Rakuten Bank reached 4.5 million in fiscal 2013. Deposits and the balance of loan receivables also increased, exceeding USD 9.82 billion (or JPY 1.0 trillion) and USD 2.26 billion(or JPY 230 billion), respectively
E-money service provider Rakuten Edy upgraded functions of its Rakuten Edy Smart Coupon and Itsudemo Edy Charge services and increased the number of available locations to 370,000 to raise user convenience.
Following is a snapshot of other developments in the finance vertical.
Entry Strategy: India
Earlier speculations were that it might enter the travel and hospitality sector or might enter into backend solutions such as logistics via an acquisition or launch their marketplace.
But now the company has entered India with a development centre, RIDOC, which would expand in the future into areas complementary to Rakuten’s global business.
In the announcement by the company, Hiroaki Yasutake, Rakuten’s managing executive officer and director of development, said ”By developing resources at the RIDOC that will be used throughout the Rakuten Group, we will have the opportunity to develop best practices, standardize processes, improve the efficiency of our operations worldwide and build a truly global team.”
Acquisitions as a way of entry:
Rakuten has been acquiring and entering into joint ventures lately. The possibility of entering the indian ecommerce industry via the same method cannot be ignored. Here is a list of the global developments of Rakuten:
- Acquired Linkshare Corporation of the United States.
- Entered into a joint venture with President Chain Store Corporation, a leading retail company in Taiwan, and launched “Taiwan Rakuten Ichiba”.
- Acquired TARAD Dot Com Company Limited, which operates Internet shopping mall “TARAD.com” in Thailand.
- Acquired United States’ Buy.com and France’s ecommerce site PriceMinister S.A.S.
- Established “San Francisco Agile Development Center” in U.S. as a development center for Rakuten Group’s various services worldwide
- Launched Indonesia-based Internet shopping mall, “Rakuten Belanja Online” in a joint venture with Indonesia’s media group, PT Global Mediacom Tbk.
- Acquired Brazil’s Ikeda Internet Software LTDA. (now Rakuten Brazil Holdings LTDA)
- Acquired Germany’s Tradoria GmbH. (now Rakuten Deutschland GmbH)
- Acquired minority stake in OZON.ru., an Internet service company in Russia.
- Acquired Play Holdings Limited, one of the UK’s e-commerce businesses.
- Acquired Canadian eBook Company Kobo, Inc., a world leader in eReading.
- Launched Internet shopping mall “Rakuten.com.br Shopping” in Brazil
- Lead USD 100 Million funding round in U.S.-based social network Pinterest, Inc.
- Established Rakuten Malaysia Sdn.Bhd
- Acquired Wuaki.TV, S.L.(Spain)
- Acquired US logistics company Webgistix.
- Acquired global video streaming company,Viki.
- Acquired messaging and VoIP company, Viber Media limited.
- Rakuten Marketing acquired UK-based technology company, DC Storm.
Impact on Indian e-commerce
The Indian e-commerce market, including online travel, is estimated to be USD 12 billion and is expected to grow.
The Modi government might introduce FDI in e-commerce in the next month. Due to that the international players (eBay, Amazon) who operate in a marketplace model in India, will be able to start selling their products to the Indian consumers and thus expand their business in the country. Other retail chains like Walmart, Carrefour etc will not be bound to launch their online presence in this model. Also chinese ecommerce giant, Alibaba is planning to enter in the B2C segment in India.
The Rakuten Way
According to the Rakuten business model the company would provide services beyond the marketplace. It provides logistics, financial services and is now foraying into digital content as well.
If the company is able to imitate the model in India that it has in Japan then the following can be the impact on the Indian e-commerce industry
Competition: The enterance of Rakuten to this space is bound to increase the competition in the industry. The consumer would be the winner due to these large players trying to gain the share of the consumer’s wallet.
Marketplace: Competition to other marketplaces like Flipkart,eBay etc.
Logistics: Competition to 3PL and 4PL companies.
Financial services: Competition to banks.
Creation of jobs: E-commerce companies in India are projected to recruit over 50,000 skilled manpower and ground fleet. Thus entering of foreign players would provide more employment.
Company’s Kobo ereaders were launched last year in India.
Setting up a financial services is not an easy task. According to Department of Industrial Policy and Promotions’ regulations FDI in banking sector is allowed till 74%. So even if Rakuten decides to provide financial service they won’t be able to do that without having a joint venture with an Indian company. Plus, there are a large number of banks already operating in India and would give a tough competition to the Japan’s ecommerce bigshot.
Logistics is another way in which Rakuten can enter as well. Till now the company hasn’t specifically mentioned in investing in this field in India but it is expanding globally.
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