The eCommerce explosion has revolutionized the way people shop for goods and services. Also, it has brought up a revenue stream which had been non-existent prior to the advent and rapid adoption of the Internet. While this industry has already attained the stage of maturity in Europe and America, it is still relatively nascent in Asia with however, an acute rate of growth.
Digital business has already evolved in the West. Now is the time for the Asia-Pacific region, with China and India acting as two of the biggest emerging markets for eCommerce. According to a Forrester report , online retail sales in five of the largest markets in the Asia-Pacific region(Australia, China, India, Japan and South Korea) hold the potential to overshadow all e-retail sales in North America and Europe combined. However, none of these markets have the same design. Thus, require individualistic strategies.
State of eCommerce in India v/s China
China alone accounts for 79% of Asia Pacific online retail sales; it is expected to become the first market to reach $1 trillion in online retail sales in 2019 as per the aforementioned report. On the other hand, the stats revealed in RAI’s Pulse of Indian Retail Market shows that in 2013, the Indian retail sector was estimated at $520 billion with online retail covering just 1% of it, and is pegged to reach $15 billion.
Adding a comment on the current market scenario of India, Jitendra Gupta, Founder, Citrus Pay says, “The industry is yet to attain the point of inflection…our eCommerce industry is just under USD 10 billion while China is at USD 400 billion plus”.
Nevertheless, the country is witnessing the second wave of eCommerce, and having learnt from the mistakes of the past, Indian companies have conspicuously evolved in their approach to online business models. Although not many companies from the initial days of the last decade could survive through the current time, those who did, have set high benchmarks for the freshers.
Given to the not-so-pleasant geo-political and economic relations, India and China have always been pitted against each other. The same comparison seeps in through the arena of online commerce. Although General Partner, Orios Venture Partners, Rehan Yar Khan opines, “Today, India’s eCommerce industry is where the US was in 2003 and China was in 2007”, the improving quality of entrepreneurial skills and the penetration of mobile phone technology (expected to reach 213 million by June 2015) into not just the metropolises but across Tier2 and Tier3 cities, have catalyzed the growth of e-business in the country.
Following is a graphical representation, showing eCommerce’s share in India’s GDP owing to the growing use of Internet in the country.
Alibaba’s entry into the Indian eCommerce ecosystem
Alibaba’s investment in India has brought about a storm in the ecosystem. It is not an unknown fact that China is running much ahead in business and technology as compared to India. Owing to this argument, there must have been countless companies which could have drawn Alibaba’s attention. So, why Paytm? or for that matter, Snapdeal (if the grapevine is to be believed)?The step has ignited a gust of speculations regarding its future impact on the Indian eCommerce; some slightly skeptical while a few hopeful and positive.
While Alibaba’s investment might provide an encouragement to other foreign investors to invest in the Indian online ecosystem, at the same time it could also be considered as a threat to the other companies who will be losing out on the support of this Chinese eCommerce company.
Cory York, CEO, PowerStores is of opinion that “The investment is much needed right now as there are only a few real investors backing indian tech/e-commerce startups. The money is really only going to the big established players like Flipkart and Snapdeal and not to the mid way guys. Any involvement from Jack Ma with India can only be a plus. He is a super star entrepreneur who we can learn from.”
Carrying a much similar view, Anirudh Suri, the MD of India Internet Group believes that investment from China would only increase the scope of eCommerce in India. According to him, our industry is running short of capital. Foreign investment is a must to boost the business. He added, “I don’t understand the reason of being cynical about the matter. May be it is because the investment is coming from China. If it were from some US company, we probably would have been pretty comfortable with the idea.” Further, he asserted that Alibaba’s investment in India would exhilarate the competition in the market, thereby drawing big names from the West. This would encourage investors from not only abroad but also India itself to fund the country’s online business sector.
The arguments put forth in the preceding paragraphs hold immense credence. However, considering the questionable aspects to the matter, one is forced to enquire, ‘Could the investment be Alibaba’s strategy to expand and monopolize its name in the continent?’ ‘If Alibaba’s motive is to acquire the non-Amazon market in the East so as to stand as the global rival of Amazon?’
Speaking on the matter, industry veteran Ankur Dinesh Garg proposes that Alibaba is evidently trying to become global #1 eCommerce marketplace, and its competition is largely with Amazon.
Alibaba in India, would definitely try to take bigger position, however, considering Amazon and Flipkart, it will be not so much easy for them unless they acquire Flipkart also. Further, it is obvious that more players would now be interested in entering the Indian online business arena, may be with business models which would suit the Indian market even better than that of Alibaba’s. JD.com could be one, for it operates similar to Flipkart’s model of owning the logistics wing (unlike Aliababa).
Also, Ankur believes that becoming a monopoly shall not come easy to Alibaba. Taobao could establish its monopoly in China owing to the restricted access to the internet space and stringent Government policies for foreign players. But India is relatively an open market for international online businesses. Hence, the competition is cut-throat.
India is a mosaic of cultures, traditions and races. Thus, highly diverse. The same diversity is vividly reflected in the taste and choices of people – the basis on which the market is designed. This market framework has proven to be extremely fertile for the emerging businesses, especially from across the continent. For example, Truecaller, the Swedish Company, has its largest market in India. Similar is the case with Whatsapp, for which India serves as one of the platforms with the maximum number of users. Considering the factor of diversity, Venture Capitalist, Mahesh Murthy suggests, “China is in decline. They need to diversify”, thereby reaffirming the speculated motive behind Alibaba’s interest towards India.
Government Policies: Liberating or Restricting?
To promote local businesses and allow them more space in the market, the Government of India has barred foreign companies from investing in multi brand retail. The case is similar in many countries. For example, even in China, there has been no foreign player which has yet managed to establish its name locally, be it Amazon. According to a report by the Business Standard, “FDI is banned in multi-brand retail and the same applies to e-commerce also.” Another report by the ET in December 2014, stated that in B2C eCommerce, India would not be allowing foreign investment for the time being in order to protect local ventures like Flipkart and Snapdeal from international competition.
But the primary question that arises here is, ‘are such policies really effective, given to the fact that companies from across the globe are still entering the market?’ or ‘Do these policies make sense at all, owing to the fact that the sector is still at its embryonic stage?’
“Foreign players are still making an entrance through indirect route. They are flouting the marketplace model and effectively managing the inventories and deliveries. As we stand today, I don’t think so policies are really effective for foreign investment in to eCommerce”, says Jitendra Gupta.
The Indian eCommerce is at the cusp of evolution; as much as it carries scope, it embodies risks. Although, the growth is conspicuous in this sector, the uncertainty hovering over FDI has been blurring the path of online business in the country. The Government’s argument on regulating FDI for the sake of promoting local businesses and generating in-house revenue is justified. However, the lack of capital and back-end infrastructure are the two major handicaps in this sector, which could only be fixed with the money flowing in from foreign economies. Hence, it is high time, a middle path be found, which would strike a balance between the interest of the Government and the demand of the eCommerce ecosystem.