E-commerce expansion is here to stay, say experts

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E-commerce

Rising internet and mobile phone penetration has altered the way people communicate and conduct business today, pushing the expansion of e-commerce sector and allied industries. 99acres shares expert insight into how e-commerce is a trend that will stay as well as overhaul the commercial landscape of the country.

E-commerce is relatively a novel concept in India, heavily relying on mobile penetration and internet revolution to fundamentally alter the way businesses reach to end customers.  However, it is growing at a phenomenal pace and overturning the commercial segment of the country for the better. While nations like the United States and China have accomplished a turnover of USD 150 billion worth revenue, India’s e-commerce sector is still at a nascent stage but expanding fast.

According to a research report by Deloitte, “The Indian economy has been consistently showing healthy signs of progress, with the average GDP growth rate at 7.5% in 2015-16. The retail sector showed promising trend of 11% CAGR, growing from an estimated size of USD 600 billion now to USD 1 trillion in 2020.”

Although, the total e-commerce spending in India accounts for less than two percent of the total retail spending, e-commerce has become a key driver to create new markets in erstwhile inaccessible geographies. Experts’ share that as the industry expands further, it will penetrate into tier II and III cities as well, thereby, increasing the demand for parallel infrastructure improvement, warehousing and logistics in the years to come.

Growth drivers

One of the important factors that attribute to the expansion of e-tailing is the soaring start-up culture. According to NASSCOM, “India has emerged as the third largest start-up in the world with more than 4,200 firms and most of these young businesses are focussed on e-commerce and mobile payments. With growing numbers, it is anticipated that most of the economy’s challenges will be addressed by nimble and young companies over the larger ones.

Secondly, the launch of Digital India project by the government led to an unprecedented growth of online sellers. Even though business to customers (B2C) firms are garnering all attention, business to business (B2B) firms are not lagging behind. The latter has tied up with financial institutions for supply-chain finance that has drastically improved access to credit, efficiency, convenience and lower transactional cost for buyers.

Thirdly, besides Digital India which focusses on improved online accessibility, “Make in India” plan aids in indigenizing the product manufacturing and provides technology centric framework for cloud-based platforms for small and medium enterprises (SMEs) and start-ups. All these factors assist growth of e-commerce sector in India.

Limitations

E-commerce trend is gaining popularity, however, its success is dependent on several factors such as early stage financing, transactions and taxation. More than 70 per cent of new tech firms moved out of India owing to difficulty in raising seed or venture capital and structure their organisation. In addition, there are many other limitations that should be overcomed such as:

Logistics and warehouse- Inappropriate logistics and storage issues, along with infrastructure development have led to disgruntled customers.

Preference for cash on payment- Unlike electronic payments, cash collection is arduous, risky, and expensive. Courier companies generally retain the collected cash amount for couple of weeks, which means that the e-commerce firm has to restock inventory before the cash from its last sale has arrived.

Failure in online payment and low penetration of electronic cards- In most of the e-commerce sites, the success rate is only 70 percent. In addition, low penetration of debit and credit cards and unwillingness to share information details online is a major hindrance.

Increase in mobile payments- With higher inclination of customers towards mobile phones for making e-commerce payments, there is a bigger challenge to curb payment failures and reduce security transactions.

Regulations- According to latest news and announcements by the government, there will be nine government agencies that regulate the e-commerce sector. Although, the government has proposed the department of Industrial Policy and Promotion (DIPP) that proposes exemption of start-ups from 22 federal rules and regulations. These proposed reforms apparently include exemption from company and labour laws until a start-up attains a certain level of profit, exemption from certain taxes for a specified period, and liberalizing the system for raising capital globally. However, the policy is proposed but its implementation is yet not assured.

Future potential

With increasing popularity of online shopping, e-commerce sector is growing at a rate of 35-40 percent. Moreover, the proposed investment of USD 6-8 billion in logistics, infrastructure and warehousing is expected to further uplift the market.

According to Rohan Agarwal, MD, Geopreneur Group, “E-commerce industry is gaining pace and is expected to expand rapidly in the next 5 years. In fact, there are many online portals that have developed brick and mortar stores to provide firsthand experience of the products to their customers, clearly reflecting growth and success of e-commerce sector.”

 Is it a bubble?

E-commerce in India is surely not a bubble. With emergence of start-ups in every nook and corner of the country, the trend is here to stay. It is not only in the metros like Mumbai, Bangalore and Delhi NCR, but tier II and III cities too will experience the thrust.

Although some reputed start-ups like TinyOwl and FoodPanda have laid off their hundreds of employees early this year, however, this does not mean that market is wavering. Investors do lose money and there are failures too but this does not deter the overall growth of the industry and influx of new start-ups.  A study reveals that the number of start-ups in India will grow to 12,000 by 2020, overhauling the e-commerce sector as a whole.

 

 

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