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E-Commerce is changing the rules of the game in India. Is your company ready?

The internet that took birth in 1989 is now celebrating its silver jubilee year. The internet gave birth to new ways of communicating and conducting business. Email was the first amazing technology that was quickly embraced by business and industry and has now almost entirely replaced the conventional mail service, so much so that Indian post offices are finding it difficult to survive.

The banking industry was the next to adopt the benefits of internet and deployed platforms that significantly changed the way people bank. Just look at the way banking is being done today. Do you remember when you last visited your bank to withdraw cash? Gone are the days when people would stand in long queues after picking up a token waiting just to withdraw their own money. Online money transfer methods such as NEFT & RTGS, have replaced the conventional cheques as mode of payment. Banking premises have become far smaller as compared to the volume of customers they handle, as nearly 80% of the time customers do not require to walk in to their bank.

E-commerce is yet another amazing platform that the internet has provided and is changing the rules of retail selling. The e-commerce paradigm is not new to us anymore. E-commerce came into existence in 1995, with the pioneers hailing from USA. This was followed quickly by other developed nations such as the UK, Germany, Singapore and parts of southern Europe. The first 15 years of e-commerce were largely marred by apprehensions and speculations. In the early days most of the brick-and-mortar retailers ignored this new paradigm of doing business. They were not convinced that people would tend to purchase and pay for goods at a website. Technological hiccups and perceived risks/fear of technology were major impediments to making buyers use their credit cards online. The dust has settled now. Technological developments have taken place at a rapid pace and the grounds are created for all to embrace this new paradigm of doing business.

The days of doing business within the confines of brick and mortar are over. Businesses are bidding goodbye to the limitations of yesterday and moving to a new and exciting way of selling and doing business online. The next decade will see a radical transformation in the retailing of goods and services. The internet has already revolutionized the way people shop. Soon this will become the major mode of shopping. It's impact on brick-and-mortar retail outlets is already visible.

Consumers today are looking for convenience and time saving methods. The more traditional approach to shopping is being pushed behind and retailers now really need to seriously think of being available to their customers wherever and whenever. Retailers in tier-2 and tier-3 cities in India are already feeling the pinch of losing customers every day due to aggressive presence of online retailers such as flipkart and several others.

Gone will be the days of pushing heavy shopping carts up and down the aisles, loading up with the weekly groceries, dragging tired and reluctant children behind, waiting in line at the check-out, unloading into the trunk of your car, driving home amidst heavy traffic, unloading from the car again. I can see a future where such tiresome shopping chores will be replaced with the more convenient e-shopping. You just need to place an order from the comfort of your home and a local home delivery company will have the goods delivered at your doorstep and collect cash on delivery.

This convenience of e-shopping will not be limited to only household goods. It will impact many other sectors. Buyers will prefer to buy almost anything and everything online, be it electronics gadgets such as computers, cameras, & mobile phones, apparel and jewelry, home and kitchen appliances, lifestyle accessories like watches,, beauty products & perfumes, baby products, books, music &video CDs, flowers & gift items, wine, et al.

Have you ever given a thought why shopping malls have food courts, movie multiplex, coffee shops, gaming zones and children play area, apart from the regular shops selling goods? They have already realized how difficult it is becoming to make people come out of their homes and visit them for shopping. They are fighting the competition that online shopping provides, by providing an entertaining experience for the shoppers so that they are tempted to visit their physical stores.

The entire retail scene is destined to go through a significant transformation in time to come. And those who sit back will surely decline and risk becoming history. The pace of this transformation is rather rapid. And mark my words - the next decade will be remarkable. So there is no room for complacency. Wake up, if you have not already done so, and start learning the new rules of the game and apply it to your own business. Or else, be prepared to soon close your shutters.

India's e-commerce growth story

In India, ecommerce is playing an increasingly important role in connecting sellers with buyers, especially due to the large population and increasing efforts of the government and telecom companies to bring internet to the door steps of rural populace. In the age of the ever ubiquitous Internet it is no more a surprise when a young boy in a small town or village is found buying products worth several thousand rupees without touching the products or even without meeting a salesman in person.

In the early days, ecommerce in India was largely restricted to few types of services such as railway ticket booking, airlines and hotel booking, jobs, matrimonial and b2b services. However, today, nearly all kinds of products and services are being sold online, with several major players such as flipkart, ebay India, snapdeal, junglee (amazon India), myntra, jabong, tradus, dominos, etc., who either through direct sales or through market places, have grabbed a major share of the retail consumer market and have already started creating a dent in the businesses of conventional offline players. Local brick-and-mortar shops are finding it hard to compete with these big online players who have achieved volumes of scale that enable them provide quick doorstep service at lower price point.

Though, currently the penetration of e-commerce is low compared to markets in developed countries such as the US and UK, it is growing at a rapid pace - with new players launching their ecommerce websites every day. When you look at some of the facts and figures you will be convinced about its future. At present e-commerce contributes to only 0.6% of India's GDP viz.-a-viz. 1-3% for other countries. Only 12% of India's online population transact as compared to 65% in the US and 50% in China. India's e-commerce market size currently stands at $16 billion, while China's stands at $200+ billion - this gap is quite stark.

YearIndian e-Commerce market size
2009$2.5 billion
2011$6.3 billion
2012$8.5 billion
2013$16 billion (nearly ₹ 1 lakh crore)
2020Projected at $25 billion
2025projected at $60 - $200 billion depending upon favorable factors

See the table for growth.

It may be noted that the above figures largely include travel related services such as airline & railway ticket booking, and hotel booking. Only around 12% comprises online retail presently. However, this figure is bound to change.

So, while India's ecommerce industry is still in its infancy, the potential is clearly visible. As you can see, since 2009, it has grown at an average rate of 30% annually. In 2013 alone the growth was 88% despite the slow economy.

What factors are propelling the growth of e-commerce in India?

Several factors have contributed to India's e-commerce growth story. Listed below are some of the major factors which are bringing in more and more consumers to the online fore.

Rapid rise in Indian internet population

Aided by the huge population of the country with over 300 million middle class population and increasing Internet penetration, India's internet user base has increased from a meager 5.5 million in year 2000 to 180 million+ today. This is more than the entire population of most countries.

Majority youth population

Every third person in an Indian city today is a youth. It is projected that by the year 2020, the median age of India's population will be 29 years, making India the youngest country in the world. The youth of India are hard working and have high aspirations. They are eagerly embracing new technology and are active internet users.

A survey has revealed that 35% of online shoppers fall in the 18 - 25 years age bracket, 55% fall in the 26 - 35 years age bracket, another 8% are in the 36-45 years age group. Only 2% are in the age group of 45-60 years. This is a unique advantage for India.

Every youth today wants to raise his/her standards of living. This burgeoning, upwardly mobile educated class having high disposable income, have embraced new technology quite well and are quite comfortable shopping online. Their love for latest gadgets and gizmos has given a boost to the electronics industry. With changing buyer behavior and increasing aspirations to have the best of wearing, apparels, shoes, accessories, fashion conscious youth wanting to dress better and look better and the craze for gadgets and gizmos and with more disposable money now available in the hands of the youth of highly populated developing countries such as China and India, a huge market is already created and is ever growing.

Affordability of technology

Declining prices of computers, tablets and smart phones as well as declining internet tariff, have contributed to increased penetration of these devices that enable connect to the internet. Increase in mobile user base has further helped create a very large population of internet users. India has more than 900 million mobile users, of which nearly 30% use data services. This is expected to grow to 1200 million by 2015. Mobile shopping is on an upward trend and is expected to increase significantly in the future.

Shopping convenience

Changing urban consumer lifestyle and the need for convenience of shopping at home due to inconvenience in commuting through crowded urban streets and lack of time, has been a significant contributor to driving consumers towards online shopping. This is further accentuated by attractive price offerings of online retailers which are significantly lower than prices offered by local brick-and-mortar retailers.

Uniform tax regime

With regional boundaries being diminished by an emerging tax regime of GST and VAT and the gradual move towards a common tax code, doing business beyond your region will soon become easier. Online sellers will be able to offer uniform pricing across states and not get entangled into taking multiple sales tax registrations or paying double tax when moving goods from their state to another state. This will have a positive impact on pricing, making online sale more competitive.

FDI in e-commerce retail

The Govt. of India has already introduced FDI in offline retail. It is only logical that sooner or later FDI will be permitted in online retail as well. This will bring in a flurry of big players such as Amazon, Wall Mart, eBay and Tesco, raising the bar for service and pricing, thus making online buying more attractive for consumers. Presently the Indian Govt. has permitted FDI only in B2B e-commerce, as a result some of these major players are only operating via online marketplaces. FDI in online retail will change the scenario completely in favor of Indian consumers.

Several other factors

Apart from the above there are several other encouraging factors that are propelling the growth of e-commerce in India. These include – increasing number of payment gateway service providers, lowering commission rates on online transactions, increasing variety of online payment methods such as payment directly through bank account, mobile payment, etc., reducing cost of setting up an ecommerce website, enhanced security on use of credit/debit cards with multiple layers of authentication, etc.

Who rules the Indian e-commerce market today?

Are you aware that there is one family which rules the entire e-commerce market of India today. They are the Bansals - who were once known for running coaching classes. All the major companies viz. Flipkart, Lenskart, Myntra & Snapdeal are owned by the Bansals. Flipkart at ₹6100 crore is owned by Sachin Bansal and Binny Bansal, Lenskart at ₹100 crore is owned by Peyush Bansal, Myntra at ₹1500 crore is owned by Mukesh Bansal, and Snapdeal at ₹3000 crore is owned by Rohit Bansal. Together, the Bansals have stacked up more than ₹10,000 crore out of the ₹12,000 crore e-retail market of India, grabbing nearly 85% market share.

Clearly, the internet has created an entirely new environment and a virtual world, requiring a significant shift in the way companies should think about doing business. The question you have to ask yourself – how quickly can you get on-board?


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About the Author

Rajeev Kumar
CEO, Computer Solutions
Jamshedpur, India

Rajeev Kumar is the primary author of How2Lab. He is a B.Tech. from IIT Kanpur with several years of experience in IT education and Software development. He has taught a wide spectrum of people including fresh young talents, students of XLRI, industry professionals, and govt. officials.

Rajeev has founded Computer Solutions & WebServicesWorldwide.com, and has hands-on experience of building variety of web applications and portals, that include - SAAS based ERP & e-commerce systems, independent B2B, B2C, Matrimonial & Job portals, and many more.

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