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Challenges of Ecommerce in India

India’s growing ecommerce market has recently been the target of large investments. On Tuesday, October 28, 2013, SoftBank, a Japanese telecommunications and Internet company, announced it was investing $800 million in India’s internet market, specifically in two internet start-ups.1 627 million dollars of this investment will be in Snapdeal.com, an Indian online ecommerce marketplace.2 Additionally, this summer Amazon.com announced that it would invest $2 billion in its India operations.3 SoftBank is anticipating robust growth in the Indian ecommerce market.4 However, India, with $2 billion in online sales last year, has been lagging behind China, with $300 billion in sales.5 This is because India still faces several challenges in growing its ecommerce market.

Perhaps the biggest challenge is related to Internet penetration, logistics and infrastructure. According to KPMG, currently only 17% of the population uses the Internet.6 When customers do order products, companies such as Snapdeal and Flipkart struggle to determine how to get products to consumers, especially those in small towns and villages, where 69% of the of the population resides.7 Road and rail transportation is very underdeveloped and inefficient.8 Often, goods are shipped through small third party carriers.9 Different carriers are used in different regions of the country, and they are frequently unreliable.10 As a result, online retailers are flying their shipments on airlines in the passenger cabin, pushing delivery costs up and putting their shipments at risk of being bumped by the airlines in favor of passengers.11 Additionally, Flipkart and other larger online businesses are developing their own logistics arms.12 Flipkart specifically is creating regional warehouses and signing up more suppliers around the country to ensure that customers are delivered products from a nearby supplier.13 However, these projects require massive expenditures and are realistic only for the well-funded enterprises, not smaller online retailers.14

Another difficult problem is Indian consumers’ preference for the cash on delivery (COD) payment option.15 Unlike in the United States, where customers pay for their goods at the online website at the time of purchase, the COD payment method means that consumers pay the courier when the goods are delivered at their door.16 This creates a delay in payment, which means that companies must restock before they receive the cash payments from their last sales.17 COD payment is also responsible for a higher return rate; because consumers have not paid yet, when the goods are delivered, customers have either changed their minds or cannot be reached at home.18

So why is so much investment money still flowing into the ecommerce market? First, the lack of Internet among many Indians is changing quickly, primarily due to smartphones, which are being sold cheaply by domestic producers.19 In fact, one reason Snapdeal’s business is doing well is the increase in the sale of mobile phones. Snapdeal sells 50 to 60 million phones per year.20 Those who did not have Internet access before can now access the ecommerce companies through smartphones, even though this brings an additional challenge in that many people purchase the smartphones and then do not connect them to the Internet.21 Second, companies such as Flipkart are seeing increased sales from smaller cities, where previously the majority of buyers came from the major metropolitan areas.22 Finally, although the number of online buyers is only 14%, that leaves enormous potential for growth in customers, which investors are eager to capture.23

 


  1. Eric Pfanner & R. Jai Krishna, SoftBank Invests More than $800 Million in India Internet Firms, Wall St. J. (Oct. 28, 2014, 1:37 PM), http://online.wsj.com/articles/softbank-invests-over-800-million-in-india-firms-1414471447. 

  2. Id. 

  3. Id. 

  4. Id. 

  5. Id. 

  6. Mian Ridge, E-commerce in India: Not Just Cash on Delivery to a Man on a Bike, Fin. Times (Sept. 22, 2014, 2:41 PM), http://blogs.ft.com/beyond-brics/2014/09/22/e-commerce-in-india-not-just-cash-on-delivery-to-a-man-on-a-bike/. 

  7. Jitender Miglani, Amazon India And Flipkart Are Betting Big on India eCommerce Growth, Forbes (Aug. 7, 2014, 10:37 AM), http://www.forbes.com/sites/forrester/2014/08/07/amazon-india-and-flipkart-are-betting-big-on-india-ecommerce-growth/. 

  8. Nandita Bose, E-tailers Growth Ensnared in India’s Logistics Jungle, Reuters India (June 10, 2014, 7:58 AM), http://in.reuters.com/article/2014/06/10/india-retail-idINKBN0EK1YI20140610. 

  9. Morgan Hartley & Chris Walker, The Growing Pains of Indian E-Commerce: What You Need to Know, Forbes (Jan. 24, 2013, 8:59 AM), http://www.forbes.com/sites/morganhartley/2013/01/24/the-growing-pains-of-indian-e-commerce-what-you-need-to-know/. 

  10. Id. 

  11. Bose, supra note 8. 

  12. Id. 

  13. Id. 

  14. Hartley & Walker, supra note 9. 

  15. Id. 

  16. Id. 

  17. Id. 

  18. Id. 

  19. Ridge, supra note 6. 

  20. Deborah Gage, Snapdeal Wraps Up $627M Funding Round as Indian E-Commerce Booms, Wall St. J. (Oct. 27, 2014, 11:00 PM), http://blogs.wsj.com/venturecapital/2014/10/27/snapdeal-wraps-up-627m-funding-round-as-indian-e-commerce-booms/. 

  21. Ridge, supra note 6. 

  22. Miglani, supra note 7. 

  23. Id. 

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Gita Subramaniam

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