Foreign enterprises have always looked at India as a potential mega-market, especially since the adoption of the globalization policies in 1991. The opening up of the Indian market saw a massive influx of foreign capital, which brought along with it newer brands, more choice for the consumer and a fresh wave of competition for the domestic players. A lot has changed since then, especially in terms of how we, as consumers, prefer to buy things.
The internet has probably been the most radical piece of technology to affect the transaction, whose repercussions can be seen from the most micro level to the largest picture. It is therefore no surprise that the consumer of 2016 thinks about and interacts with retail in a very different way. With deeper internet penetration in terms of geography and demography due to mobile accessibility, online retail and its related industries, from logistics to branding and advertising to social media promotion, have all become part and parcel of our normal daily life.
It is therefore interesting that exactly 25 years after the globalization reforms, the Government has taken a big step by allowing 100% Foreign Direct Investment or FDI in the Indian online marketplace model. Currently, barring Amazon, which entered the Indian market in 2013, the online retail scene has mostly been dominated by the local players. Of course, companies like Alibaba have had a stake in the fray via Paytm, etc. but the reforms come as a welcome surprise for foreign ecommerce players who have been eyeing the Indian market for quite some time now. Let us look at some of the details of the reforms and how the Indian online retail scene looks like from the perspective of foreign enterprises.
India as a Viable Market for Foreign Online Retailers
1. Marketplace Model
The important point to note in the 100% FDI ruling by the Government is that it is only applicable to enterprises that operate on the marketplace model. The marketplace, as opposed to the inventory based online retail, is strictly supposed to act as a middleman between the seller and the consumer. It is a forum where a seller can register and find space to display their goods, and a means for sellers to connect with the consumer.
While most ecommerce companies operating in India subscribe to the marketplace model, the definition of this model has been tightened in the new Government guidelines. Ecommerce companies will not be permitted to have more than 25% of their sales coming from one vendor, even if the vendor is owned by the company itself. This is alarming news for companies like Flipkart and Amazon, who list most of their products through a subsidiary – WS Retailers for Flipkart and Cloudtail India for Amazon.
2. Current Market Situation
Currently, the Indian online retail market is on a steep rise. Goldman Sachs expects the Indian ecommerce sector to hit the $100 billion mark by 2020, while the retail sector in India is slated to jump from $675 billion in 2016 to $850 billion in 2020. In terms of sheer numbers, the Indian online retail market is only behind US and China. It is also important to note that the real push to the Indian market is happening due to the emergence of connectivity in the tier II an tier III cities of the country. It can even be said that these upcoming towns and cities are going to be the countless battlegrounds in the war of domination over Indian online retail.
3. How have the Foreigners Fared in India?
Currently, the two major foreign enterprises that are operating in India are Amazon and eBay. Since its market entry in 2013, Amazon has become one of the two leaders in the online retail race along with Flipkart. Amazon has been steadily investing in its Indian subsidiary banking on its massive international presence and net worth, and trying to one up its rival Flipkart at every stage. Ebay on the other hand, has taken a very different approach.
Ebay has been in the Indian market since 2004, and is one of the few truly C2C driven marketplace models in online retail. This comes as a stark contrast as compared to Flipkart and Amazon, who rely on a single seller to fulfill more than 40% of their sales. It is also important to note that currently, eBay is one of the only few ways that Indian sellers can list and sell their products abroad. There are over 65,000 sellers listed on eBay India, with over 2000 product categories.
4. Upcoming Foreign Competition
A few foreign ecommerce giants have been eyeing the Indian online retail market for quite some time, and are ready to venture in. Here is a brief look at some of them –
- Alibaba: Alibaba.com is arguably the biggest ecommerce venture in the world, is a Chinese company founded by Jack Ma in 1999. While its primary base of operations has always been China, it has been trying to enter the Indian market since 2014, and was even in talks with Snapdeal. It currently has major investments in Paytm, but all eyes are on its online retail markeplace, Taobao.com. It is surmised that Alibaba will bring Taobao to India, and the recent FDI reforms would be great news for the company’s plans.
- Rakuten: Japanese competitor Rakuten founded by Hiroshi Mikitani in 1997 is well acquainted with Taobao, being its toughest local competitor in both Japan and China. Rakuten is one of the most profitable online retail companies in the world, and is slated to enter the Indian market by the next year. It has also hired ex Infibeam co-founder Sachin Dalal as its India head.
This is what we have on Foreign ecommerce players entering the Indian market. To know more, get in touch with Browntape. We are India’s leading ecommerce experts, and we are always happy to help!
