India and China in E-Commerce: Rise of the New Frontiers
Although the country in focus when one talks about neighbourhood rivalries in the Indian context is generally Pakistan, in terms of economic growth our real competition lies in China. India and China are two of the fastest growing economies in the world, apart from being two of the BRIC nations (Brazil, Russia, India and China) – a group of countries slated to be economic superpowers in the foreseeable future. These two countries are similar in many respects – each is endowed with vast natural resources and geographical and cultural diversity. At the same time, each has been facing a similar set of problems, especially those related to population explosion, political turmoil and economic fluctuations.
In terms of e-commerce, China is already Asia’s largest e-commerce market, surpassing Japan. While India lags behind in terms of scale of operations, the rate at which the e-commerce industry is rising in India is nothing short of meteoric. In this article, we will compare the two countries within the context of their e-commerce industries, in terms of their beginnings, market sizes, government support, growth rates, major players and other important factors.
E-Commerce Scenario in India and China
The idea of e-commerce was first planted in both India and China around the same time. The first B2B marketplace established in India was IndiaMART, established in 1996. It might sound surprising today, but the introduction of e-commerce in India can arguably be attested to IRCTC, a website that is a cause of much chagrin to the Indian consumer today. The Indian government launched the IRCTC ticketing website in 2002, with the aim to provide railway tickets without the hassle of standing in a queue at a reservation counter. In 2003, Air Deccan announced its own online ticketing website, and companies like Yatra.com and MakeMyTrip.com followed suit.
Online retail truly began in India around 2007 with the introduction of eBay, with homegrown companies like ShopClues and Snapdeal entering the market soon afterwards. Amazon launched its subsidiary in India in 2013, the same year when the online retail giant Flipkart set foot in the market. Today, the Indian e-commerce industry is worth $5.3 Billion as of 2014.
The Chinese chapter on e-commerce must begin with Alibaba. Incepted in 1999, Alibaba has grown into the largest online marketplace in the world in a matter of years. In 2003, Bossgoo, a B2B marketplace was established in China. Soon afterwards in 2004, DHGate, China’s first B2B online transaction platform forced other Chinese B2B websites to move away from the yellow pages format.
Although the Indian and Chinese B2C e-commerce markets are looking at around 30-40% rise every year, they differ vastly in terms of maturity. The Chinese e-commerce market is much more mature as compared to its Indian counterpart. Experts believe that in terms of size, the Chinese market is about 80 times larger than the Indian market. While the Indian market was estimated to be worth $5.3 Billion at the end of 2014, the Chinese market was valued at a whopping $217 Billion.
There are many reasons for this disparity. The lack of penetration of the internet technology in India is a major factor. Most areas in India outside the handful tier 1 and 2 cities experience slow or non-existent internet. China on the other hand boasts some of the largest numbers in terms of internet users. Recent figures indicate that the number of internet users in China is around 600 million, which is around twice the size of those in the USA.
The other factor is the unequal income distribution in the two countries. Although they have roughly the same population size, the Chinese urban middle class accounts for a much higher percentage as compared to India. On the other hand, India has a higher percentage of low income consumers, which becomes an impeding factor for the growth of the e-commerce industry in India.
One reason why the Chinese have gained a seemingly unassailable lead in the e-commerce market might be because of the difference in the composition of players in the two economies. Today, there is no one clear market leader in the Indian e-commerce market. Companies like Flipkart, Snapdeal and Amazon are almost neck-to-neck in the race to become the face of Indian online retail. Even with their billion dollar turnovers, the stark reality in India is that the online retail market only comprises of around 30% share in the total e-commerce market in India. The other 70% can be attributed to service and travel related websites.
While India’s Flipkart failed to cling on to its first mover advantage, China’s Alibaba capitalized on it to become one of the top two e-commerce conglomerates in the world. Alibaba alone boasted a market value of $231 Billion in 2014, coming dangerously close to Amazon’s market value of $241 Billion. Apart from Alibaba, the other major players in the Chinese market are JD.com and Amazon China.
As can be seen, the Indian players have a long way to go before they can match themselves with the likes of Alibaba. In fact, venture capitalist and entrepreneur Rehan Yar Khan estimated that the Indian e-commerce market today is where China was in 2007.
E-Commerce in India is governed by the Information and Technology act of 2000. This blanket act is meant to cover all aspects of cyber law and electronic commerce, including cyber stalking, child pornography, hacking, cracking, network trespassing among other issues. There is no singular, specific law governing e-commerce in India. The Competition Commission of India stands as a sole regulator for all markets in India including the e-commerce market.
The Telecommunications Regulations of the People’s Republic of China stipulated the Ministry of Industry and Information Technology to be the governing body for electronic commerce. Further in 2004, China adopted the Electronic Signature Law, which is widely recognized as the first law in Chinese e-commerce legislation. This law is considered a milestone in the regulation and propagation of Chinese e-commerce, and is one of the reasons for its rapid ascent in the global e-commerce scenario.
It is clear that with governmental support, internet penetration and maturity, the Indian e-commerce market will surely catch up to China. But in how much time remains to be seen.
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