Unraveling India’s Expanding E-commerce Market

India's e-commerce market is worth $10 billion and expected to reach $70 billion by 2020. (Photo: contentping.com)

India's e-commerce market is worth $10 billion and expected to reach $70 billion by 2020. (Photo: contentping.com)

The Indian e-commerce market is currently worth $10 billion and expected to reach $70 billion by 2020,  according to a study by consumer research firm Technopak. And with an accelerating middle class and Internet penetration at a modest 10 percent, there is substantial opportunity for electronic merchants.

Currently, local start-ups like Flipkart are enjoying their precarious market share, but regulatory changes are giving way to foreign competitors. Earlier this year, the government resolved a decade-long dispute regarding foreign retailer investment in India. Now, multi-brand retailers like Wal-Mart can own up to 51 percent of Indian operations, and single-brand retailers such as Apple can own 100 percent.

What this means is a slew of American retailers will be ramping up investments in India, with their e-commerce facilities following suit. Wal-Mart has already invested in technology support centers to support this endeavor, and Amazon launched Junglee.com to focus on India’s Internet potential. Key issues currently facing electronic retailing (“e-tailing”) in India include poor infrastructure, low Internet penetration rates, lack of brand loyalty and, most importantly, cash-on-delivery (COD).

In Western countries, only 15 percent of online transactions involve COD. But in India, some retailers estimate this figure to be as high as 80 percent. This is a bane for online retailers, with COD purchases tying up precious working capital that could be used to fund operations. Furthermore, high COD rates mean the opportunity to turn away a package once buyer’s remorse sets in. Ever the fickle consumer, Indian shoppers reject 45 percent of the items that show up for COD.

One solution is a trusted online payment processor. But PayPal continues to battle with the Reserve Bank of India (RBI), which imposes several restrictions on the online payment processor. It took until just last October for the RBI to ease a $500 PayPal transaction limit to $3,000,  a move that was well-received by India’s small businesses, who utilize PayPal to bill customers. And while this was a good step for Indian e-tailing, the COD culture is a persistent one that nags online enterprises.

With loosened regulations and opportune demographics, the Indian e-commerce market is ripe for strategic and financial solutions. Amazon’s first large-scale warehouse in Mumbai and Wal-Mart’s new technology support facility in Bangalore are examples of Western companies taking advantage of the situation. But opportunities are not just limited to large retailers. Distributors, web designers, consumer research groups, building contractors and IT professionals are just some of the necessary players in the e-tailing value chain.

There is still a long way to go for India, but the next few years will see many parties—big and small, East and West—capitalizing on this environment.

Hasan Haq is a contributing writer to Divanee.

  • http://www.facebook.com/profile.php?id=108364 Miral Sattar

    How is Junglee doing? I think the name is kind of silly.