e Commerce Challenges in India

8/10/2019 e Commerce Challenges in India

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Challenges & Opportunities in e-

commerce


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1. Logistics

As most emerging Asian markets are large and

fragmented with poor logistics infrastructure, locallogistics firms have only partial coverage in largecountries like India and China and are generally viewedas unreliable .

This has forced e-commerce firms to build their ownlogistics systems at enormous cost and time outlay.Chinas Alibaba, which owns taobao, Chinas largest

consumer e-commerce firm, has invested in locallogistics and delivery businesses. It announced in 2011that it planned to invest $4.6 billion over five years tobuild a network of warehouses across the country.


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Building logistics from scratch involves enormous timeand cost investment. Additionally, it has threeimportant implications:

it has a substantial impact on profits;

it provides significant competitive advantage againstnew local and global entrants;

it opens up a new business opportunity for theseplayers by allowing competitors to use their deliverynetworks for a fee. Amazon encourages small firms touse its marketplace or cloud computing services. InDecember 2010, Flipkart piloted a similar system inIndia, called Flipkart Logistics.


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2. Digital Infrastructure Although Internet penetration in Asia is rapidly increasing,

except for a few countries such as Malaysia and Singapore,less than a third of the population in most emerging Asiancountries have internet access.

However, linking businesses to create centralized systemsfor e-commerce can bring its own challenges. When onlinetravel services such as Cleartrip started in India, they soondiscovered that many smaller airlines in the region werenot part of the Global Distribution System (GDS) acomputerized reservation network used as a single point ofaccess for reserving airline tickets worldwide. Theyundertook a long and laborious process of buildingsoftware to link these smaller carriers to GDS so that theircustomers could access the inventories of all airlines


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3. Payment

Many emerging markets in Asia continue to be cash-based societies due to:

limited banking and credit card penetration,

the existence of parallel cash economies (in some

cases) lack of consumer trust in online merchants

It has prompted several leading e-commerce firms such

as Flipkart in India, 360buy and Taobao Mall (Tmall) inChina, and Rakuten in Indonesia, to offer cashcollection on delivery (COD).


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While COD solves both the concerns of

payment and theft, it often involves several

trips by the delivery person, thereby

increasing costs substantially. Some e-commerce players such as Rakuten in

Indonesia therefore allow customers to collect

their packages at convenience stores acrossthe city.


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4. Cultural Differences

Indian matrimonial site Shaadi.com had a

similar experience. Consumers lacked

confidence in their ability to use the site

effectively, and were looking for the humantouch. As a result, the company opened over

70 Shaadi Centers that are staffed with

relationship advisors who recommendpotential profiles to families and help them

find suitable matches.


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5. Price Sensitive Consumers

Even though average incomes in Asia are rising and the

middle-income group is growing, the per capita incomeof most consumers in emerging Asian markets remainsless than a tenth of those in developed countries like

the United States and Singapore.

Low incomes and a mindset of every penny countsmake Asians among the most price sensitiveconsumers in the world. This mentality has beencompounded by e-commerce offers price-sensitiveshoppers the ease of being able to compare pricesonline.


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Online retailers in Asia face price pressure not onlyfrom competing websites, but also from offline stores.The latter run such highly efficient and low costoperations that even powerful corporate houses like

Indias Reliance Group have found it challenging tomake inroads in the local retail industry.

To compete with local merchants most Indian e-commerce firms like Flipkart, myntra etc. offer free

shipping and flexible return policies in the hope ofmaking their online services more palatable to theprice conscious consumer base they wish to attract.


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Profit potential

E-commerce is a thin-margin business. In2011, even after 17 years of operation in theUS, Amazon had a meager profit of $631

million from sales of over $48 billionor anoperating margin of less than 1.5 per cent. Bythe second quarter of 2012, its profit wasdown to $7 million as the company continues

to invest in new products and logistics.


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E-commerce firms in emerging Asian markets are likely

to have even thinner margins. They need to investheavily in logistics and infrastructure that substantiallyincreases their fixed costs; overcome paymentproblems; build offline presence to earn consumertrust; manage highly price sensitive consumers; faceboth local and global competition; and competeagainst a highly efficient offline retail sector.

It is therefore not surprising that Flipkartsfoundershad trouble convincing General Atlantic Partners toinvest $150-200 million in their business despite theirprojected 2012 sales of nearly $500 million, a 400%year-over-year growth.

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e Commerce Challenges in India