B2C E-Commerce in India: Evolution, Prospects and Challenges
Dr. C.L.Chandan1, Neeti Gupta2
1Professor, Himachal Pradesh University Business School, Himachal Pradesh University, Summerhill, Shimla, Himachal Pradesh, India.
2Research Scholar, Himachal Pradesh University Business School, Himachal Pradesh University, Summerhill, Shimla, Himachal Pradesh, India
*Corresponding Author E-mail: clchandan57@gmail.com, neetiguptanaag@gmail.com
ABSTRACT:
The retail industry has been repainted by Internet. Internet has led to the creation of new form of shopping known as online shopping. Use of internet has made the transactions smoother, quicker, faster, and easier. Both the buyers and sellers get benefited by information technology. In recent years, online shopping has been increasingly accepted as an alternative to the traditional brick-and-mortar shopping due to convenience and variety of offerings. In view of this, to add knowledge to the current available literature on e-commerce this article deals with three important aspects of B2C e-commerce in India. The first part of the article presents evolution of B2C e-commerce in India, the second part examines various factors which are playing major role in the development of e-commerce in India and the last part of the paper attempts to highlight the key challenges Indian electronic retailers must be ready to handle.
KEYWORDS: B2C, e-commerce, evolution, development, challenges
INTRODUCTION:
Origin of retailing can be traced back in pre-historic times when exchange of goods started in the form of Barter System. With the development of human civilization shape and scope of retail has undergone a change from barter based to web based trading. Use of information technology has changed the way of doing business in the last decade. It has provided an opportunity to all business to reach customers directly. Though web shopping environment is totally different from traditional shopping, access to multiple sellers at a click around-the-clock is attracting more and more people to buy online. Unique benefits of e-commerce have led to the growth of electronic shopping at a blistering pace.
Joint study by Assocham and Grant Thornton about electronic
commerce in India projected approximately 63% compounded annual growth rate (CAGR)
to reach $ 8.5 billion (ie 54303 crore approx) in 2016.1 According to
the research firm 'Statista' retail e-commerce sales in India will continue to grow
at a remarkable speed with a projection (in billion US Dollars) of 20.01 (2017),
24.94 (2018), 31.91 (2019), 38.09 (2020) and 45.17 (2021).2 Scope of
Indian electronic retail market can be understood by Morgan Stanley report which
stated, "We now increase our 2020 estimate of Indian e-commerce market from
$102 billion to $119 billion. This takes our estimate
of the total Indian Internet market size from $137 billion to $159 billion (now
including online food aggregation business).3
ELECTRONIC COMMERCE:
Electronic commerce (E-commerce) is doing business across telecommunication networks. Buyers, sellers or other parties involved interact electronically and conduct business without any physical contact. In addition to buying and selling of goods and services e-commerce activities are related to searching and sharing of information along with maintaining customer relationships. The term e-commerce (EC) was coined in the early 1990s when internet was commercialized by using World Wide Web (WWW). Since then it has significantly affected functioning of businesses, professions, and people all around the world. It encompasses an entire range of conducting business.
European Union Web site (Espirit, 1997) defined E-commerce as ,"A general concept covering any form of business transactions or information exchange executed issuing information and communication technology, between companies, between companies and their customers, or between companies and public administration."4
EVOLUTION OF E-COMMERCE IN INDIA:
India is at the cusp of information technology. Internet has become an integral part of Indian population to stay connected, accessing emails, studying, entertainment and shopping. The journey of e-commerce in India started on August 13, 1998 with the introduction of Rediff-on-the-net. India entered the age of e-commerce with deregulation of the Internet Service Provider (ISO) policy in November, 1998. After that with IRCTC Online Passenger Reservation system in 2002, Indian customers were introduced to online ticket booking.
Inspired by the success of online ticket booking airlines like Air Deccan, Spicejet, Indian Airlines etc were encouraged to start online booking services. By 2007 Indian customers had accepted e-commerce in service sectors like hospitality, transport booking services, banking, job searching portals, matrimonial alliances etc which influenced other business to try electronic selling. Though online shopping has been present since 2000 but online retail truly began in India around 2007 with the introduction of eBay and homegrown companies like ShopClues and Snapdeal entering the market soon afterwards. Amazon launched its subsidiary in India in 2013, the same year Flipkart set foot in the Indian market. This was the year when online shopping gained popularity with deep discount model of Flipkart.
Fig 1: Evolution of electronic retailing in India5
E-COMMERCE MODELS IN INDIA:
E-commerce is an online transaction between supplier and a client. Type of model has direct implication on the operations, cash flows and marketing activities of company. Broadly, there are two types of business models adopted by B2C e-commerce companies: a) Inventory model and b) Market place model
a) Inventory Model:
Inventory model facilitates brand to create its own e-commerce site. In inventory model brand or company has to manage every aspect of the business like maintaining stock of product, interface with customers during and after sale and administration of logistic for timely delivery of products. Inventory model is also known as standalone or stock and sale model.
According to the FDI policy,” Inventory model of e-commerce means an e-commerce activity where inventory of goods and services is owned by e-commerce entity and is sold to the consumers directly.”6
b) Marketplace Model:
A marketplace facilitates multiple vendors, each with their own product list, eventually organized into one well-coordinated catalog. Under the market place model e-retailers do not buy product from the seller but act as a mediator. They provide platform for buyers and sellers to interact and execute the transaction. They assist the sellers in various services like payment collection, logistics, customer care etc. and only steps in if something goes wrong between the buyer and the seller. For facilitating the transaction e-retailer charges fees or commission from seller. It is a business model gaining attraction in India. It works both in B2C (like snapdeal) and C2C (like ebay) business models.
PROSPECTS OF E-COMMERCE IN INDIA:
Retailing is one of the pillars of economic growth in Indian. It has emerged as one of the fast-paced industries. It accounts for 23% of country's GDP. In India contribution of e-commerce to retailing is increasing year after year. According to 'CII' reports contribution of e-commerce to total retail is approximately 2%7 which is expected to contribute 3% by the end of 20208 and 5.3% by the end of the year 2021.9 Indian e-Commerce market ranks fourth in Asia and is expected to have a faster annual growth rate than other top countries in the region through 2021.10 Indian e-tailing market is registering a compounded annual growth rate of 45%.11 According to NASSCOM, “Indian e-commerce market is estimated to be USD 33 billion in the financial year 2017” 12 and is expected to cross $120 billion or Rs 8 lakh crore by 2020.13 E-Commerce has become a key driver to create new markets in metros, cities as well as in villages. Following factors are playing major role in the development of e-commerce in India.
a) Fastest Growing Economy:
The International Monetary Fund predicted that India would retain the status of fastest growing economy until 2020.14The report by Ministry of Statistics and Program Implementation, 2016 stated, “The Indian economy has been consistently showing good signs of growth, with an average GDP growth rate of 7.5% in 2015-16. Due to economic growth the retail sector is showing a promising trend of 11% CAGR, growing from an estimated size of USD 600 billion now to USD 1 trillion by 2020."15 Economic growth will be reflected in increase in per capita income and thereafter in increase in consumption. Continuously growing Indian economy is a positive sign for the development of electronic retail.
b) Demographic Advantage:
Important pillar in the development of Indian e-commerce is its demography. As per 2011 census, India has about 600 million Indians under the age of 25 and according to the joint study of Assocham and Forrester, "75% of all internet users in India are between the age group 15-34, making India one of the youngest demographics in the whole world."16 Retail category under e-commerce is attracting 65 million users (unique) a month; this niche is growing at a healthy rate of 55% annually.13
Busy life style, increasing income and improving standard of living are key reasons for the acceptance of e-shopping in cities. Changing shopping habits of middle and lower class consumer in cities add new demography to online shopping. Moreover, consumption landscape in the small towns is also changing dramatically. Tier II and Tier III towns are showing strong momentum towards online shopping with an improved demand appetite. A study by KPMG 2014, a business advisory firm stated that Tier II, III cities and rural areas small cities of India are witnessing an increase in online shopping activities. The rising demand from tier-III and remote locations, an addressable market is expected to be about 45 per cent of the total, which could be close to USD1 billion in 2020. 17 Above all continuous increase in average spends per online shopper in India is another good sign for the development of e-commerce in India. According to Euromonitor, Deloitte Analysis, Media Reports average spent increased to $247 in 2015 from $147 in 2013 and they also predicted approximately 18% CAGR in per online shopper spend to reach $464 by 2020.7 Expansion of customer base with increase in average spend give double boost to B2C ecommerce.
c) Internet and Smartphone Penetration:
Online retail sector is totally dependent on internet and internet supported devices. Though India has low Internet penetration at 19% compared with other developed and developing economies that have up to 90% penetration18 but it is rising significantly, which is a good sign for ecommerce. As of April, 2017 overall tele-density in India was 93.23% and the wireless tele-density was 91.34%.19 The report from the Internet and Mobile Association of India and market research firm IMRB International, “The number of Internet users in India is expected to reach 450-465 million by June, up 4-8% from 432 million in December 2016.”20 Due to availability of high-speed 3G and 4G internet connectivity along with declining data tariffs, mobile internet spend has risen from 54% to 64% from 2014 to 2015. According to a report on mobile internet in India 2016 by the Internet and Mobile Association of India (IAMAI), “The average monthly spend on mobile services, voice and data combined, in India in 2016 stood at Rs349 per person.”21
Along with internet penetration smart phone penetration is also increasing. Availability of affordable smart phones with easy to use features helped Indian consumers in adopting technology.
In 2015, India overtook the United States to become the world’s second largest Internet market, with 333 million users, trailing China’s 721 million and 220 million smart phone users.22Increasing internet penetration, declining of tariff rates and affordable featured smart phones are continuously adding speed to Indian online retail sector.
d) Government Initiatives:
Government of India has introduced multitude of initiatives with regards to digital coverage and inclusion, like digital India and National optical fiber networks. Improved telecom infrastructure has given boost to internet penetration and propelled the e-commerce industry. Improved data connectivity in rural and urban parts of India has boosted the trend of online shopping in India. Online shopping is continuously increasing its share in the total internet usage. Euromonitor Deloitte Analysis, Media Reports estimated online shoppers as 11% of internet users in 2015 and predicted that percentage of online shoppers to total internet users will grow to 25% by 2018 and will gradually increase to 36% by 2020. (Report excludes online travel and classified).5Other initiatives like Start up India, Made in India and Skill India will collectively accelerate job creators and seekers in e-commerce sector. Complimenting above schemes GST will boost Indian e-commerce by bringing transparency and simplification of taxes across the borders in India.
CHALLENGES TO INDIAN E-COMMERCE:
E-commerce has changed the way of selling and shopping. Indian e-commerce is growing at astronomical rate. India, as an e-commerce marketplace has tremendous potential with an estimate to cross $120 billion or Rs 8 lakh crore by 2020.13There is enough room for the Indian startups to come and shine with various government initiatives. However, despite all the good happening, e-commerce still faces obstacles in ramping up in India. Here are the key challenges Indian electronic retailers must be ready to handle:
a) High return rates:
Free shipping and generous return policies helped online retail to attract million of customers. Behind this boom lies a growing concern regarding high rate of returns. Inforgraphic on online return rates statistics stated, “At least 30% of all products ordered online are returned compared to only 8.89% bough in brick-and-mortar shops. 92% of consumers stated they will not buy again if returns are not easy and 79% of consumers want free return shipping. Reason for return for 20% is damaged product, for 22% is due to wrong item received, 22% is due to inbuilt disadvantage of online buying that is absence of physical examination of product.35% stated other reasons.23High returns are like parasites adding double cost of delivery and return in electronic retailer’s balance sheet. High return is one of the reasons why maximum electronic retailers are still not profitable.
b) False orders:
Bogus buyers are the most common problem online sellers are facing. Placing cash on delivery (COD) order and then not accepting it is a common phenomenon. A buyer rejects or returns order by simply saying it does not meet the expectations. Multiple orders and cancellation of orders can accumulate to heavy losses and drop in ratings of seller. It also reduces the performance of electronic retailer as it put extra burden on delivery channels to contact such buyers, deliver the product and arranging the return pick.
c) COD as a preferred mode of payment:
Skepticism about e-payments among Indian consumers makes COD the most preferable mode of payment. Cash handling charges and locking of working capital add unavoidable extra cost to the balance sheet of electronic seller.24 Moreover, in COD commitment of consumer to buy product is comparatively low. High returns affect the profits of the online seller. Cost of two ways courier i.e. for delivery and return translate into high logistics costs.24 COD adds multiple layers of unavoidable cost. E-commerce giants are spending huge sums on marketing and advertising to encourage customers to make online payments especially after demonetization, still customers prefer COD. COD is not a profitable option for ecommerce companies but still it is a “necessary evil” that is playing a significant role in making Indian customer comfortable for making online purchase. 24
d) Low Customer Loyalty:
Immense competition along with low customer loyalty is a dangerous threat for online retailers. The internet is a space where discounts and price wars are rampant. Electronic retailers are willing to give huge discounts to customer to increase market share by attracting new buyers and retaining old ones. But almost zero switching cost and transparent pricing make it difficult to built long term relationship between customers and electronic retailers with the help of deep discounts. Moreover, the slightest negative experience or any hindrance in the purchase process can cause the customer to shift loyalties. In fact, customers stop doing any sort of business with a company because of negative poor after sale experiences. Loyalty is very crucial aspect of retail and its importance increases many times in e-retailing as everything is available at one click.
e) Indian Demographic Dilemma:
Though India seems to be a huge market in terms of population Approx 40% population is living below poverty line. E-commerce companies loose a big portion of potential customers as thousands of towns and villages are not accessible due to poor or any transportation facilities or internet connectivity. Most of the India lies in the rural segment which is not growing with a line of digital trends. Indian illiteracy rate is more than 25-30% but digital literacy is almost no-existent among more than 90% of India's population.25
Second problem is multilingualism. It is the most formidable problems of Indian e-commerce. India has 22 official languages and hundreds of other less prominent languages. English is widely used in major cities and among educated Indians but maximum Indians prefer to converse in their local language. Therefore, to reach the rural or small town segments, it needs to be available in regional languages, which is not practical.
Third major problem is low smart-phone, low internet base and low digital literacy. In 2015, India had overtaken the US as the second largest smart phone market in the world. But the smart phone penetration of the total potential population is still below 30%26and internet penetration is only 19%.19 According to the survey of Pew research center there are only 22% adult who use the internet at least occasionally and only 17% owing a smart-phone. Most of the people have basic feature phone making them unable to shop online.27
f) Cumbersome GST Law:
The Goods and Services Tax law defines e-commerce transactions in the chapter named 'Electronic commerce operator'. The compliance is cumbersome for both e-commerce operator and seller. All ecommerce sellers are required to register under Goods and Services Tax (GST) as GST law has explicitly excluded e-commerce businesses from the benefits of composition scheme. To claim the tax deducted by aggregator they have born the cost of maintaining detail record of purchases and sales and filing monthly returns.
On other hand, as per new tax regime, e-commerce companies acting as a market place will be termed as 'aggregator' and required to collect and deposit at the rate 1% from each transaction from the sellers who sell or advertise on their sites. This mechanism is termed as “Tax collection at Source (TCS)”. TCS will be deducted in each state and deposited accordingly on monthly basis. Therefore, e-commerce operators have to register in each state.
GST Law increases burden of compliance for marketplace sellers and ecommerce operators. The law can hamper the pace of growth of small and medium enterprise using electronic marketplace as small retailers may not prefer to sell online and it would have negative impact on the business of ecommerce operators.
CONCLUSION:
India is at the cusp of information technology. Internet has become an integral part of Indian population to stay connected, accessing emails, and ordering goods and services. In spite many environmental challenges in the road of Indian e-commerce, there are large number of environmental, organizational and consumer factors which make Indian B2C e-commerce a lucrative market. Electronic shopping is becoming buzzword and growing at blistering pace in India. Organizations and consumers both are contributing in the development of e-commerce. Tremendous growth trends and predictions have attracted many big and small brick and mortar retailers to go for online retailing. And benefits like availability of wide range of products, transparent and competitive pricing, multiple payment option, door to door delivery etc are driving consumers to adopt online shopping.
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Received on 31.08.2017 Modified on 17.09.2017
Accepted on 17.11.2017 © A&V Publications All right reserved
Asian Journal of Management. 2018; 9(1):197-202.
DOI: 10.5958/2321-5763.2018.00030.6