Reference no: EM133484169
Review the Interactive Session: Organizations, 'Indian E-commerce: Obstacles to Opportunity'. Discuss the global and specific challenges and obstacles an organization faces with establishing an e-commerce marketplace in India. What are some positive factors that will influence the ability to establish an e-commerce marketplace in India? Do you think it is worth it in the long run to spend the time and money to establish an e-commerce market in India? Why or why not? What e-commerce revenue model might work well for a company trying to enter the e-commerce marketplace in India? Please Explain your answers.
Interactive Session: Organizations Indian E-commerce: Obstacles to Opportunity
After China, India has the world's second-largest number of Internet users, more than 400 million by the end of 2015. Rising smartphone ownership, with 4G networks rapidly replacing 3G in urban centers and slower, more affordable data plans in rural areas, has made this possible. Still, this represents only 32 percent of India's population of 1.25 billion. E-commerce in India is expected to surge in the next five years, but it faces some hefty challenges.
For example, a government initiative to lay fiber-optic cable and connect hundreds of thousands of villages to the national Internet backbone formulated in 2011 has stalled due to inaccessibility of remote areas, unwillingness of the large telecoms to invest (even with government financing) in non-lucrative sparsely populated areas, and red tape engendered by overlapping authority between governmental bodies in India's seven union territories, 29 states, and numerous districts and smaller administrative divisions.
Because standard infrastructure in India is primitive-including poor and even nonexistent roads and bridges-less than 5 percent of the planned million miles of cable had been completed by the end of 2015. What's more, India's electrical grid is woefully inadequate, many villages lack sufficient power lines, and electrical service is spotty at best. Bureaucratic right-of-way conflicts stalled work in 15 percent of villages scheduled to be connected, while a duct shortage and glitches with government-developed technology to connect the cables to their endpoints caused additional delays.
Prime Minister Narenda Modi is determined to hook up 600 million rural Indians, including schools, community centers, and hospitals, by 2019. Along with healthcare, educational, and other government services, he wants to ensure that online banking and e-commerce are universally available. Modi has tried to reduce intergovernmental body red tape and to curb corrupt state border officials, and he has also created the Committee on the National Fibre Optic Network to jump-start state government and private sector cooperation in both construction and maintenance and wrest control from state-owned giants.
The picture is mixed. In 2015, 94 percent of Internet usage was conducted by 276 million mobile phone users. Uber rival Ola, restaurant search site Zomato, and the What's App messaging service are rapidly gaining followers, but only 25 percent of urban dwellers and 5 percent of rural Indians have made an online purchase. Pending completion of Modi's broadband superhighway, growth will still be driven by falling smartphone and mobile data plan prices, with two-thirds of the projected 11 million new 2016 users accessing the Internet via portable device.
E-commerce travel sites are especially popular. MakeMytrip.com, Yatra.com, and Indian Railways' IRCTC website along with a number of smaller players account for 75 to 80 percent of all e-commerce purchases. Another top sector is digital downloads, including e-books, music, and content subscriptions, also traditionally a breakthrough sector. The remaining 20 percent of the business-to-consumer (B2C) e-commerce market is composed of durable goods, financial instruments such as online bill payment services and insurance products, and online classified ads, including job, dating, and matrimonial services driven by a growing middle class with rising disposable incomes.
The rush to capitalize on the projected $70 billion in online purchases by 2020 has been led by online giants Amazon and eBay. Amazon is following an unconventional path in India with Junglee.com, a transaction facilitator site that connects buyers and sellers while providing product and price comparison services, making it unambiguously a direct competitor to eBay India. eBay India was a pioneer, setting up shop in 2005. Credit card adoption is still in its infancy, and eBay had to pave the way in gaining consumer trust. The Indian iteration of PayPal, Paisa Pay, remits payment to the seller only after the buyer has received the item and refunds payment if the item is not shipped within three days. (Two days is the goal.) Coupons, a guarantee of full refund or replacement within 30 days if the buyer is not satisfied, and a Power Ship service have aided eBay's efforts. About 30,000 domestic and 15,000 worldwide sellers, mostly small, many artisans, and some from the poorest areas of the country, sell 16 products every minute to 128 million buyers in more than 30 countries. The key to this success was appreciating the unique nature of Indian consumers and tailoring the shopping experience and transaction flow to satisfy their needs.
Still, not all the kinks have been ironed out. Some states insist on requiring buyers to complete a form that must be sent to the seller before the product can ship. Less than 2 percent of Indian consumers own credit cards, so most e-commerce sites must offer a cash-on-delivery (COD) payment option. In 2015 60 to 70 percent of Indian e-commerce purchases were cash-on-delivery. About 45 percent of customers reject these COD orders at the point of delivery, making this a very expensive and probably unsustainable business model. Making matters worse, many e-tailers offer free shipping to acquire and retain customers. The national Indian poverty rate runs between 22 and 25 percent depending on how the rate is measured.
All retailers face steep costs for warehouses and logistics systems to overcome poor transportation infrastructure, bad roads, and traffic congestion. Until India's infrastructure catches up, the e-commerce war is likely to be won by those competitors with the best mobile app. On low-price smartphones feasible for most Indian consumers, many apps come preinstalled, and there is little space on the phone for additional app storage. In this emerging market, profits are yet to be realized, and market consolidation is ongoing. Developing a strong brand and effective customer service and, for some companies, cultivating a vibrant market niche will be the keys to survival.
Sources: Sean McLain and Newley Purnell, "India Startups Vie to Win E-Commerce Battle," Wall Street Journal, October 22, 2015; Joanna Sugden, "In 'Digital India,' a 15-Minute Wait for Email," Wall Street Journal, August 20, 2015; Sean McLain, "India to Become World's Second-Largest Internet User Base," Wall Street Journal, November 17, 2015; "The Quest for E-commerce Dominance in India," Bloomberg News, July 31, 2015; Arun Shroff, "E-Commerce in India: Trends, Opportunities and Challenges," India Advisory Board, February 1, 2013; Ramnath Subbu, "Indian E-commerce Market Is Nowhere Near Maturity-eBay India MD," The Hindu, April 21, 2014.
Case Study Questions
1. Describe the technical, cultural, and organizational obstacles to e-commerce growth in India.
2. How do these factors hamper companies from doing business in India or setting up Indian e-commerce sites?
3. Will non-Indian companies like Amazon.com and eBay flourish in India? Explain