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Booming E-commerce and the traditional Business model in India

There is a growing need to include the booming E-commerce Business in the Regulatory framework and the existing greivance redressal system.

Sep 10, 2015 18:22 IST
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E-commerce has witnessed unprecedented growth in recent years and has changed the way marketing was perceived in the past. Without physically visiting brick and mortar shops one can buy his favourite products on internet. E-commerce in India is still in formative stage but holds a tremendous opportunity for the days ahead. It is a sunrise sector growing by leaps and bounds.  The growing internet penetration and Smartphone users have made e- commerce on internet feasible. With government’s resolute action to integrate India digitally by pursuing programmes like ‘digital India’ and national optical fiber project which will connect 2.5 lakh gram panchayats with a broadband speed of 100 mbps holds enormous prospect for this sector. India’s e-commerce industry is primarily boosted by the country’s attractive demography of a young population. The country will have over 300 million new online shoppers in the next 15 years, making online retailing the largest online segment.

Present status of e-commerce

E-commerce share in India's total retail share is less than one percent as of 2014 data. E-commerce industry is likely to clock a compounded annual growth rate (CAGR) of 35% and cross the $100-billion mark over the next five years, from $17 billion at present, according to an Assocham-Pricewaterhouse Coopers study. Riding on the strong growth momentum of 2015, the e-commerce sector is estimated to see a 72% jump in the average annual spend on online purchases per individual in 2016, from the current level of 65%, the study said.

Challenges

Till now the success of e-commerce is limited to metros and big cities. Brick and mortar shops are still dominant players in major towns and cities. It has to cover a long distance to emerge as a dominant player as still over 78 percent of the population lives in villages. There are many challenges which will hinder its growth like internet coverage, availability of Smartphone, greater network speed, robust supply chain and economical data services. The other imminent challenge they face in terms of investment to scale up their activity. Allowing FDI in e-commerce can address this issue but for the time being it is unlikely that government would be yielding under pressure from traditional business houses. At present FDI is allowed only in B2B cash & carry services and not in B2C. Robust payment system and encouraging customers to pay electronically which needs to stress upon. It has to overcome the traditional mindset of the people where one is satisfied by physical examination of the product before buying. Better 3-D modeling technology can be adopted to produce a 3D simulation of product at the consumer end which will almost give a sense of physical presence of product. It is unlikely that without overcoming these challenges e-commerce will able to sustain their success story on pan India.

The various pros associated with e-commerce are:

•    It has increased sales transparency due to online payment and electronic record.

•    In metro and cities where people find diminishing leisure time it has made possible for them to buy things while working and commuting.

•    It has in a way distressed our public transportation system by halting physical movement of people to buy their goods.

•    It has lessened carbon emission by vehicles by using an efficient dedicated delivery system.

•    A small manufacturer can approach global audience of buyers using e-commerce platform.

•    It has led to more competitive pricing and customers can compare among different sellers.

•    Provided the employment to numerous persons working in IT and the Supply Chain Management.

The various cons associated with e-commerce are:

•    Distorting market by sourcing products from states which has lower taxes.

•    Due its predative pricing it has a potential to destroy local mom and pop shops and other traditional retailers and in turn can increase the unemployment.

•    It has dented profit of big stores which provides a large number of employments.

•    Increasing of packaging garbage mostly comprising of plastic.

•    Inferior quality of product being delivered than what is shown on e-commerce website.

•    Absence of dedicated regulator to arbitrate dispute arising out dubious products.

E-commerce impact on traditional retailers or business model

Online shopping has shown accelerated growth while brick-and-mortar shops are witnessing a slowdown. Undoubtedly e-commerce has hit traditional retailers and business models. According to a recent study shopping malls are suffering from lesser footfalls leading to around 25% vacancy rate, along with a 30% drop in rentals in the last one year. But these trends are in sync with global trends evident in US, UK and other countries. Traditional retailers have to innovate their business model and embrace the inevitable technological change that is going on. To compete with online retailers they may even have to cede certain portion and look for new avenues.  Business houses those who adapted to this situation are doing exceedingly well.
Though it has destroyed certain local shops and unemployed people on one side but has created an all together new employment opportunity in online stores and distribution network. E-commerce companies are redefining how customers buy and manufacturers sell.

It has indeed made market more efficient and cost sensitive. It is law of the nature that a less efficient system will be replaced by a more efficient system. Government on its part has to check that e-commerce didn’t indulge in unfair practices by making a firm regulatory structure at the earliest to guide this juvenile industry in its course.

Moreover the booming of e-commerce cannot be seen only from the angle of traditional business model but it has to be looked by keeping consumer at the centre and benefits it brings to them.

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