Indian firms playing catch-up with global counterparts in e-commerce
Alibaba enjoyed online sales of US$248 billion last year, more than eBay and Amazon combined. Unsurprisingly, it's also set to become the world's most valuable e-commerce company.
Alibaba enjoyed online sales of US$248 billion last year, more than eBay and Amazon combined. Unsurprisingly, it's also set to become the world's most valuable e-commerce company.
The reasons for India's weak e-commerce market are well-known. The biggest challenge is the country's low internet penetration level. Around 150 million Indians are online, out of a population of 1.2 billion. That compares to more than 250 million internet users in the US and over 550 million in China. The penetration of personal computers in India is estimated at just 47 per 1,000 people, lower than other emerging economies like Mexico, Argentina and the Philippines.
India's internet security is poor, scaring off online customers; the country has only 6 per cent of the number of secure servers that Brazil and South Africa have. Broadband connectivity also continues to lag. Rural Indians, who form a majority of the population, have an internet penetration rate that's one-twelfth the level of urban Indians.
Despite those drawbacks, competition in the nascent field of e-commerce is fierce. Flipkart was founded in 2007 by twentysomething entrepreneurs Sachin Bansal and Binny Bansal, who once worked for Amazon, which itself launched in India in June 2013; however, it remains hobbled by regulatory restrictions that require it to source goods from Indian manufacturers. Local rivals Snapdeal and Jabong are expanding as well. Two months ago, Snapdeal raised US$100 million from investors, valuing the company at US$1 billion.
None of these companies has returned a profit in India. That could change rapidly, however. If one adds in people with internet-capable phones, the number of Indians with access to the internet tops 530 million. The expected rollout of 4G services towards the end of this year should greatly improve the speed of connectivity and slash costs. It could even motivate many of the 420 million mobile users who do not have internet-enabled phones to opt for smartphones.
Affordable Chinese-made devices are already transforming the Indian market. Last month, when Xiaomi launched a smartphone that cost only US$250, it sold 40,000 units in 4.2 seconds on Flipkart.
The attraction of buying online for Indians is obvious. Local consumers are highly price-sensitive for most goods - from toothpastes to cars - and the discounts available online are hugely attractive.
