An Article On E-Commerce By: Syed Sadham Hussain R (2014Pgp394)

An article on E-Commerce
by
SYED SADHAM HUSSAIN R (2014PGP394)
Going the E-Way

How about sitting at home, buying products online by comparing prices and reviews. Yes,
we are talking about e-commerce, the latest buzz word in the business world. The likes of
Amazons, Flipkarts and Snapdeals have changed the way how Indian consumers make purchase.
This article will take us through the attractiveness, growth trajectory, business models and
challenges of the Indian e-commerce industry.
Do you want to start your own e-commerce venture???

Growth:
The relevance of e-commerce to India is hard to ignore with its retail market
likely to touch US$ 738.71 billion by 2016-17 expanding at a CAGR of 15 percent.. The share of
organized retail is roughly around US$ 35 billion out of which 10% belongs to the e-commerce
industry. This is ample proof that the industry is poised to grow at an unprecedented rate
especially given the recent trends. It has grown at a CAGR of 59% from 2009 to 2013 and is
expected to reach US$ 35 billion by 2023. This pretty much explains the foray of big ecommerce companies entering India.
Attractiveness:
The threat of new entrants is pretty high given the fact that the investment required to
start an e-commerce venture is a comparatively low. A well managed platform with a responsive
delivery team for the products offered could itself become a formidable player whose initial
investment might be a few lacs. Not to mention the fact that Flipkart was founded in 2007 with a
tiny investment of Rs.4 lacs.
The industry comes with enormous buyer power. Customer has access to all information
in relation to prices of products and there is zero switching cost meaning absence of customer
loyalty. The Indian scenario is a clear indication wherein players are fighting it out to capture
customers by offering products for cheap prices, allowing cash on delivery and easy returns.
The suppliers are primarily large manufacturers who have the capability to forward
integrate to enter into the e-commerce arena themselves. So, supplier power is also high.
Having spoken about the threat of new entrants and forward integration of suppliers,
rivalry in the industry is intense. Adding to the factors is no entry barrier. Firms have to innovate
constantly to remain competitive and attractive to customers.
Though e-commerce is swiftly replacing traditional brick and mortar sales, the reverse
cannot be ruled out given the fact that no e-commerce company in India is profitable yet and
online mode is just one amongst the mode of sales for manufacturers.
Hence the industry is not attractive given the above factors and no product differentiation
if you dont have a proper strategy in place.
Business Models
The prominent business models in e-commerce are B2B, B2C and C2C which have close
implications to the supply chain model the firm follows. For example, Dell follows a Make to
Order strategy and it is present in B2B and B2C market. Flipkart, which is into the B2C segment,
initially started with inventory model wherein goods are sourced, stored in large warehouses and
delivered as per orders, shifted to marketplace model ever since Big Billion Day gimmick.
Both marketplace model and inventory model have their own merits and demerits. The
marketplace is advantageous in that it offers infinite shelf space to the e-commerce firm as it just
brings together buyers and sellers. The firm is responsible for marketing and bringing in
customers while there is no physical inventory as such. The issue is with regards to information
flow between buyers and sellers and the product quality. The inventory model, described earlier,
requires relatively high investment depending upon the variety of products to be sold as there is
cost associated with holding inventory. But this model ensures product and service quality and
high customer satisfaction which is critical to attract repeat purchases.
Is e-commerce really the way forward???

We have already seen figures pertaining to astounding growth of the e-commerce sector.
Add to that the recent spree of investments made in e-commerce firms by some big names. Ratan
Tata, known for his business acumen, has personally invested in Urban Ladder, Snapdeal and
Bluestone. Flipkart dropped its IPO plan as it was able to attract investments to the tune of US$ 1
billion from a group of investors. Japanese based SoftBank has invested US$1 billion in Indian
e-commerce. The entry of Reliance into the online mode shows evidence that big firms also want
to cash in on the e-commerce fever. This makes sense because of the fact that only 17% of Indian
population has access to internet while the same for the rest of the world is around 40%. The
internet penetration is poised to increase which will inevitably bring in a lot of online shoppers.
But is the market size enough for the survival of the industry?? We will try to analyze
what drives this business and the challenges in India with special reference to online retail
market.
Strategic elements and Challenges

The major strategic elements of e-commerce driven business can be brought down to
marketing, supply chain, revenue model (payment mechanism) and customer retention. It is
imperative that the website is able to attract visitors. Data suggests that the average cost of
customer acquisition is very high in India and it is important that the service should be able to
provide adequate customer satisfaction to encourage them to do repeat purchases. It has been
estimated it takes an average of 9 transactions to breakeven per customer. It makes sense that the
major players in the industry run extensive customer loyalty programmes to retain customers.
Another factor which led to the growth of e-commerce in India is the Cash on Delivery (COD)
mode of payment. This is quite a risky payment method for the vendors as they have to rely
heavily on the logistics providers for successful transactions and this also increases the cash
conversion cycle. COD is not followed in many of the western countries but due to the
reluctance of Indian shoppers to pay online citing security issues, the option is a necessary evil
for the firms. We know the basic equation,
Profit = Selling Price - Cost Price

Having said that the bargaining power of buyers is high in this industry and there is no
product differentiation, the players have to fight it out with low prices which severely affect the
profitability. In fact, none of the Indian e-commerce players are profitable as yet. This brings to
the main point that efficient supply chain is the backbone of e-commerce. The cost of service has
to be brought down to as minimum as possible while delivering the required quality. Logistics is
considered to be the critical bottleneck which differentiates a satisfactory service and a poor one.
There are so many uncertainties associated with logistics like pin code serviceability, customer
availability, last mile delivery etc.
Another issue is the tax system in India which is quite vague. The different taxes levied
by the centre and state put pressure on the firms which leads to inefficient supply chain. For
example, when manufacturers sell goods to distributors across states, it goes down as sales and is
taxed under Central Sales Tax (CST). To overcome this, manufacturers set up warehouses in
different states to transfer goods which will not be taxed and then from thereon will be sold to
the distributors. This leads to an inefficient supply chain and increase in costs. The proposed
Goods and Services Tax (GST) will go a long way in addressing these issues which will help in
simplifying tax structure, fair pricing and efficient supply chain.
The Indian infrastructure is another thing to worry. Estimates suggest that only 53.8 % of
Indian roads are paved. The infrastructure is critical to have efficient supply chain and logistics
systems to provide cost effective and quality service.
Reverse logistics is another challenge the firms have to tackle. Firms lure customers by
giving them the option of returning goods if not found satisfactory even after using it for some
period of time. Though it has helped in gaining acceptance amongst shoppers, it also backfired to
some extent. The process of planning the reverse logistics is cumbersome and costly. To add to
that, it is done with the anticipation that the customer would transact again with the firm which is
uncertain.
Conclusion
There is enough evidence to say that e-commerce is currently booming big time. Firms in
the industry have been attracting investments from all corners. But it should not be ignored that
none of the big players in India is profitable yet. They are still in the process of building the
consumer base in an industry where loyalty mattes little to consumers. The industry is attractive
to consumers than it is to the firms. If the challenges discussed above are not tackled, it makes
sense to say that the industry might not survive in the long run.
References:
1. Ministry of Road Transport and Highways, Basic Road Statistics of India 2008-09, 200910 & 2010-11 (New Delhi: Government Of India, August 2012),
http://www.indiaenvironmentportal.org.in/files/file/basic%20road%20statistics%20of
%20india.pdf.
2. Alvis Lazarus A (2014). Research on E-Commerce Industry in India. IIM Calcutta
3. Rahul Mann (2015). Impact of GST on Indian Supply Chain. Ops World, Pan IIM
4.
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Operations Magazine
http://yourstory.com/2014/11/top-e-commerce-investments/
http://www.business-standard.com/article/companies/has-ratan-tata-chosen-wisely114112400876_1.html
http://www.ibef.org/industry/retail-india.aspx
http://www.business-standard.com/article/finance/softbank-turns-largest-investor-forindian-e-commerce-cos-114121700329_1.html
http://www.indiaretailing.com/7/23/27/11381/-Ecommerce-needs-a-stronger-supplychain-backbone

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An Article On E-Commerce By: Syed Sadham Hussain R (2014Pgp394)

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An article on E-Commerce

Going the E-Way

Do you want to start your own e-commerce venture???

Is e-commerce really the way forward???

Strategic elements and Challenges

Profit = Selling Price - Cost Price

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