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eCommerce in India – Retail trends, Logistics, & Advice on Entering the Indian Market

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For businesses entering India and managing eCommerce end-to-end, the main obstacles will be logistics and payments, but there are other intricacies to consider

eCommerce is developing rapidly in India, with sales projected to reach $64 billion by 2020 and $200 billion by 2026. In fact, it is predicted that India will surpass the U.S. to become the second largest eCommerce market in the world, behind China, by 2034.

This is due to the increasing penetration of smartphones and mobile data, plus the rise in digital literacy. Relentless digital transformation is expected to increase India’s total internet user base to 829 million by 2021 from 560.01 million in 2018.

So, even as the country plays catch-up with some of the more established eCommerce markets, with a population of over 1.3bn, a relatively small piece of India’s digital pie could still mean substantial revenue.

Unique entry barriers

However, as with many emerging eCommerce markets, India has some unique nuances and barriers to entry, meaning relatively few global brands have penetrated the market.  Before retailers start selling to this new market, it’s vital these potential obstacles are negotiated, through meticulous research and planning and a robust eCommerce strategy.

To start with, brands must consider the means through which to sell digitally in India, with essentially two options: through their own eCommerce site or using an existing marketplace.

Launching an eCommerce site

Setting up an eCommerce site can be a smart way to enter a market. Managing the customer journey end-to-end is a vital part of selling online, as it allows brands first-hand access to consumer data, which can shape user experience design, products, and digital marketing campaigns. And with today’s out-of-the-box commerce technology platforms, a new eCommerce store can be up and running in relatively short time, and it’s not as expensive as before.

But the main obstacles for businesses entering India and managing eCommerce end-to-end will be logistics and payments.

eCommerce logistics in India

International logistics providers such as FedEx and UPS operate in India, and DTDC Express is a reputable domestic option. But, due to sheer scale and lack of maturity, these still have limited warehousing and infrastructure facilities, and coverage in rural regions and small cities is very limited. Many large providers still rely on smaller and cheaper third-party companies for delivery, particularly last mile services. This can increase costs, without increasing reliability.

Delivery options are improving, driven in part by global providers continuing to invest in their operations and infrastructure. DHL was another firm to recently launch its eCommerce logistics division in India. But there is still some way to go.

Payment methods

In terms of payment, 57% of eCommerce sales in India are paid for through cash-on-delivery, and avoiding this would mean excluding a huge share of potential customers. To support these transactions, there are multiple fees, as well as courier charges to consider, plus potential delays in receipt of the funds. Theft can be a risk, leading to irretrievable financial losses.

Thankfully, digital payments are slowly gaining acceptance. The Indian government reduced the amount of currency in circulation, which has encouraged consumers to look for other payment options.

And the increase in digital penetration has seen the growth of digital payment methods. Digital ventures such as Paytm – a mobile-based digital wallet and eCommerce payment system – are changing consumer behaviour. Digital payments currently aggregate less than $200bn, but it’s estimated that the total digital payment market in India will grow to $1tn by 2023, led by growth in mobile payments.

Online marketplaces

Marketplaces provide a faster, more accessible option to testing the water in terms of entering the Indian eCommerce market. Flipkart, plus its fashion sister Myntra, is the leading marketplace in India with a 38.5 percent market share. Amazon and eBay also have large shares with their own localised platforms. Other marketplaces include Snapdeal, ShopClues, and Jabong.

Non-Indian merchants can join any of these marketplaces quickly. It typically requires registering your company, obtaining a tax number, and opening a bank account. The clear advantages are that these marketplaces take care of the logistics and payments hurdles mentioned previously. The downside of relying on marketplaces are the lack of first-hand consumer data, the commission fees that marketplaces charge, potential direct local competition, and the minimal control of customer experience that you would own on a branded eCommerce site.

Cultural understanding

Too many companies underestimate the market, thinking a general grasp of a certain sector or city means they ‘get’ India. Or, they think that India is keen to follow Western cultures, and that this giant country will bend to the ways of foreigners. A common mistake is assuming that there is a universal way of conducting business, or the products that fly off the shelves in one country will be popular elsewhere.

McDonald’s, for example – the world’s largest user of beef – had to completely change its menu and price structure for the Indian market, and still struggled. Starbucks shifted its focus from coffee to tea. IKEA manufactured a new mattress for the Indian market, and served samosas in store. Essentially – tastes are different, and not just in food. The same applies to fashion, cosmetics, home, sportswear… Pretty much across the board, expectations and budgets are different in India.

Initial costs

And businesses often underestimate the costs involved. Global companies sometimes believe that the costs of labour, supplies, and infrastructure are always cheap, without knowing the facts. In reality, property in major Indian cities is expensive, due to the number of companies looking to expand there, and a shortage of experienced executives means that their salaries can also be high.

Tax

As with many countries, there are concerns over tax intricacies, and a misunderstanding or a lack of transparency here can be extremely costly. Vodafone, for example, won a $2.2 billion tax dispute with the Indian government, but then in response, the previous congress-led government promptly enacted new legislation allowing the firm to be taxed retrospectively. It’s often worth partnering with a local expert to avoid these obstacles.

 

A lack of cultural understanding, customs and taxes, distribution and logistics, payment methods, local competition, and real estate investment can present a treacherous path to success. But these obstacles don’t have to stand in the way of opportunity. They can be negotiated, through meticulous research and planning, and utilising local and partner expertise where necessary.

LiveArea is an award-winning global commerce services provider. A comprehensive portfolio of capabilities combines consulting, strategy, design/UX, technology, and digital marketing to bring commerce to life, globally. LiveArea has offices in Dallas, Seattle, New York City, Raleigh, London, Sofia, and Bangalore.

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