Unparalleled Dynamism - India’s Evolving E-Commerce Ecosystem

Speech by Regional Director Dr. Ronald Meinardus at the 26th Anniversary of TFSC in Chennai on August 26, 2017
Freedom Speech 2017 by Dr. Meinardus in Chennai

In selecting the topics of the Freedom Talks, which I have generously been invited to present, TFSC has – in the past three years – shown a remarkable preference for innovative themes: In 2015, I was asked to talk about Digitization, in 2016 about Smart Cities and this year the assigned subject is e-commerce.

These topics have one thing in common: they are all related to Digital Transformation. This is a continuous revolution which – as we are beginning to sense – affects all spheres of our lives and, importantly, will change the way we do business in a dramatic manner. We are just at the beginning of this revolution. The earlier we get used to the idea that nothing will be the same, the better.

Once more, entrepreneurs are leading the way as they are the most affected by the technological changes. To adapt and reform (and be ahead of the pack) has become a matter of life and death. This is particularly visible in the sphere of e-commerce where hundreds of start-up companies are coming and going and only the fittest survive.

India is a showcase of the disruptive forces of a competitive market.

The perspectives of e-commerce in India are “perhaps the hottest topic in business around the world”, write Jagmohan and Komal Bhanver in their outstanding monograph "Click! -  The Amazing Story of India’s E-Commerce Boom", which was recently published.

These are, indeed, exciting times for the industry, and we are witnessing an unparalleled dynamism.

India’s e-commerce companies are a hot bet and attracting big amounts of venture capital. However, in spite of all the hype, it is important not to forget the challenges: The levels of internet penetration remain low, as does the internet speed; the online-shopping user base is low and the businesses are struggling with setting up reliable logistics. Start-ups are also sorting out the applicable taxes and it is hoped that GST may solve the remaining ambiguities.

Fantasies of Investors

However, seen from the investors’ perspective the chances and potentials of India’s ecommerce outweigh the challenges. The overall consumption of India today amounts to one trillion USD annually – e-commerce to date covers a mere 0.1 % of that. According to NASSCOM, the market will have reached 100 billion USD by 2020. These are numbers we can hardly understand. Maybe more concrete is a comparison: Today, India stands where China stood ten years ago. Importantly: China in the past decade has gone through an e-commerce boom.

Two factors fuel the fantasies of investors: First, the demographics. Two thirds of Indians are under 35 years and they love to “play” with their mobile phones. Increasingly, these people are moving to smartphones with 4 G connections suitable for transacting online. The truly remarkable project of Mukesh Ambani’s Reliance Jio to bring the smartphone to the last corner of the nation (and thereby close the “mobile internet gap”) is of singular importance for the proliferation of e-commerce. In the near future, hundreds of millions of Indians will be owners of these phones and, thus, potential customers for the every growing ecommerce pie.

The demographics and the surge of mobile usage are the key to India’s ecommerce boom.

Ten Years After

Let’s not forget that it started only ten years ago when Sachin and Binny Bansal founded Flipkart in Bangalore. The two may well be called the godfathers of India’s digital entrepreneurship. Studying their path – and the ups and downs of their company – teaches many lessons about the evolving e-commerce eco-system. That they are masters of the trade is documented by the investment they attract. Just recently, this was widely reported, Japanese SoftBank has put 2.5 billion USD into Flipkart, bringing the cash raised by the Bansals since starting out in 2007 to 6 billion USD. This is “recognition of India’s unparalleled potential to become leader in technology and e-commerce on a massive scale” writes MINT newspaper.

While they have attracted considerable amount of negative news, Snapdeal is another fascinating company to study. They are the ones who first opted for the pure market place option, as opposed to the inventory based model and have built a gigantic network of 100,000 suppliers. Over the years, Snapdeal has become more of a technology firm developing creative digital strategies. From that angle, a line up with Flipkart would be a very important move to address the relentless efforts of US based Amazon to dominate the Indian market.

Only Few will survive

In the past couple of years, ecommerce players have changed the way business is done in India in four segments: apart from e-retailing, these are classifieds (Naukri, OLX, Quikr), online travel (MakeMyTrip, Cleartrip, Expedia) and financial services, where PayTM is the company to watch. We’re looking at a highly competitive market. In the end, only one or two players will survive in each segment.

Success or failure will not only depend on the financial resources/capital. More important will be the ingenuity and creativity of the entrepreneurs. Here, I see the chance for small and medium size entrepreneurs. Today’s giants have all started small. They reached where they are because of good ideas and perseverance.

On a day like this, on which we celebrate the continuous contributions of TFSC to promote entrepreneurship among SMEs in Tamil Nadu and beyond, I invite the leadership to look into this issue and discuss in a strategic manner programs that will help start-up initiatives become successful players in the evolving ecommerce-ecosystem. Together, FNF and TFSC have taken first, very small steps organizing ecommerce trainings for small business men and women.

This should only be the beginning. A new program may look at mentoring these initiatives. For my Foundation, I make a commitment that FNF is willing to enter into a strategic dialogue with TFSC so that the Service Center may become a key actor in assisting and mentoring SMEs to become players in the ecommerce business.