“The internet is the Viagra of big business”- Jack Welch (Former US chairman and CEO of General Electric)
Electronic commerce (e-commerce) is the buying and selling of goods and service over electronic systems such as the Internet. It draws on technologies such as electronic funds transfer, supply chain management, internet marketing, online transaction processing, electronic data interchange (EDI), inventory management systems, and automated data collection systems. Being a very important aspect of e-business, the modern electronic commerce uses the World Wide Web at least at one point in the transaction’s life-cycle, although it may encompass a wider range of technologies such as e-mail, mobile devices, etc.
The various applications related to electronic commerce are-
- Online shopping and order tracking
- Online banking
- Domestic and international payment systems
- Group buying
- Automated online assistants
- Instant messaging
- Newsgroups
- Shopping cart software
- Teleconferencing
- Electronic tickets
“Going by the current trend, the E- commerce industry in India is expected to grow at a compound annual growth rate of 57 per cent and is likely to reach USD 34.2 billion by 2015.” – CEO Sundeep Malhotra.
The key drivers for such an enormous growth in India are-
- Rise in the standards of living of the people
- Availability of much wider product range compared to what is available at brick and mortar retailers
- Busy lifestyles, urban traffic congestion and lack of time for offline shopping
- Lower prices compared to brick and mortar retail driven by disintermediation and reduced inventory and real estate costs
- Increased usage of online classified sites, with more consumer buying and selling second-hand goods
Also some of the unique aspects of Indian E-commerce that have further intensified the growth in this sector are-
- Cash on Delivery – Cash on delivery (COD) is a financial transaction where the payment of products and/or services received is done at the time of actual delivery rather than paid-for in advance. According to McKinsey and Co less than 1% of India’s population holds credit card as a result of which 80% of Indian e-commerce tends to be Cash on Delivery. (At present, COD is the preferred payment mode for close to 55-60% of all online transactions in the fashion and lifestyle segment in India) Companies such as Myntra and Flipkart have now adopted the Cash on Delivery method, which needless to say has contributed immensely in the growth in sales of these two companies.
- Direct Imports– It constitutes a large component of online sales. Direct Imports are products imported directly into a country and not through the manufacturer’s authorized agent/distributor. Since there is no factory-authorized middleman involved in the import of these products, the added costs are lower and the customer pays less
- Social shopping – Social Shopping is a method of e-commerce where shoppers’ friends become involved in the shopping experience. It is picking up as a trend, with communities like Koolkart integrating with Facebook
The advantages of e-commerce in India are many. It gives the ability to consumers to gather more information about various products and services and therefore intensifies the price competition. Also because several intermediaries in the distribution channel get disintermediated through use of E-commerce, it has lead to procurement of the good or service at a lower price. E- Commerce also opens doors for new markets. Furthermore, by making use of E-commerce the customers are able to shop at their convenience from their homes or offices itself and last but not the least it offers more range (Direct Imports).
With more than hundreds of websites currently operating in the sphere and many more to join the space, it is obvious that e-commerce is going to be a game changer in India, but still it has to go a long way to achieve what the west has already achieved. According to a Survey by Firstpost Business, the online shopping is yet to pick up in India. The survey showed that combining online and offline research before deciding what/ where to purchase is important for the majority of consumers. Interestingly, majority of consumers visited websites after watching ads in televisions, newspapers, magazines, or even billboards. Also successful e-commerce companies elsewhere take for granted the buying efficiencies that are part of the territory, the willingness of customers to pay electronically (as they are more dependent on plastic money), and the presence of effective and efficient delivery systems; but that’s not the case in India where only few e-commerce sites are being able to strike good deals with the makers of branded goods. The Indian e-commerce sites that have succeeded have done so by offering customers the option of paying cash when the product is delivered. And the most effective way of delivering something is to do it yourself; due to this the profit margins in the business are slim (in the low single digits). Furthermore, the customers in India are still concerned about the security of online transactions due to lack of awareness; and when it comes to clothes; shoppers often prefer to try them on first. In addition, India being a developing nation still needs to work a lot to develop the skills required to operate/handle IT.
A lot is being done to ensure growth of the E- commerce sector in India. Like recently; Google India partnered with several E-commerce companies and organized the ‘Great Online Shopping Festival 2012’ in December. Some of the partnered sites included, Myntra, Flipkart, Ebay, Indiatimes shopping, Infibeam, Rock.in, Gitanjali Gifts, Fashionara, Caratlane, Healthkart, etc. It gave an opportunity to the Indian consumers to purchase products on discounts offered by the various ecommerce companies partnered with Google India for GOSF. In addition to this a project entitled “Electronic Commerce (EC) / Electronic Data Interchange (EDI) for Trade (e-Trade)” is pursued in various trade regulatory and facilitating agencies like Customs, DGFT, Ports, Airports, RBI, Export Promotion Organizations (EPO), Exporters, Importers, Agents, CONCOR, Banks, etc by the Indian Government to facilitate international trade. The objectives of this project are to facilitate electronic delivery of services; to simplify procedures; to provide 24 hour access to users with their partners; to make procedures transparent; to reduce the transaction cost and time, and to introduce international standards and best practices.
In the coming years, E-commerce is expected to contribute close to 8-10% of the total retail segment in India. This growth is bound to continue provided e-commerce companies focus on innovating, building strong technology infrastructure and delivering the best customer experience.
Author:
Kriti Joshi
DOMS, IIT ROORKEE