eCommerce in India: 3 Things to Watch

Screen Shot 2014-07-30 at 10.33.21 AMeCommerce in India is growing quickly. Flipkart just raised $1b to go mobile. Amazon just invested $2b to expand their foothold in the growing market. It is expected that eCommerce will grow at a rate north of 30% on the sub-continent this year and research indicates that the $13b market is expected to grow to over $70b in the next six to seven years.

Growth rates like this bring the typical pains. If you’ve ever worked for a smaller company that is growing at a fast rate, you’ve likely experienced this on a small scale. Too much work, too little time, too few people, and too many customers — the typical set of “good” problems to have. But trying to grow too quickly can cause irreparable damage, and given India’s market and political climate, this will be a very complex undertaking.

Three things to watch as eCommerce in India continues to grow

Logistics: Can India’s infrastructure support a boom in shipping demand? I recently read a post about how trains were being used to solve logistics challenges, but is that enough?  Should internet availability (traditional or mobile) increase at a faster rate than transportation services growth, the eCommerce market could experience something similar to 2013’s US Holiday crunch when UPS, Fedex, and others, just couldn’t keep up with demand. I heard someone just last week talking about this and wondering if we’d see a repeat in 2014.  Also, relaxing of  government policies on competition could see logistics become the primary challenge in this growing market. See below for more on this.

Product: about 70% of money spent on eCommerce in India is for travel related services. As the breadth of product availability increases, which categories will win? Items in categories such as technology and apparel will probably lead the expansion (they are currently the largest categories of non-travel eCommerce activity). But what’s next? Consumer goods and books could make a strong showing. I’m curious how Amazon’s recent investment in same day delivery may alter the demand for online products. Should be interesting to watch.

Politics and Policy: India has historically taken more of a protectionist view when it comes to its economy and still prohibits foreign online retailers from selling directly to consumers (note: Amazon makes its money by offering services to third-party suppliers). There are also a number of examples of companies who sought growth outside of India in order to escape these restrictions and companies that had to react quickly when restrictions on competition were removed (e.g. Tata Steel in 1991). India is considering removing this barrier to competition and this could cause the growth rate to explode, offering consumers more choices and cheaper prices. Should this be passed, it will likely put a significant burden on portions of India’s infrastructure and catch a number of India’s online retailers off guard when dealing with expanded competition. Along with slow growth of fast internet access, this is making some portions of the India’s support infrastructure seem capable enough at the moment. Currently only 20% of traffic is via faster network technologies and 20% of users account for almost 65% of the traffic (see report).  Mobile is actually growing faster here than in the US because of those challenges and could be the primary driver of expanded growth if infrastructure continues to lag.

For India’s consumers these are interesting times, indeed. Many companies are anxiously watching market developments and preparing to act.  Lots of possibilities here. What do you think are things to watch as India’s eCommerce market continues to grow and change?

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