Cross border e-commerce: Don’t place the cart before the horse
• The Ministry of Commerce & Industry is looking to frame a policy to boost India’s exports via the e-commerce route.
• E-commerce is growing at strong double-digit rates globally with sales of US$ 29 trillion in 2017, and the share of cross border B2C business is also rising.
• While framing the policy, the government needs to appreciate that cross border e-commerce involves a totally different business model and needs a unique ecosystem to successfully operate.
• Completeness of transaction and the hassles with product returns are two critical areas that need to be considered while framing the policy for this business.
E-commerce is truly changing the nature of business around the world. Global e-commerce sales grew by 13% in 2017 to reach US$ 29 trillion according to UNCTAD, with the number of shoppers at 1.3 billion. Notably, the share of internet buyers purchasing goods and services from overseas vendors increased from 15% in 2015 to 21% in 2017, taking cross border B2C sales to US$ 412 billion.
Regular discussions have taken place on the potential of e-commerce for promotion of exports from India as well, especially with an export potential of US$ 302 billion from MSME products across 93 product categories and 159 countries. Recent media reports suggest that the Ministry of Commerce & Industry is looking to frame a policy for the same.
Before the government frames a policy for e-commerce, the ecosystem we are looking for when we are planning to boost exports through this medium is very important, as it involves lot of stakeholders. Policy makers need to remember that it is a separate business model, and requires an ecosystem of its own.
For instance, you find it more convenient to use the services of Ola and Uber because the ecosystem is well set. There is complete connectivity wherever you are and you are able to access these apps, which are also designed in such a manner that they don’t take much space in your mobile. So many things have happened at the backend to create an ecosystem. At the front end, demand and supply is seamlessly getting synergised.
Similarly when we are talking about cross border trade through e-commerce, it is different from internal trade in e-commerce, where you are ordering from sites like Amazon and Flipkart. Even that ecosystem has been created and is well in place.
But when you consider cross border e-commerce, the way in which e-commerce is perceived in the international markets is going to be important. Secondly, the players who are going to be involved in India need to participate actively, and also have familiarity with this ecosystem. For instance, you are comfortable and fast on Whatsapp today, but compare this to the time when you first used the service.
There are two issues when we talk about e-commerce policy for exports. The policy itself is not enough; the strategy and timeline for implementing the policy is also critical. It involves lot of players like postal department, payment systems, trade documentation, etc. What are the issues the exporter will face? The first one is linking to the destination consumer and completing the transaction. It is not just about sending the goods, but also getting the payment. So is the completion of the transaction going to be smooth or not? What are the hurdles in completing that transaction?
It is not a physical marketplace – I am seeing something on the website, ordering and getting it delivered. But let’s say it is not the right thing I want, so I return it. So what is the provision for returns in cross-border transactions? The highest cost in cross border e-commerce is logistics; in fact at times it is more than the cost of the goods. So the return will also imply costs. There should be some discount in returning the product, or else the exporter may not be interested in taking it back. He may insist that you dump it there itself.
It is important how the government will facilitate a smooth return policy, for instance bringing the product back with a discount of 25%, without the need for packaging. It should also be free of documentation, duty burden, etc. Forex is also involved and till the time I don’t realise the process, I will be booking the forex. If it is coming back, that is not happening. I am losing forex when the product gets returned. Once these contours are defined, then we should get into the operational aspects like what should be the technology, levy or no levy, concession, etc. Therefore we should take into account whether the ecosystem is good enough, else it’s like buying a car when there are no proper roads.
You can gauge the potential from the results of companies like Samsung, wherein 25% of their sales are happening via the mobile route. Around 2 years earlier, online sales were just 1-2%. During Diwali, more than 20% of sale is through online (garments). If we don’t prepare ourselves fast, we will be losing those opportunities.
it is the right time for India to develop the correct environment for cross border e-commerce trade. For export, we are currently dependent on platforms like Amazon, which consolidates supply from small scale industries here and there. Unless we create more players, as in the cab business, and make exporters familiar with these platforms, India won’t be able to realise its potential in cross-border e-commerce.
Dr. K. Rangarajan is Professor at IIFT. Currently he is heading the Center for MSME Studies and also the Kolkata Campus of IIFT. He holds Masters in Commerce with Management Specialization and remained first class throughout his academic career. He holds University Rank for the top performance in his Masters Degree. He has completed doctoral degree and has many research papers and articles to his credit. The views expressed here are personal.