Start-up culture has led e-commerce to boom in India
Dr. Madhu Mandal, IIM Rohtak, opines that cross border trade is envisioned to be the future of e-commerce. She adds that because of cross border e-commerce advancements, there is a boom in other related sectors like courier services, warehousing industry, payment gateways, etc. By instilling sound practices of doing CBE business, it can contribute to India’s GDP.
IBT: What role does e-commerce play in India’s cross-border business? What are the opportunities/challenges do e-commerce sales have vis-a-vis retail?
Dr. Madhu Mandal: The global rise of the e-commerce market has significantly promoted cross-border trade and business. E-commerce provides exciting opportunities to both consumers and sellers by opening doors for international transactions. While the sellers can now reach out to newer customers throughout the globe, at the same time, consumers worldwide have more comprehensive options to choose from. With the increasing popularity of cross border e-commerce (CBE), imports and exports have now become seamless. E-commerce giant Alibaba plays a vital role in spearheading international e-commerce business in India on both B2B and B2C platforms. Because of CBE advancements, there is a boom in other related sectors like courier services, warehousing industry, payment gateways, etc. In a way, it projects a market with limitless stores and limitless geographies.
Though the CBE market is promising, there are a few challenges to deal with. Firms with insufficient working capital, especially small and medium-sized enterprises (SMEs), will face difficulties in managing inventory levels. Both the sellers and the courier partners will have to ensure robust packaging to gain the confidence of the customers, who are sitting far away in a different country! They will have to fight customers’ psychological fear of the parcel getting lost, wrong delivery, and quality issues to build brand trust. Returns and cancellations portray huge challenges. Some e-commerce giants prefer dumping the returns owing to the high cost involved in reverse logistics. For the same reason, many sellers do not provide the return option and cash on delivery (COD) for CBE transactions, which further act as deterrents for placing orders. Further, some apparent challenges in India include low internet penetration and low-income levels of the potential market.
IB: How does the cross border e-commerce trade work in terms of payment options, return and shipping policy, etc.?
Dr. Madhu Mandal: Payment options: Cross border e-commerce involves payment transactions between the payee and the recipient belonging to different countries. Payments could be made in different ways. International bank transfers are the oldest way of making CBE payments. Another way is through a Payment Service Provider (PSP) that assures to offer a secure payment gateway. Now, the challenge in this regard could be for the sellers or merchants to choose a gateway that offers a wide range of payment and settlement currencies.
During online shopping, international customers feel more confident and comfortable about transactions if they see online listed prices in their own currency. So, choosing the right gateway would enable the sellers to expand their horizons in different markets by facilitating a seamless payment experience for customers. Also, a more expensive yet viable option with the seller would be to open multiple bank accounts in those nations from where they expect the most traction. Credit card and debit card options that are operational universally may not be pocket friendly for the customers. Moreover, the usage of e-Wallets is getting popular globally for CBE transactions.
An ideal return policy should protect both the sellers and customers. An express carrier gives more reliable services with tracking and customs management. If the value of the returned item is more than the reverse logistics, then the seller must consider writing it off. A good return policy can stop return issues from being a major pain point for both parties. Moreover, offering a variety of shipping solutions would enable flexibility in delivery, consequently improving customer experience and resulting in customer loyalty.
IBT: What are the key commodities that are traded across borders on e-commerce platforms, and what are the markets that they cater to?
Dr. Madhu Mandal: All kinds of consumer goods are sold and bought through CBE platforms. Clothing and accessories are the most popular product category being sold across borders by various e-commerce sellers. It contributes 31% of the total sales. Mobile and related accessories, books, and other media, toys and video games, and beauty products are the most selling products. For India, as of 2020, the United States has the highest share of cross border e-commerce pegged at around 26%, followed by China and Australia with 23% and 8% shares, respectively.
IBT: How has COVID-19 impacted India’s cross border e-commerce trade? What are the reasons for the same?
Dr. Madhu Mandal: COVID-19 created a massive supply chain disruption in the functioning of CBE, especially during the early days of the lockdown. Cross border e-commerce activities continued in varying degrees across countries depending on the infection rates and quarantine measures. However, things have started improving, though there is still a long way to go. Many courier partners are unable to provide their services in specific locations. There are massive delivery delays due to the lack of commercial and cargo flights. The sellers in highly affected zones faced many logistic problems due to dysfunctional distribution centre operations.
IBT: How can Indian investors be attracted to invest in India’s e-commerce sector?
Dr. Madhu Mandal: Indian investors should be able to see growth opportunities in the much-evolving e-commerce sector. Infrastructure development, warehouse construction, digital payment services, software services, multimedia promotions – all of these related activities have huge potential, which may attract investors to invest in India’s e-commerce sector.
The advent of start-up culture and entrepreneurship in India has caused the e-commerce sector to boom through sustained investors’ interest. Indian consumers’ love for online shopping has been observed in recent times. Players like Amazon are leveraging from such a pattern. Amazon has launched a dedicated “Global store” that offers and ships a wide collection, not available in India. E-retailers aiming to introduce such facilities to meet the growing demand of the aspirational Indian consumers present good prospects. Such prospects might appeal to angel investors.
IBT: How can the contribution of e-tail to India’s GDP be enhanced in the next 5 years? What can the government facilitate the same?
Dr. Madhu Mandal: Cross border is envisioned to be the future of e-commerce. By instilling sound practices of doing CBE business, it can contribute to India’s GDP. The online sellers must integrate the major payment methods to facilitate easy transactions to global customers. The seller must also focus on enhancing the website’s performance. They should work on their mobile-based applications to give the target customers a world-class mobile web experience. Indian government must lend its full support in building sound infrastructure for CBE trade.
The focus should be to improve the logistic capabilities, warehousing, and distribution centres. Flawless delivery and return services would increase the adoption rate and consumer preferences for online shopping. Sellers must switch to multichannel selling to optimize their business opportunities. Also, lucrative promotional and marketing campaigns can create a massive difference. The government can also ease policies on international online and offline trade. It might help if the government could launch some awareness programs about CBE business potential to encourage the participation of various stakeholders.
IBT: Why is China the world leader in cross border e-commerce trade? What inspiration can India draw from it in order to be among the top 5 countries in the world in terms of cross- border e-commerce trade?
Dr. Madhu Mandal: In the last two decades, China has become the world leader in CBE trade. With the launch of Alibaba.com, Jack Ma revolutionized online cross border B2B transactions. Soon, other Chinese players sought opportunities in the B2C market. Chinese e-commerce growth is rooted in its local market. Chinese consumers’ characteristics have made it possible for e-commerce growth to be locally driven.
The Chinese market is tech-savvy, highly aspirational with increasingly high disposable income. There has been widespread adoption of mobile transactions and payments as online shopping became a trend. Mobile payment methods are the most preferred in China. Also, the advent of electronic word of mouth and online reviews have made customers more conscious of counterfeit products. It facilitated consumer trust in online shopping platforms. China is a dominant export country that manufactures relatively cheap items with greater variety. Customers all over the world are attracted to their offerings. One of the biggest enablers in this matter is government support, which allows the free flow of capital to encourage the manufacturers.
India can take a lot of lessons on ways it can improve on CBE trade. For starters, the Indian government should support the manufacturing sector with initiatives like ‘Make in India”. Policies must be evaluated and restructures to lessen the compliances. Also, India requires to revisit its custom norms on import and export duties. To summarize, without government support, it will be difficult for India to build an ecosystem for enhanced CBE trade.
Madhu Mandal is a faculty in the area of Marketing and Strategy at IIM Rohtak. She has a Doctorate (FPM) from Indian Institute of Management, Lucknow in the Marketing area. She completed her PGDM with Marketing specialization from ITM, Navi Mumbai and Bachelors in Statistics from Hindu College, Delhi University. She was awarded Junior Research Fellowship (JRF) through NET in Management by UGC in 2013. She did a consulting project with Jaipuria Group of Institutions, Ghaziabad (2016) and worked with IMRB International, Delhi (2015) and Pepsico. India Holdings Pvt. Ltd., Mumbai (2008) as an intern.