Will 2021 be the game changer for cross border e-commerce?

India’s e-commerce sector grew by leaps & bounds since April 2020 and is now 9th globally in cross border growth. Can India capitalise on this momentum and build e-commerce as a viable long-term channel to promote its exports?

  • While the year spelt economic misery across numerous sectors all over the world (e.g. tourism, textiles & hospitality), it proved to be a blessing in disguise for India’s e-commerce sector.
  • Cross- border e-commerce can lower entry barriers for Indian MSMEs and escalate their profits by saving their marketing and distribution costs. It is also a welcome move for the Indian government as it will make exports easy, increase GDP & spur employment.
  • However, there are a few obstacles that are preventing India from realising its true potential. For example, there is ambiguity when it comes to things like a homogenous tax policy & data laws, quality issues, handling returns & payments etc.
  • To enhance the seamlessness of the cross- border e-commerce purchase experience, the quality of Indian products needs to be enhanced & a skills training needs to be imparted to Indian retailers. Further, the government needs to negotiate with the WTO about issues like data protection and tax payments to have a uniform policy worldwide.

Will 2021 be the game changer for cross border e-commerce

Source: https://bit.ly/38I6lcP

2020 is an intriguing year indeed. While the year spelt economic misery across numerous sectors all over the world (e.g. tourism, textiles & hospitality), it proved to be a blessing in disguise for India’s e-commerce sector. A report by Payoneer states that India’s e-commerce sector is now 9th worldwide in cross border growth. 

Further, Amazon India‘s Black Friday & Cyber Monday sales also substantiate this point. The ecommerce platform said that Indian exporters had seen a 76% year-on-year growth in the total units sold during 2019’s Black Friday & 55% year-on-year growth in total units sold on Cyber Monday. (The brand is yet to release the corresponding figures for 2020.) ‘Made in India’ products across enjoy great demand in overseas markets like the US, the UK, UAE, Canada, Mexico, Germany, Italy, France, Spain, Netherlands, Turkey, Brazil, Japan, Australia and Singapore, it said. This article analyses what are the benefits of cross border e-commerce trade for Indian exporters, can India capitalise on this breakthrough and catapult itself to the top 5 nations in terms of cross border e-commerce, the obstacles preventing it and strategies to bypass them.

Cross-border e-commerce: Unexplored territory

A string of factors have led to the blossoming of global e-commerce market over the last few years – the rise in internet penetration across the world, the expansion of consumer base of digital buyers worldwide over the last 5 years & the convenience of buying things online. Industry body FICCI expects consumer base of digital buyers worldwide to grow from US$ 2.27 billion in 2015 to US$ 4 trillion in 2020

COVID-19 has also proved to be a blessing in disguise when it comes to driving e-commerce sales. Dr. Ashita Aggarwal, Professor of Marketing, S.P. Jain Institute of Management & Research explains:

COVID-19 restricted travel and decreased mobility of consumers. Contactless delivery and convenience of obtaining products at home has played a positive role in helping foreign trade firms cushion the impact of COVID-19. The phenomenon of revenge shopping was another factor that gave boost to cross-border trade.

This is an impressive achievement as cross- border e-commerce can make exports easy and accessible for MSMEs across India. This is attributed to the fact it can that it can lower the entry barrier for Indian MSMEs and help them to build and scale their exports. It is a welcome move for over 51 million MSMEs in the country producing over 6,000 products & employing around 117 million people as they can enjoy access to a larger customer base. Not only will this spur employment in the country, it will also be useful for businesses in saving marketing and distribution costs by up to 60% & watching their revenues rise by up to 27%. At the same time, it is also a win-win solution for the government as overseas e-tail will also contribute to its vision of augmenting exports. 

However, about 43% of India’s exports are limited to Asia, followed by Europe and America, with United Arab Emirates (UAE), United States of America (USA), Hong Kong and China being India’s key export destinations. Countries like Japan, the United Kingdom, Germany & Australia also have a huge cross-border e-commerce potential for the Indian MSMEs.

Export markets with e-commerce potential

Excellent  High Medium
USA China Middle East and Africa
Japan Brazil Italy
Germany Russia Mexico
UK South Korea Argentina
France Canada Indonesia
Spain Australia Netherlands
    Denmark

Source: FICCI

Product-wise preferences for online purchase CBT

Sectors/product traded CBT via online Online preference for foreign brands
Clothing and footwear Russia
Consumer electronics and computers Brazil, Mexico
Books Australia, South Africa, Brazil
Health and beauty Brazil
Jewellery Thailand, South Africa
Toys Chile, Brazil
Sports goods Turkey
Home accessories China, Poland, Russia
Home improvement Malaysia
Grocery China, Japan

Source: FICCI

Bumpy ride?

One of the key challenges for cross-border e-commerce is building the requisite infrastructure, especially in the context of the disruptions caused by COVID-19. The issue of unavailability of containers has further complicated the situation for most Indian exporters. As Kausshal Dugarr – Founder and CEO of Teabox, India’s luxury premium tea brand states:

Challenges do remain in terms of global disruptions in the supply chain, transportation, shipping and fulfillment capabilities which do tend to affect customer experience. Consumer brands need to ensure faster fulfilment of orders and ensure a seamless navigation & check-out experience every single time.

Another issue is the lack of a uniform policy framework in terms of taxation and data privacy. The fact that in cross-border e-commerce the buyers and sellers operate from different countries create disparities and serious differences. To complicate matters further, each state in India has a different policy for local businesses. For example, some local bodies in Madhya Pradesh are seeking to impose entertainment tax on digital businesses! 

Further, there is also a dearth of e-commerce players in the country, barring a few players like Amazon & Flipkart. One reason for this could be that the retail sector in India is highly unorganised (90%). The government, on its part has tried to fix this by encouraging 100% FDI in online retail of goods and services through the automatic route. But the efforts are yet to bear fruits.

At the same time, efforts need to be directed at building the credibility of the products that are sold by India in the international markets. Also, international customers are not very sure about the truth behind advertising when it comes to purchasing Indian products. This also acts as a deterrent to building a customer’s loyalty towards a particular brand. Dheer Shah, MD, Jivraj Tea Company, shares his experience in this regard:

As the touch and feel of the product is absent, we often face the issue wherein the consumer hesitates before making a buying decision, as he/she is unable to decide the quantity and size of the products.

Another challenge is the knowledge gap that Indian vendors face when it comes to being comfortable with cross border e-commerce sales. The cancellation of orders, return of products and payment options also complicate the situation. Further, there is a dearth of supply chain infrastructure in the country – warehouses, containers for shipping, roads and ports in the nation. This is a significant deterrent for India if it wants to be a force to be reckoned with in terms of cross-border e-commerce trade.

Building the bridge

One of the first and foremost things will be to have a uniform taxation & data protection policy. Further, businesses need to properly assign Harmonized System (HS) codes to all their goods. As NYU’s Prof. Arun Sundararajan states:

There are some rules of the game and shared standards that the WTO can put down, both from the point of view of business standards & also for things like handling cross-border payments.

A single window clearance for bulk export of products to different locations would ensure seamless cross border e-commerce trade, reduce shipping time and enhance user experience. Bringing down the amount of paperwork that is involved and by enabling a risk-based inspection will also help shipments reach their destination in a timely manner.

India also needs to bring down the logistical barriers faced by the sector. A public-private logistics integration between India Post and an international logistic company can also be encouraged. Steps must be taken to attract more investment into the sector so that more e-commerce platforms can thrive in India. For the same purpose, skills training must be imparted to Indian vendors who decide to join hands with these platforms. 

The industry needs to improve the quality standards of products according to international market demand. Having bodies to scrutinise the quality of these goods is a step in the right direction, but efforts must also be directed at promoting Brand India abroad. Awarding GI recognition to its products will also help build credibility of Indian products in overseas markets.

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