How does the FDI ruling change the ecommerce game? [Warm up done. Let the games begin]
[Editorial notes: Indian government has allowed 51% FDI in multi-brand retail and while there are several riders associated with it, the decision will impact the ecommerce landscape in India. Ranjith Boyanapalli, Founder & CEO of Hyderabad based BuythePrice.com shares some of his candid thoughts on FDI and its impact on Indian ecommerce industry.]
The FDI ruling allows FDI upto 51% in multi brand retailing. Now, this means that:
(a) Retailers like Amazon, Walmart, Macys can now set up shop in India and start selling to consumers directly.
(b) Financial investors can now invest and take stake unto 51% – gives them a lot of rights and ownership and the companies get a lot of capital.
So, how does this affect the indian commerce industry ?
1. The “A” Factor – Amazon is a craze.
The consumers appetite swells at the mention of Amazon, and the world renowned superstore was kept at bay all these days. Traffic from India, while they haven’t launched (though they started shipping from UK) runs into millions a month. Amazon in its entirety of a retailer + marketplace with own logistics + warehouse management will be a force to reckon with. I once bought a research paper that details on amazon supply chain, and was totally blown away by it. The extent of evolution over the years amazed me. We are at least a few years behind in terms of processes and its enablers that they have conquered.
2. Offline Retailers
US is a mature market where etailing contributes significantly to overall retail. We have just started our journey in that direction with brands and retailers acknowledging ecommerce as a validated sales channel and showing interest to work on it. US, on the other hand boasts of a lot of offline retailers who are now online leaders as well (Walmart, Macys are an example). This means, that they would come down heavy, not just in an offline manner but online too in a big way – it is an integral part of their overall strategy. For example, Macys runs more than 800 offline stores and is a leading portal as well macys.com, which in fact has recently started displaying prices in INR and shipping to India.
3. Process and System maturity
While the Indian players have been learning the ropes and evolving in their processes, the US counterparts have had 2 decades of learning and evolution which brings with it process and system maturity, that will set high benchmarks. Indian players need to evolve faster and innovate quicker in order to face the heat.
How does this affect the Indian ecommerce players ?
1. Greater Funding
This is a bright spot for all Indian ecommerce companies. With the new FDI ruling, though a lot of them already have attracted a lot of capital, there will be even more investor interest now. Given the fact that Indian ecommerce size will grow to be $8.8bn in next 4 years (5X growth), and the enablers are slowly settling into place (PG, logistics etc), NOW is a great time for new investors to explore the market and make a few bets. Knowing that large players will enter subsequently and consolidation will happen, the perceived risk goes down in lieu of greater exit options.
2. Acquisition targets
With a slew of players bound to come in and set up shops and racing against time, they would love to jumpstart by acquiring one of the existing companies, which gives them instant leverage plus local knowledge of vendors, processes etc. M&A will happen in a major way to avoid reinventing the wheel. Some companies will benefit from this and join hands with right partners. However, a certain scale will be mandatory to be considered as a good target, and those who have them might choose to fight it out as well.
3. Scarcity of Human Capital
Ecommerce is still a nascent industry which means, you can’t find too many good resources with relevant experience. Given the upcoming boom, there will be a tremendous need for people with ecommerce background, and this scarcity will ensure that even if a few companies shut down due to bloodbath, their employees are safe and will get placed in good places. In short, its a great time for an ecommerce employee.
In short, the last couple of years saw the evolution of the indian ecommerce industry at a rapid pace, but am afraid it will seem like a warm up period. The actual games begin now. Stakes get larger, the battlefield gets refined, and there will be bloodbath for sure. Lets keep our fingers crossed on who will thrive and how!
What are your thoughts?
[Pluggd.in team invites insights from industry leaders covering different aspects of FDI and how it impacts the (e)commerce. Simply write to us at team@NextBigWhat.com.]