Industry Analysis - E-Commerce PDF

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Industry Analysis of e-Commerce Retail

SINDHOORA SAMBARAJU Narsee Monjee Institute of Management Studies Executive MBA Batch 18

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Industry Analysis of e-Commerce Retail

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Introduction The scope of e-Commerce Business in India is undoubtedly going to increase year after year. A recent report by the Internet and Mobile Association of India shows that a fast-paced growth of around 50% is to be expected in the coming five years. The primary attribute of this growth is undoubtedly the rise of 3G/4G mobile internet users and a large number of smartphone users because the same mobile commerce is expected to change how business transactions happen in India. The scope of e-Commerce business is turning out to be more famous day-after-day according to the market demand. And this requirement is generating innovations worldwide focused on delivery time, ease of transactions and several features served by e-Commerce businesses, for example, drone delivery or artificial intelligence.

Another significant contributor to the growth of e-Commerce in India in the future is the e-tailing industry which largely deals in providing jewelry, apparel and kitchen appliances online.

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Websites like Flipkart, Myntra, Amazon, Snap deal, Jabong, etc. are all examples of the enormous success of e-Commerce in India. Due to these firms, India is one of the fastest growing e-Commerce markets in Asia/Pacific with China investing as much. Many analysts believe that the advent of 3G/4G speed in net connectivity has been a major cog in the wheel for such a growth in this market. As India has been the heart of the e-commerce market in 2016 with the tremendous growth of 70%. The consumer base is expected to hit 100 million in 2017, and this ensures that any e-commerce venture would soon be the best business in India, as far as profits and growth are concerned.

Service Analytics

Branding

Website Design

E-Commerce

Credit Card Processing

Customer Management

Social Marketing SEO

Key factors for the growth of e-Commerce Business Scope in India: 

Reduction in the cost of broadband internet facilities to ensure more people come online.

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Encouraging more domain registrations and letting e-commerce websites maintain them at cheaper rates (at least till they make substantial profits).

Industry Analysis of e-Commerce Retail

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Encouraging innovative schemes such as the COD (Cash on Delivery) in a country where credit card use is not prominent shows how we have eased into this particular niche. A lot of the major ecommerce websites are based in India and the consistency, and reliability of these sites have shown the people how hassle-free, shopping and availing services are.

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Bringing internet facilities to the rural areas in India as it remains a largely untapped resource and the possibilities are endless for a major boom in the e-commerce industry, as India’s Internet penetration is 0.5% of the population. If these e-commerce businesses can reach to these regions, their net value can only increase from the current values.

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E-commerce can also spread to newer disciplines such as health services in these remote areas in India and help in offering health solutions to people who do not have the luxury of hospitals in their vicinity. This will certainly help once the rural areas are provided with internet facilities and will be a potential business prospect shortly.

Categorization of e-Commerce Business E-commerce stands for purchasing, selling, and exchanging goods or services using internetenabled devices, where transactions or sale performed electronically. Electronic commerce emerged in the early 1990s, and its use has increased at a rapid rate. For your information, the first secure retail transaction done over the internet was by Net Market in the year 1994. Still, the majority of companies don’t have an e-commerce website. In fact, having an e-Commerce enabled website and operations of business via the Internet has become a necessity. As you know, everything from foods, clothing to entertainment and furniture can be brought online. However, there are different types of e-commerce vertices, and the same can be divided into broad categories like B2B, B2C, C2B, and C2C business model: 

B2B (Business-to-Business): One company doing business with another company using internet-enabled devices, such as manufacturers are buying raw material from another raw material manufacturer, or a distributor is buying online from a manufacturer. Such B2B e-Commerce business is volumetric, and price varies based on the quantity of the order and is often negotiable.

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B2C (Business-to-Consumer): One company is selling goods or services online to the general public typically through an e-Commerce website or mobile application, directly to consumers over the Internet. An example of B2C portals includes Flipkart, Myntra or Snap deal. A B2C e-Commerce transaction would be an individual buying a pair of shoes through Flipkart’s website.

Industry Analysis of e-Commerce Retail

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C2B (Consumer-to-Business): A customer posts his requirement on a website online, and several companies review such requirements (RFQ) and quote on the project. The consumer reviews all bids and finalizes the deal with the enterprise going to complete the project. C2B business involves consumers seeking products or services from a business/company. For example, you can take ref. of indiamart.com.

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C2C (Consumer-to-Consumer): Many sites are offering free classifieds listing where individuals can buy and sell thanks to the site such as OLX or Quikr, where people can buy and sell stuff nearby. Such transactions called consumer to consumer e-Commerce. Where users sell products to other prospective customers. An example would be someone selling something that he or she no longer needs, and he listed the same on OLX, and another person who needs the same thing contacts the seller and get the transaction done.

Challenges of e-Commerce Business in India Despite huge opportunity in e-Commerce business, e-Commerce business presents several particular challenges which are sometimes difficult to handle for any new startup. However, without any doubt, India has been a profitable e-Commerce market for the last seven years in a row. Thus many venture capitalists, angel investors, private companies & high-net-worth individuals are investing money in e-Commerce, no matter how small or big the business. E-commerce is growing rapidly, but it is still facing several hurdles in operations in India.

Internet Penetration: The Internet is mandatory is the foundation of e-Commerce. However, in India internet penetration is still low at 34.8 percent of the population. However, due to the growth of the mobile internet, India is witnessing an exceptional increase in the year 2015 and 2016, allowing e-Commerce businesses to reach to masses easily.

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Due to increasing mobile internet users, it is predicted that e-Commerce growth will touch new heights in India. With 4G taking the Indian market by storm, the demand for smartphones is taking an upward swing. When more and more peoples are shifting to high-speed networks using dirt cheap mobile internet plans, the future of e-Commerce is bright and it’s a perfect time to kick start your brand’s own e-commerce store.

E-Commerce Market Structure E-commerce accounts for hundreds of billions of dollars in sales annually in the US and in Europe, and that figure is growing rapidly. The price effects of internet shopping, and e-commerce in general, have received a lot of research attention (see for example Brynjolfsson and Smith 2000, Scott Morton et al. 2001, Brown and Goolsbee 2002, Baye et al. 2007, and Ellison and Ellison 2009). The findings of this research have been drawn on in policy discussions of subjects like net neutrality and the tax treatment of online sales. But the diffusion of e-commerce through an industry is likely to affect more than just prices. Market structure likely changes as well, as reduced consumer search costs lead to a wave of creative destruction. The tools of e-commerce make it easier for consumers to find lower-price sellers, meaning lower-cost firms (or those able to deliver higher quality at the same cost) will grab larger shares of business away from their higher-cost competitors.

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Even if the more competitive landscape created by lower search costs reduces prices and margins as the above research has shown, this market structure response could be large enough that low-cost firms actually become more profitable as e-commerce spreads. High-cost firms, on the other hand, are doubly hit. Not only does their pricing power fall, but their market share falls too, as customers who were once captive – either because of ignorance or lack of alternatives – move on to better options elsewhere. Some of these firms will be forced out of business altogether. Winners and losers from e-commerce There has been less research attention directed toward such questions of which businesses most benefit and most suffer (perhaps to the point of having to cease operations) from e-commerce than that applied toward the implications for prices. Conventional wisdom suggests that market structure impacts could be large; the rapid growth of online travel sites at the expense of local travel agencies is one oft-cited example. In a recent paper (Goldmanis et al. 2010), my coauthors and I explore how the advent and diffusion of e-commerce can impact market structure. We look in detail at three industries often perceived to have been considerably impacted by e-commerce: travel agencies, bookstores, and new auto dealers. Theory and evidence The type of market structure effects discussed above arise naturally from a model where firms with varying production costs sell to a set of consumers who differ in their search costs. Consumers engage in costly search when deciding from which firm to buy, and firms set prices given consumers’ optimal search behavior as well as their own and their rivals’ production costs. Firms have to cover fixed costs to operate and enter the industry. The model predicts the price results documented in the earlier research. Lower consumer search costs (that is, a leftward shift in the distribution) caused by the introduction of ecommerce reduces both the equilibrium average price level and price dispersion. More importantly for our discussion here, however, the model also predicts that lower search costs lead the industry’s low-cost firms to grow and the industry’s high-cost firms to shrink and sometimes even exit. These theorized market structure implications are apparent in the data. Figure 1 contrasts the total number of travel agency offices in the US with the prevalence of online shopping among consumers during the period that e-commerce saw its initial widespread adoption by consumers.[1] The diffusion of

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internet shopping coincided with a culling of travel agency offices. After essentially holding steady until 1997, the number of offices fell by over 35% between 1997 and 2003. Total industry employment (not shown in the figure) also dropped precipitously, falling 26% over the same six years. Figure 1. Fraction of consumers purchasing online and total travel agency offices, 1994-2003

Yet a look at Table 1 indicates this devastation at the aggregate level was not even across the industry’s businesses. The table breaks out the total industry establishment counts in Figure 1 by employment size category. (While county business patterns data are reported annually, the tables below show only every third year for the sake of brevity.) While there were sizable drops in the number of offices in each of the four smallest employment categories, the number of offices with 50 or more employees actually rose. Indeed, the number of operations with 100 or more employees grew by 70%, even in spite of a post-9/11 drop across all employment categories between 2000 and 2003. The vicious shake-out at the low end was therefore accompanied by growth among the industry’s largest businesses. Table 1. Industry establishment counts (US aggregates), travel agencies Employment Category Year

Total

1-4

5-9

10-19

20-49

50-99

100+

1994

28,118

18,186

6,774

2,121

759

169

109

1997

29,452

19,183

6,758

2,332

834

206

139

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2000

25,975

16,783

5,836

2,091

845

234

186

2003

18,860

12,865

3,556

1,430

653

182

174

If we accept that size is a proxy for firms’ costs, these patterns are consistent with the theory. Indeed, a considerable body of research has documented that higher cost firms in an industry tend to be smaller – see for example, Bartelsman and Doms (2000). A decline in search costs, made possible through the diffusion of the internet and the advent and improvement of travel-shopping websites, shifted equilibrium activity to the larger, lower-cost/higher-quality offices in the industry. Similar patterns are observed among bookstores and new car dealers. While the number of bookstores with fewer than 20 employees fell by over one-fourth during the sample period, those with more than 20 employees more than doubled (see Table 2). This growth was particularly pronounced among the 50-99 employee size category. Table 2. Industry establishment counts (US aggregates), bookstores Employment Category Year

Total

1-4

5-9

10-19

20-49

50-99

100+

1994

13,520

6,625

3,840

2,198

708

102

47

1997

12,301

5,254

3,753

2,021

933

286

54

2000

11,662

4,641

2,953

2,349

1,163

485

71

2003

11,036

4,493

2,900

1,909

1,237

428

69

Among new car dealerships, there were drops in the number of dealerships in the 10-19 and 20-49 employee categories – just under 20% in the former case and 10% in the latter (see Table 3). Yet, as with the other two industries, the number of larger-sized dealerships in the industry grew. Those with 50-99 employees rose by 20%, those with 100-249 employees saw about a 60% increase, and the number of dealerships with more than 250 employees tripled. Table 3. Industry establishment counts (US aggregates), new car dealers Employment Category

Industry Analysis of e-Commerce Retail

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Year

Total

1-4

5-9

10-19

20-49

50-99

100-249

250+

1994

24,130

2,715

1,724

4,142

9,017

4,853

1,601

78

1997

26,208

3,848

1,941

3,825

9,065

5,376

2,022

131

2000

26,225

4,440

1,841

3,505

8,380

5,592

2,303

164

2003

26,707

4,654

1,891

3,394

8,237

5,768

2,532

231

In addition to these aggregate movements in all three industries, the same e-commerce-driven shifts occurred on a market-by-market basis for bookstores and new car dealers. That is, cities where consumers’ internet use grew faster in a particular year saw bigger drops in the number of small bookstores and car dealers over the same year and higher gains in the number of larger ones. Thus despite all the talk about the absence of geography in the e-commerce landscape, internet shopping’s effects still appear to have local components in these two industries. (The aggregate impact observed among travel agencies resulted from the nature of the institutional shifts in industry revenues that ecommerce caused. Responding to a shift in customers toward buying tickets online, airlines cut ticket commissions to travel agents, which accounted for 60% of industry revenue in 1995, down to zero by 2002. These commission cuts were across the board, and did not depend on the propensity of travelers to buy tickets online in the agents’ local markets.) The effects among car dealers are particularly noteworthy in that, in the US, car manufacturers and dealers are legally prohibited from selling cars online. Therefore any effects of e-commerce must be channeled through consumers’ abilities to comparison shop and find the best local outlet at which to buy their car, not through changes in the technology dealers use to deliver cars. While this technology-based channel is important in some industries, the consumer-side search channel is the one posited in the theory above. As such, new car dealers offer the most similarities to the theoretical structure. Market Size Propelled by rising smartphone penetration, the launch of 4G networks and increasing consumer wealth, the Indian e-commerce market is expected to grow to US$ 200 billion by 2026 from US$ 38.5 billion in 2017 Online retail sales in India are expected to grow by 31 per cent to touch US$ 32.70 billion in 2018, led by Flipkart, Amazon India and Paytm Mall.

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During 2018, electronics is currently the biggest contributor to online retail sales in India with a share of 48 per cent, followed closely by apparel at 29 per cent.

Investments/ Developments Some of the major developments in the Indian e-commerce sector are as follows: 

Flipkart, after getting acquired by Walmart for US$ 16 billion, is expected to launch more offline retail stores in India to promote private labels in segments such as fashion and electronics. In September 2018, Flipkart acquired Israel based analytics start-up Upstream Commerce that will help the firm to price and position its products in an efficient way.

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Paytm has launched its bank - Paytm Payment Bank. Paytm bank is India's first bank with zero charges on online transactions, no minimum balance requirement and free virtual debit card

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As of June 2018, Google is also planning to enter into the E-commerce space by November 2018. India is expected to be its first market.

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E-commerce industry in India witnessed 21 private equity and venture capital deals worth US$ 2.1 billion in 2017 and 40 deals worth US$ 1,129 million in the first half of 2018.

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Google and Tata Trust have collaborated for the project ‘Internet Saathi’ to improve internet penetration among rural women in India

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According to EY, E-commerce and consumer internet companies in India rece...