When I was working on integrating one of our ERP products with Amazon's Sandbox environment sometime in Feb 2019 , I happened to come across news articles, introducing India's draft eCommerce policy. I wondered what it is all about and what would be its impact to the existing eCommerce players in India, Amazon and Flipkart and thereon their strategy to counter it. So I went about reading associated articles and concluded the impact would be for the players like Amazon,Flipkart to divest their Equity stake in Companies who were directly selling on their Platform ( Amazon's Sellers Cloudtail and Appario) and thereby also lose control over the Sellers inventory and their ability to control Product prices. [1],[12]
However a month later an older article that caught my attention made me believe that there was more to an eCommerce policy posturing as government's strategy to maintain fair competition for India's small and medium retailers.[2]. For a company as big as Reliance to roll out a plan to enter into the eCommerce space there definitely would have to be some background and substantial statistics.So I decided to pull out some data and this is what I obtained.
1. As per IBEF eCommerce Report May 2019 [3], India's eCommerce Industry is worth 50 bn USD as of 2018 and overall Retail industry is worth 672 USD bn as of 2017.The IBEF Retail report May 2019 [4], conveys that a significant opportunity for expansion in the segment exists owing to Traditional/ Unorganized Retail, Organized Retail and eCommerce segments that account to an estimated 88%, 9% and 4% market share. The 88% is what caught my attention and I realized that's a huge market for potential stakeholders - Business,Government and Policy formulators.
2. A summary of the Top ten Indian Retail companies [5] based on their Annual turnover for 2018 are predominantly brick and mortar entities with a small eCommerce presence compared to the larger players (Amazon,Flipkart and Paytm). It is very likely then the next strategy for these Companies would be to expand their presence in the unorganized and organized retail space.
3. Walmart's entry into Indian retail in 2007 and it's subsequent acquisition of a 77% stake into Flipkart in May 2018 to enter the eCommerce space ushers Amazon's acquisition of Aditya Birla's More in India. [6] A year earlier Amazon USA had acquired the grocery brick and mortar chain, Wholesale foods.
4. A summary of top 10 US retailers by Revenue and eCommerce market share shows [7],[8], Walmart leads in revenue and holds a 3rd position in eCommerce at 4% market share. Whereas Amazon is positioned at 3rd in revenue with a top position in eCommerce at 48% market share. Both definitely then would want a firm share in the Asian market
5. A summary of the FDI Retail and eCommerce policy [9] since Jan 2018, stating what is allowed
- An automatic Funds routing and 100% FDI in Single brand retail trading with a 30% local sourcing of goods for FDI >51% if local sourcing is feasible . eCommerce trading and holding inventory in this scenario is allowed.
- A government approval for Multi brand retail trading with maximum 51% FDI only.
- eCommerce Business models that can be run in India are Marketplace, Inventory and Hybrid (combination of former two). FDI in eCommerce is only allowed in the Marketplace model. [10],[1]
In retrospect and in summary Reliance's entry into eCommerce is well positioned for the country to promote business and create livelihoods by keeping competition alive and protecting small retailers.[12] I am yet to determine the implications of the Policy on food tech firms ike Swiggy,Zomato or on Travel firms like MakemyTrip, Ola etc however that is for a later time.
References:-
1. https://www.livemint.com/Companies/ydACAnoRhf9dYZCOklb3jN/India-ecommerce-norms-Amazon-may-have-sell-Cloudtail-Appa.html
2. https://www.bloomberg.com/opinion/articles/2018-08-16/amazon-has-a-new-rival-in-india-and-it-isn-t-walmart
3. https://www.ibef.org/industry/ecommerce.aspx
4. https://www.ibef.org/industry/retail-india.aspx
5. https://www.bizvibe.com/blog/food-beverages/list-of-retail-companies-in-india/
6. https://www.bloombergquint.com/business/why-amazon-wants-to-acquire-the-more-supermarket-chain
7. https://www.investopedia.com/articles/markets/122415/worlds-top-10-retailers-wmt-cost.asp
8. https://techcrunch.com/2018/11/16/walmart-passes-apple-to-become-no-3-online-retailer-in-u-s/
9. https://www.vantageasia.com/retail-fdi-india-restrictions-solutions/
10. https://factordaily.com/how-reliance-shaped-the-india-first-agenda-in-the-draft-ecommerce-policy/
11. https://dipp.gov.in/sites/default/files/pn3_2016_0.pdf
12. https://www.businesstoday.in/current/economy-politics/new-fdi-policy-on-e-commerce-how-marketplaces-are-to-be-affected/story/305098.html
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