There are multiple reasons for the apparent e-commerce boom occurring worldwide. The rise in the use of mobile devices is effectively the biggest enabler. Buying and selling online is more flexible and passive, while secure payments add to the protection consumers expect.
Since e-commerce became an indispensable part of the global retail structure, digitization has only helped in a substantial increase in its functioning. In 2019, an estimated 1.92 billion people used online portals for a combined e-retail sale of over $3.5 trillion worldwide. This number is steadily rising each year as more and more consumers embrace the digital movement.
Speaking as an entrepreneur, there are multiple problems circulating the ecosystem which has significantly reduced the effectiveness and adoption of e-commerce in India. However, this poses the question of how, instead of when.
As flexible businesses can readily adapt to technological changes, the same flexibility might not be easily seen in the consumers. A mutual transformation is necessary for e-commerce to be truly beneficial for all parties involved. For example, effectively adopting digitization for both parties is a must. For businesses, switching to more potent trends that boost customer satisfaction and allows greater reach and flexibility is the way forward.
Unfortunately, the Indian consumer has been relatively slow in adapting to fundamental technological changes. This has a direct effect on businesses that find it difficult to engage and reach the otherwise huge consumer population in the country.
Steadily, changing trends and mindsets have given rise to an industry that could reach its true potential in a short amount of time. However, as an essential segment of the global e-commerce ecosystem, India needs to step up and play the part it should in global business and become a beacon for other advancing countries to follow suit.
The E-Commerce Boom in India
E-commerce in India has seen a massive rise in the past decade. This can be attributed majorly to the explosion in internet usage and in smartphone availability. Driven by the “Digital India” program, enhanced connectivity has allowed the Indian consumer to reach online retailers with ease.
The COVID-19 pandemic brought heightened levels of uncertainty which served in the accelerated adoption of digital and its practices. India is set to become a promising digital economy with its rapidly increasing consumer count and subsequent consumption, data affordability, newer products, and better financial prospects.
According to Statista, the $84 billion industry is set to grow further and reach $200 billion by 2027. However, even as the fourth largest retail market in the world, Indian e-commerce is still largely unorganized. Comparing it to the US market, e-commerce there makes a total of $407 billion currently, which is expected to rise to $476 billion by 2027.
There are multiple reasons why India might seem to lag behind bigger economies, especially when it comes to the e-commerce sector. Absence, and downright neglect to use advanced technologies, and a reluctant consumer mindset offers obstructions when it comes to creating an accessible digital landscape.
One of the major issues with adapting digital trends is the hesitation consumers feel while shopping online. Traditional shopping might seem more “secure”, while online shopping is still considered high-risk.
However, increasing internet access and the ease of digital payments have brought the country to the cusp of transformation, while the widespread acceptance of digital has added to the overall growth of the e-commerce sector. With changing demographics and alterations in policies, India has presented a unique potential in growing within the landscape. Gathering significant momentum, the Indian e-commerce boom is leaving its cocoon phase.
E-commerce Challenges in India when compared to the United States.
The e-commerce market in the United States consists of established firms like Amazon and Walmart. Whereas Indian sites are still in competition for a good-enough chunk of the market. Since diversity amongst customers leads to diversity in demand, the emergence of a single company that caters to everyone might be a difficult proposition.
As more and more consumers join the changing trends, the need for e-commerce platforms that can potentially uphold their side of the bargain and allow customers to easily make the switch from physical to digital could help the Indian e-commerce industry see a huge rise. Sales during festive seasons have already displayed the potency of the Indian consumer market. However, this temporary boom during certain times of the year needs to be made permanent to allow the Indian e-commerce businesses to foster and grow out globally.
Comparing e-commerce in the United States and the state of digitization in India, we can deduce that customer mindset plays an important role in the trends that play out. Since digitization is relatively new to the Indian consumer, finding the right technologies and businesses to rely on is not an easy task. The huge discrepancy in online sales in the US market as compared to India is noticeable and does not effectively make sense as a bigger population should result in a bigger consumer market.
This can be attributed to the tendencies of customers to readily embrace digital. Whereas in India, the average consumer is still trapped by a lack of resources and the correct mindset to adopt digital. This, however, is changing rapidly and tier 2 and tier 3 cities in India have already started showing their potential as prospective customers of the digital age.
When we talk about consumers, the role of tier 2 and tier 3 cities have become apparent. In the Indian e-commerce ecosystem, tier 2 and tier 3 cities have shown the maximum growth potential, even outpacing tier 1 cities. This could be attributed to multiple factors. The adoption of social e-commerce, better delivery times, availability of local products, and the rising digitization of the population have allowed businesses to gain a competitive edge in tier 2 and tier 3 cities. The Direct-to-Consumer or D2C approach has also provided an effective backdrop in allowing customers to develop a stronger connection to the brands as well.
Talking about the growth of the e-commerce sector in India, there are still various challenges being faced on either end. Customer mindset, reachability, poor logistics, and supply chain practices are causing the wagon wheel to slow down. High cash on delivery orders also increases fraudulent transactions and leaves the sellers vulnerable to losses.
While bigger, more advanced economies are stepping in to solve these issues, Indian businesses continue degrading practices to get those conversions. A nationwide reform is incredibly necessary to allow businesses to stay afloat while allowing customers to change with the tide.
There are plenty of changes that are coming to the industry. However, trailing behind developed nations in terms of policies and operations might not prove to be the best for either businesses or consumers.
The United States ranks as the second largest e-commerce market in the world. Despite appearing highly established, online shopping in the US only accounts for 8.9% of overall retail sales. While the Indian online market only accounts for 4% of total retail sales. Compare this to China’s economy, and it is valued at $1.15 trillion and accounts for 23.1% of all retail sales.
While the total population of the United States is far less than India’s, internet penetration is far greater. Internet penetration in the US is at a strong 89%, around 290 million people, which allows consumers to actively surf the web for their shopping requirements. Meanwhile in India, only 34.4% of the population, around 450 million people, have access to high-speed internet, one of the primary reasons why the Indian consumer has not been familiarized with online shopping.
How E-Commerce in India is Developing
The Indian online sector fails to match the growth of e-commerce in larger markets like China and the United States. Despite that, development has been rampant and as businesses and customers rebound from the effects of COVID-19, a rise in customers making use of online services has been acknowledged.
The growth of e-commerce in India will be inclusive – one that empowers both sellers as well as buyers. For the consumers, e-commerce will provide convenient access to a wide variety of products at transparent prices, and for sellers, it will provide easy access to a large customer base.
Indian e-commerce businesses have started venturing into multiple avenues to provide a more unique customer experience. Social commerce is on the rise with easy product discovery options and more customers relying on information from peers and communities. Video content has also provided businesses with a strategy to help allow customers to make a favorable buying decision.
Influencer marketing has seen a significant rise and has allowed new businesses to reach a huge population without getting tangled in traditional marketing trends. Engagement sees a high rise when it comes to influencer marketing while costing only a fraction of the actual cost of reaching such a big portion of consumers.
Technology-enabled innovations like hyper-local logistics, digital payments, analytics-driven customer engagement, virtually assisted shopping, warehouse robotics, etc. will also propel the growth of the sector and take its Gross Merchandise Value (GMV) to $100-120 billion by 2025.
As Amazon launches its Amazon Smbhav program, its role in boosting the credibility of Atmanirbhar Bharat has allowed smaller businesses to unlock the potential in the e-commerce landscape. Amazon seeks to invest an incremental $1 Billion to digitize MSMEs to help them reach a significant part of the Indian consumer market. This initiative not only helps businesses but in turn increases Indian exports and brings additional jobs to the country.
Jeff Bezos, the founder of Amazon, had this to say, “I predict the 21st century is going to be the Indian century”
As India gets ready to leave an everlasting mark on the global business of e-commerce, a large ecosystem of startups and small businesses has already started innovating and accelerating India’s growth towards an Atmanirbhar Bharat. Amazon is looking to help these businesses reach their true potential by allowing them to scale their businesses by leveraging digitization and technology.
Similarly, the initiative Spotlight North East is designed to boost the local economy, create new jobs, and help accelerate the growth and empowerment of women and the tribal communities across the North-East region of India. The program is set to benefit the artisans, weavers, and local businesses by helping them land the digital age and enabling them access to technology and consumers.
We know that factors like higher income levels, better communication platforms, more smartphones, and intentional digitization has allowed e-commerce to prosper. However, the apparent e-commerce boom in India had been in the metamorphosis phase for the past decade. The fundamental issues which included low internet availability, disapproval of digitization, and neglect of services due to more trust in traditional marketplaces, have all been curbed with the right intent in place.
Online platforms are easier, and much more stable than traditional marketplaces. Only now the general consumer is waking up to the fact which is going to allow the industry to witness explosive growth. The Indian e-commerce industry is moving on from its infancy and might be set to take on mega-markets like China and the US. This heightened increase will no doubt pose new threats and complications that would require start-ups and even older businesses to be more agile. If the upcoming venture is well-treated, Indian e-commerce might be set for an extraordinary upsurge.
Vaibhav Lall is an engineer by education and an entrepreneur by choice. He is the founder of India’s largest online deal discovery platform – Khojdeal. Prior to jumping on the entrepreneurial bandwagon, Vaibhav has experience working with corporate giants like Mindtree and Cognizant as a Digital Marketing Consultant. From consulting Fortune 500 companies on digital transformation to launching a startup, he has deployed astute digital strategies that can impact an organization’s growth curve in various stages.