#dnaEdit: War chest readied

Despite the Indian government bending over backwards to invite FDI in multi-brand retail and yet finding no takers, the dollars are flowing in by the billions for online retailers. This is despite India’s FDI rules restricting e-commerce companies with significant foreign equity from direct selling, only allowing them to run marketplaces as a platform for other retailers to peddle their wares. With Amazon announcing a $2 billion fund infusion to counter Flipkart’s $1 billion funding from a consortium of foreign investors, the ultimate beneficiary will be the consumer. The massive funding, which has trumped the total sales of $2.3 billion registered by the Indian e-commerce sector in 2013, indicates that these two giants are not just vying for larger market shares. They would aim to exponentially grow the currently minuscule market, considering that China’s Alibaba recorded $240 billion in sales last year, a figure that pipped the combined turnover of US market leaders Amazon and eBay.

Despite Flipkart accumulating losses of Rs281.7 crore in 2012-13, its sales has climbed phenomenally from Rs1,345 crore in 2012-13 to average monthly sales of Rs600 crore through the first six months of 2014. Armed with this funding, both Flipkart and Amazon have set ambitious targets of $4 billion and $1 billion respectively, this fiscal. It is clear where the money brought in by Flipkart and Amazon is headed; both companies will set up more warehouses, offer deeper discounts to customers, provide more incentives to merchant sellers, and improve their product delivery mechanisms. While these measures can generate higher volumes, it may not add up to profitability. But with several other players like Jabong, Snapdeal and eBay offering stiff competition, the possibility of a bruising contest without being able to pare down expenditure, and then bleeding each other dry, is staring everyone in the face.

With the stakes so raised, market leader Flipkart is forging exclusive partnerships to starve its competitors; a trend that Amazon can be expected to follow now. Flipkart’s partnerships with smartphone makers like Samsung, and now the exclusive partnership with Motorola and Xiaomi, have been such an unqualified success that small offline phone retailers are also beginning to feel the heat. Unlike the politically explosive FDI in multi-brand retail that has kirana store owners up in arms, the Indian e-commerce sector has only impacted small segments like bookshops. But the success of apparel e-tailer Myntra points to an online convergence of the marketplace that portents wider implications.

In this context, the Indian government’s decision to restrict foreign e-commerce companies from direct selling is a sensible decision. It allows space for multiple retailers to grow and utilise the platforms created by giants like Amazon. Unfortunately, these restrictions have forced Flipkart to ship abroad and register in Singapore when its foreign funding came under the scanner. But the versatility of the Indian entrepreneur is such that Flipkart’s Sachin and Binny Bansal soon sold off the retail wing, retaining other profitable arms, and carried on with business as usual. How the Bansals, both IIT graduates, have tackled Indian market complexities is yet another lesson in adaptability. Like China where credit card and online banking facilities were minimal, they pioneered a cash-on-delivery and a no-questions-asked returns model that risk-averse customers have lapped up. However, complaints about poor after-sales service are getting louder as the company grows. From the low base now, one in two Indians are expected to purchase smartphones in the coming decade. This alone makes the Indian e-commerce sector worth the billions pouring in.