The world of e-commerce in India is synonymous with turbulence and uncertainty. The road ahead for Indian e-commerce giants is replete with hurdles and fraught with a lot of difficulties. The magnitude of competition from foreign mammoths like Amazon further puts the Indian e-commerce giants in a slimy position. To top up it all, e-commerce giants are witnessing dwindling funding from angel investors which is tarnishing their image and aggravating their present position. Why is it that the Indian e-commerce companies are not able to match up to the standard of their foreign counterparts? And what is the future of these firms?

Let’s first dissect the reasons for the consistent underperformance of these e-commerce giants and then move on to look what’s the path like for them in the near future.

One of the major problems with e-commerce giants is the problem of differentiation of products. All the online sites mostly deal in a wide and generic line of products. Hence, most of these giants are selling the same products produced by the same merchant to the same audience. In this situation of competition if they want that the maximum audience buys from their platform they need to somehow differentiate the seemingly uniform products. The only way for them to do this is through various sales promotion schemes, the most common of which is offering deep discounts. Now the problem with discounts arises when it comes to the funding of the same. Often what happens is that discounts are also offered by the foreign contemporaries and often these discounts are greater and more alluring than those offered by the Indian giants. So the chunk of the audience that would otherwise have purchased from the Indian website now goes to the foreign one to make that purchase and hence the amount spent on financing discounts goes down the drain. The problem is that foreign giants like Amazon are in a better position to raise capital (it is a technology-driven company, so it is difficult for Indian companies to beat foreign giants like Amazon in the area of technology) and hence beat the Indian firms in the race of providing discounts which leads to mounting losses for the Indian giants and hence their murky future!

Assuming that Indian firms face an inherent obstacle with discounts when it comes to differentiating their products, they will have to find some other way of differentiation (used in tandem with discounts), or otherwise, perish! Look at the example of IRCTC, which is an online retail selling platform and has been running successfully over the years with a large customer base and burgeoning revenues. Sure, it enjoys the benefits of a monopoly. But dismissing its success story just by this fact is looking at the entire thing with a too little narrow mindset. The main reason in fact of IRCTC’s success is the highest degree of operational efficiency it practises in its operations. So taking that example, if the e-commerce firms are not able to enjoy the complete differentiation of their products, then they must differentiate the experience they are providing to their customers through operational efficiency, an aspect in which the Indian e-commerce firms lag. The firms have not been able to match their operational efficiency with foreign giants and hence the growth rate of their sales has been way lesser in comparison to the rate at which their losses have escalated. Firms like Snapdeal, Flipkart and the like are taking steps towards improving operational efficiency but the steps are insufficient and need to be brimming with much more innovation.

The problem for e-commerce in India is also to do with some demographics of our country mainly, unemployment. Now as strange as it may seem, unemployment has had a profound impact on e-commerce in India. Increased automation and the advent of artificial intelligence have led to huge job layoffs. The buying power of people has drastically fallen as a result of which the business of e-commerce sites is increasingly depleting. Another problem indeed is the lack of guidelines by the government with respect to the working in the private sector. Often we find news of how people working in these e-commerce giants are subject to harsh working hours and truckloads of work. All this, in essence, happens due to lax government rules and regulations in relation to the corporate sector. This subsequently leads to voluntary job dropouts and hence the workforce of the specific calibre required by these Indian e-commerce giants is missing. This obviously leads to operations of less efficient level and hence mounting losses and deteriorating customer loyalty. Also, to add on, most of the Indian e-commerce giants have penetrated into the Indian market at a time when the purchasing power of the Indian households was certainly not at its best. Because the starting point was a bit flawed, the future of these firms was not very bright as all the above-mentioned factors coupled together led to these firms getting stuck in the vicious circle of ‘increasing revenues and losses simultaneously’!

Now the question which arises is that do these companies have any future in Indian markets? Is there really any light at the end of this tunnel?

The answer to this is really dependent on how companies approach this situation. They need to improve their standing and for the same they will have to skim down their costs, increase their earning margins or do a mix of both. For reducing costs things like COD (cash on delivery), using celebrities to advertise their platforms etc should be scrapped of. COD no doubt allows e-commerce to expand beyond metropolitans in India but comes with a lot of costs for the company.

There are cash handling costs, companies have to pay a logistics surcharge, and also insurance costs for the person carrying the cash. Moreover, the logistics cost increases if the customer is not available at the delivery place to receive his order. If COD is reduced then not only the costs of the companies will come down, but the overall efficiency will be fostered and digitization will lead to the execution of a greater number of orders in less amount of time. Also spending superfluous amounts of money by hiring celebrities to promote their platforms should be reduced. Instead, the e-commerce companies should tap into the umpteen modes of digital advertising and increase their reach rather than using celebrity endorsed advertisements. On a general and a broader note, the unemployment situation should be paid attention to so that people’s purchasing power increases and they invest more into buying things from the online platforms. Also, the government should frame requisite legislations and regulations to ensure that people of the essential skill and competence are running the Indian e-commerce platforms.

The scenario up till now for these companies has not been very bright and whether they will see the dawn of the day still remains a big question which only time can tell.

By Sanket Jain