India E-Commerce: Is It the Next Big Market?

by | Feb 2, 2016 | Emerging Markets, Indian Market | 0 comments

In 2014, e-commerce accounted for 5.9%, or $1.316 trillion, of the total retail market worldwide, according to eMarketer. By 2018, the share is expected to increase to 8.8% or $2.5 trillion. Currently, China and the US lead the global e-commerce market, accounting for 55% of the market, but that could begin to change.

There’s no doubt that businesses are always trying to discover the next “big market.” Every company wants to get in on a booming economy at the ground level and then ride it to the top, but where is the next growing economy? According to analysts from Bank of America Merrill Lynch, India could be “the next e-commerce battle ground.” It’s expected that the gross merchandise value (GMV) of the Indian e-commerce industry will hit $220 billion (Rs 1,457,060 crore) by 2025—currently it sits at just $11 billion.

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The firm made its estimations based on three main factors: the improving telecom infrastructure, the faster adoption of online services due to increasing awareness, and the better variety of convenience.

Right now, India has the third greatest number of Internet users in the world, second only to China and the United States. As for smartphone penetration, they’re similarly ranked, and Bank of America estimates that mobile penetration will continue to grow from 25% in 2016 to almost 50% penetration by 2019. India represents the fastest-growing market for mobile phone devices in the world, according to TranslateMedia.

However, that large number is thanks, for the most part, to their population of 1.2 billion. In reality, only 20% of India’s young population is currently online and most retail continues to take place in mom-and-pop shops. However, as wireless Internet access spreads and smartphone adoption increases, economists see extreme growth as inevitable.

In fact, Times of India shared a shocking prediction by the Managing Director of Google India, Rajan Anandran. He claimed that, currently, out of the 230 million Internet users in India about 130 million are mobile Internet users. Even more astounding, he predicted that by 2017, 70-80% of transactions in India would happen via smartphones.

Already, it seems, Anandran’s prediction is coming true. Only a year after Amazon launched its mobile App, half of its traffic came from smartphones. Even Flipkart.com, the poster boy of e-commerce in India, now prefers to be called a mobile or m-commerce company since, in just a single year, their mobile traffic increased more than 50%. And Snapdeal has experienced the same mobile growth—60% of their transactions are mobile, up from just 18% in March 2013.

Currently, Jabong, Flipkart, Snapdeal, and Amazon are the four big players in Indian e-commerce. According to Statista, Jabong receives 26.2 million unique visitors a month, followed by Amazon (24.6 m), Flipkart (22.39 m), and Snapdeal (20.99 m). However, it’s Flipkart, Snapdeal, and Amazon that are driving the e-commerce industry and the economy. Collectively, these three companies have received roughly $7 billion in investment, which almost equals the size of the country’s entire e-commerce gross merchandise volume in 2014, based on an article titled, Why India is the next ‘ecommerce battleground.’

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The big three are banking on a series of sharp economic and demographic shifts to drive consumers toward their marketplaces. According to estimates from a BCG report, the average household income in India is expected to grow from $6,393 to $18,448 in five years, and the urban population will increase to 40% in 2020, from 31% in 2010. This growth, BCG stated, will result in a 20-25% increase in spending capacity. Industry executives believe that this is a transformational point for e-commerce. 

The good news for Indian e-commerce, there’s still room for growth and new investment. Unlike China and their e-commerce giant, Alibaba, India is welcoming to startups. Baidu Inc, China’s top search engine, recently discussed investing in three Indian e-commerce startups: Zomato, BookMyShow, and BigBasket, according to Nasdaq. But Baidu isn’t the only company looking to invest in India. Even China’s Alibaba Group Holding has begun a string of investments in India, alongside other global technology giants.

The reason why Baidu and other global companies are looking to India is multi-fold. The Indian e-commerce market is expected to grow 1,900% in just 10 years. Plus, thanks to the election of Nardendra Modi as Prime Minister of India, many global business leaders have recently been attracted toward India, including top leaders such as Facebook’s, Mark Zuckerberg and Alphabet’s, Sunday Pichai.

According to Forbes, even WalMart is expanding to the Indian e-commerce market. WalMart is reported to be in partnership talks with Flipkart, Snapdeal, Grofers, and BigBasket to tap into the growing online retail marketing in India. They’ve witnessed Amazon’s success and want a part of the game.

Amazon first launched in Indian in June 2013, but it’s now the company’s fastest growing geography in terms of sales. In fact, its online store in India has more than 25 million products for sale, that’s even 5 million more products that its local competitor, Flipkart.

For Amazon, they’re thrilled about the growth in India and they only see it continuing. In an interview with Business Insider, Amazon CFO Brian Olsavsky said that their investment in India continues to grow. “When we see a positive surprise we double-down on it — that’s kind of our policy — and India is that kind of surprise,” Olsavsky said. “We’re very happy, very encouraged early on about what we’ve seen so far with the ramping up of the business, the level of innovation going on for both customers and sellers.”

It’s clear that India is and will continue to be impacted in many ways by its population coming online and going mobile. There’s no doubt that India is an up-and-coming e-commerce giant. If larger and smaller business and brands can adapt to online and mobile retailing in India, they’ll be in a strong position for growth over the next ten years or more.