EDITION VII

COLLABORATE TO INNOVATE

CROSS BORDER E-COMMERCE FOR INDIAN MSME

SECTOR

TEAM CRYPTONITE RANJANA K | SRUTHI M

SWETHA THOMSON

SHAILESH J MEHTA SCHOOL OF MANAGEMENT, IIT BOMBAY 1

BACKGROUND RECOMMENDATIONS PROPOSED

SOLUTION TIMELINE

India a promising market to be a potential strong global player !

INDIAN

MSMEs

Growth

engine of

the Indian

Economy

% o

f to

tal Non-MSMEs

MSMEs

MSMEs account for more than

90% of all enterprises in India

Decrease in MSME credit by banks due to

high-risk nature of MSMEs

MACRO OUTLOOK COMPETETIVE DISADVANTAGE

Internet penetration as % of

Total Population

No FDI is permitted in B2C e-

commerce

Lagging in supply chain and

price competitiveness when

compared to Chinese MSMEs

Quality of the products

Influencer-led growth

Surge in exports due to Weak ₹

Large no. of

MSME units

Banks should

invest more in

MSME export

sector

B2C cross-border e-commerce expected to expand to US$ 1 trillion by 2020

35% 57%

40% CBT in china is due

to influencers

To boost the Indian MSME sector by leveraging a sustainable global B2C E-Commerce trade ecosystem through (1) creating awareness &

promotion of MSMEs (2) formulating a marketing strategy to promote India as leading MSME export sector

PROBLEM STATEMENT

Source: Ministry of MSME, Annual Report 2016-17

2

MSME AWARENESS GAPS

Survival Catch up

To boost the Indian MSME sector by leveraging a sustainable global B2C E-Commerce trade ecosystem through (1) creating awareness &

promotion of MSMEs (2) formulating a marketing strategy to promote India as leading MSME export sector

PROBLEM STATEMENT

MSME PRODUCT CLUSTERS

Industrial product

clusters

Handicraft

product clusters

Handloom

product clusters

Micro-Enterprise

product clusters

Service clusters

GOVT AWARENESS GAPS

Potential of

e-commerce

CBT opportunities &

integration into

global market

Training programs &

other resources by

Govt. & 3rd parties

International Quality

standard

Full Impact of

e-commerce on

Economy

GoI Policies &

Regulations

What other

governments are

doing

MSME Best

practices

BACKGROUND RECOMMENDATIONS PROPOSED

SOLUTION TIMELINE

3

Q1. What can be done to encourage more B2C exports from India in the MSME space

Strategic

Challenges

• Exchange rate

fluctuations

• Lack of awareness

• Trust issues

Infrastructure

Challenges

• Selling portal

• Payment tracking

• Shipment tracking

• Manual customs

procedures

Technological

Challenges

• Digital

infrastructure

• Data protection

Logistics

Challenges

• Last mile delivery

• Unreliable

transport

• Express delivery

• Returns

Policy

Challenges

• Consignment

threshold limits

• Complex customs

guidelines

• Information

sharing

100% Income Tax exemption on export income for SEZ

units for first 5 years

Single window clearance for setting up MSME in a SEZ

Simplified compliance procedures and documentation with an

emphasis on self certification

E-PAYMENT SYSTEM DIGITAL SINGLE WINDOW SYSTEM

MSMEs that leverage technology usage grow 2.1x

faster than MSMEs that don’t

Payment tracking using

Blockchain Technology

Digital Signature Export from Special Economic Zones jumped 18% in FY18

BACKGROUND RECOMMENDATIONS PROPOSED

SOLUTION TIMELINE

Cybersecurity for protecting

transactions by encryption

4

Shorter

processing times

Less forms

Less bureaucracy

Q1. What can be done to encourage more B2C exports from India in the MSME space

BONDED WAREHOUSE

Simplified stock-in and stock-out procedures

Stored goods can be re-exported to Source

country(India) without paying customs duty again

Integrating bonded warehouses with freight

forwarding and trucking ensures all-in-one solution

Payment of customs duties can be deferred

resulting in cost savings

Many countries, including USA, Europe and Latin

America have Bonded warehouse facilities

Strategic

Challenges

• Exchange rate

fluctuations

• Lack of awareness

• Trust issues

Infrastructure

Challenges

• Selling portal

• Payment tracking

• Shipment tracking

• Manual customs

procedures

Technological

Challenges

• Digital

infrastructure

• Data protection

Logistics

Challenges

• Last mile delivery

• Unreliable

transport

• Express delivery

• Returns

Policy

Challenges

• Consignment

threshold limits

• Complex customs

guidelines

• Information

sharing

POLICY RECOMMENDATIONS

1 Increase De Minimis threshold to

$1000 from $375.3 by

negotiating with focus markets

Harmonization of customs guidelines 2

3

4

Develop regulatory framework for

cyber security issues of cross-border

transactions

Develop a strong dispute

redressal mechanism for CBT

BACKGROUND RECOMMENDATIONS PROPOSED

SOLUTION TIMELINE

5

JOURNEY OF AN MSME SELLER

•Identification of high potential customers Country

•Measure IT, trade and e-commerce readiness

•Implementation strategy for following the value chain/framework

1.

2.

3.

MSME Seller

YES Bank Portal

SME Financing 1. Strengthen Credit scoring system

2. Mitigate risk by innovative financing

3. Financing for better technology absorption

YesPay

Payment

System

E-Commerce

Platform

MSME SELLER VALUE CHAIN

Benefits for sellers • Shipment tracking

• Digital marketing

services provided by

platform

• Seller protection

Cross-Border

customers

Logistics

provider

Outbound logistics • Last mile delivery

• Unreliable

transport

• Express delivery

Returns

“Yes Bank as a Facilitator, rather than just a loan provider”

BACKGROUND RECOMMENDATIONS PROPOSED

SOLUTION TIMELINE

SOURCE COUNTRY: INDIA DESTINATION COUNTRY

6

Benefits for buyers • Greater reach to global

goods

• Seamless interface

• Consumer protection

• After-sale support

etc ,

Q2. Suggest key marketing initiatives to promote India as a leading MSME export sector

7

BACKGROUND RECOMMENDATIONS PROPOSED

SOLUTION TIMELINE

Social medial Marketing

through Tourist testimonials 7th Largest tourism

economy

8.9

Million tourist

footfall in FY18

Indian Tourism

Google Instagram Pinterest

Advertiser Semi-integrated marketplace

Fully integrated marketplace

Business partner

E-Commerce platform

Facebook, eBay

Alibaba Amazon

Alibaba Amazon

Marketing

through E-commerce platform

Introduce & Leverage AEO

programs

AREAS TO FOCUS

Government

• Engage with foreign e-commerce

platforms like Alibaba and Amazon

Platform

• Serve as arbitrators of online dispute

Customs procedure can be further simplified by screening

MSMEs into AEOs based on required quality standards.

EXECUTIVE

SUMMARY

MARKET

RESEARCH

PROPOSED

SOLUTION CONCLUSION

Q3. How can India MSMEs be educated on how to leverage global opportunities?

Increased awareness to empower MSMEs & eliminate barriers

TRENDS

Collaboration with local associations

by E-bay & Flipkart

ATES workshops by Amazon to be a

certified Amazon seller

• NSDC centers are catchment areas due to huge

footfall

• Rural Self Employment Training Institutes (RSETIs)

• Awareness workshops at cluster level

• E-Payment Awareness Campaigns

INITIATIVES

Existing Gaps

• Complex process

• Lack of awareness

• Trust issues

• Low reach of

existing programs

Govt.

Agency

Large

Enterprises Educational

Institutions

MSME

Community

Establish CBT e-commerce communities & co-working

spaces

Develop enhanced e-commerce curriculum at

training centres and universities

Mentorship program by large enterprises

Collaborative Effort

•

•

•

BACKGROUND RECOMMENDATIONS PROPOSED

SOLUTION TIMELINE

5

6

7

Making a

conducive policy

environment

Spreading

awareness

among MSME’s of

going digital

Simplifying &

expediting of customs

& trade processes

Promoting India as

a leading MSME

exports sector

Identifying high

potential product

clusters & high

demand target

countries Laying out digital

infrastructure for

facilitating

operations of CBT

Performance

metrics

measurement of

Product & country

clusters

TIMELINE OF ACTIVITIES

9

Prepare Promote Pursue

PHASE I PHASE II PHASE III

10

THANK YOU

Q&A

References

• https://www.giz.de/en/worldwide/14479.html

• http://dgft.gov.in/ForeignTradePolicy

• http://dgft.gov.in/sites/default/files/Updated_FTP_2015-2020.pdf

• http://www.ficci-cmsme.in/msme-news-letter.html

• http://commerce.gov.in/InnerContent.aspx?Id=222

• http://www.thedialogue.co/can-indian-msme-powerhouse-retail-e-commerce-export/

• https://unctad.org/meetings/en/SessionalDocuments/dtlict4d2016_call_for_action_en.pdf

• http://oaji.net/articles/2017/1880-1511955689.pdf

• http://www.smeventure.com/b2b-ecommerce-key-factor-msme-growth/

• https://www.linkedin.com/pulse/msmes-riding-ecommerce-boom-may-make-india-huge-success-

anupam-gupta/

• https://www.financialexpress.com/industry/potential-of-e-commerce-exports-for-msmes-at-26-billion-

report/693525/

• https://www.financialexpress.com/industry/potential-of-e-commerce-exports-for-msmes-at-26-billion-

report/693525/

• http://www.derbifoundation.com/news/switching-from-offline-to-online-the-26-bn-b2c-ecommerce-

market-in-india-and-policies-to-empower-it/

• http://vadodara.iiiem.in/news-events/Huge-potential-for-MSMEs-in-e-commerce-exports-requires-

changes-in-MEIS-nid396.html

• https://www.investindia.gov.in/team-india-blogs/next-step-trade-cross-border-e-commerce

• https://walkthechat.com/cross-border-e-commerce-china-whats-trend-2017/

• http://www.cuts-citee.org/pdf/Discussion_Paper_E-

Commerce_in_the_Context_of_Trade_Consumer_Protection_and_Competition_in_India.pdf

11

References

• https://www.thepaypers.com/ecommerce-facts-and-figures/us/5#

• https://lachamber.com/clientuploads/Global_Programs/DCOG/DCOG%2011.16.16/LA%20Chamber_E-

Commerce%20Trends%20and%20%20Best%20Practices_1116.pdf

• https://www.chinainternetwatch.com/24363/cross-border-ecommerce-retail-2021/

• http://www.china-briefing.com/news/cross-border-e-commerce-china-regulatory-updates-trends/

• https://www.azoyagroup.com/blog/index/view/2018-china-cross-border-e-commerce-outlook/

• https://www.bigcommerce.com/blog/cross-border-ecommerce-china-india/

• https://www.thepaypers.com/ecommerce-facts-and-figures/india/20

• http://www.businessworld.in/article/Why-Is-Cross-Border-E-Commerce-The-Future-Of-E-Commerce-

Industry-/14-04-2018-145847

• https://www.investindia.gov.in/team-india-blogs/next-step-trade-cross-border-e-commerce

• https://www.embitel.com/tag/ecommerce-trends-in-india

• https://www.fraudlabspro.com/supported-platforms?gclid=CjwKCAjw9sreBRBAEiwARroYm-v-

sTUcI7wTwJCvAUndkuU3o2bkXGMnWrLiEjt16Hd0S2PVm6GULxoCJSkQAvD_BwE

• http://www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=OCDE/GD(96)142&docLanguage

=En

• http://www.nbc-2.com/story/39175408/chargebacks911-cyber-shoplifting-a-factor-in-merchants-194b-

chargeback-losses

• https://www.merchant-accounts.ca/how_to_fight_fraud_reduce_chargebacks.php

• https://www.eximbankindia.in/Assets/Dynamic/PDF/Publication-

Resources/ResearchPapers/Hindi/19file.pdf

• https://rbidocs.rbi.org.in/rdocs/MintStreetMemos/13MSMN17082018.pdf

• http://www.iosrjournals.org/iosr-jef/papers/vol1-issue6/C0160814.pdf

12

Appendix

13

Online cross-border

purchases from

India 3.8 Million

shoppers

14

DATA LOCALIZATION

● Using KORUS like agreement

15

Logistics of E-Commerce

Product, Technology and Analytics

Design

Planning and Control Towers

Facilities and Infrastructure

Support Functions

Investment and Financial Models

Pick-Up Fulfilment

Centres Delivery

Hub

Primary Functions

Secondary Functions

New Trends in E-Commerce:

1. Asset Marketplaces : Uber-like models using realtime data.

2. Hyperlocal Business models

3. Truck marketplaces

4. Specialized offering through private labels ( Amazon Kindle, Flipkart Smart buy)

Strategy that we can follow for international Shipping and Ecommerce

1. Choosing target markets- high demand, immersive ecommerce, low competition

2. Supporting only non- large appliance sales.

How does the inventory management happen?

Ownership model- Seller is the owner of the online inventory, Data regarding the demand and customer feedback is shared with the seller

How does Quality management happen ?

E-Commerce learns through interaction with seller or customer. Each of them have a dedicated score like credit score as an indicator of their relationship with the ecommerce player. According to the feedback received from customers, seller quality can be certified.

E-commerce supply chain ecosystem Macrotrends in E-Commerce

E-Commerce Supply Chain

Infrastructure

Customers

Sellers

Technology

Logistics Partners

Manpower Agencies

1. Omnichannel Fulfilment 2. Truck marketplaces 3. Hyper local Business Model

1. Personalization at Scale 2. Specialized Offerings 3. Locker Deliveries 4. Insurance for products

1. Automation 2. Track and trace technology 3. Complex forecasting, AI &

Route planning

New Fulfilment Models

Specialized offering and personalization

Investment in Technology

Sellers

Fulfilment Centres

Pickup Hub

Sorting centre Line Haul Delivery Hub Customers

Local connections, Dedicated Lines

Manage and store inventory

Key KPI s to be considered for ecommerce model 1. Delivery experience is different 2. Reliability 3. Reach 4. Speed 5. Scale

Transparent pricing for customer

Challenges in Credits

• Regulatory Challenge

Countries do not support full Current Account Convertibility

Upper cap on foreign currency that can be converted to local currency

The measures of trans-national economic activity which prove there has been a strongly positive trend toward greater global activity include: statistics on trade flows (exports and imports), foreign direct investment, international capital flows, and inter-country labour mobility.

In 2012, BSE and NSE launched their respective SME exchange platforms. As of October 2017, the BSE SME Exchange had 205 companies listed with a total market capitalization of ` 176 billion, as against 143 companies listed with a total market capitalization of ` 102 billion in October 2016. Likewise, as at the end of October 2017, NSE’s EMERGE had 94 companies listed with as against 30 in October 2016.

Competitiveness Strategies The ability of SMEs to create, access and commercialize new knowledge on global markets is fundamental to their sustained competitiveness. This section identifies some of the principle strategies SMEs have pursued on their own, including: − The innovation strategy, in which SMEs try to appropriate returns from their knowledge base (which may or may not involve own investments in R&D). −The information technology strategy, which makes innovative uses of information technology in order to reduce SME costs and increase productivity. − The niche strategy, in which SMEs choose to become sophisticated global players in a narrow product line. − The network strategy, in which SMEs work and co-operate with other firms, be they SMEs or large enterprises in order to improve their ability to access and absorb innovations. − The cluster strategy, in which SMEs locate in close proximity with competitors in order to take advantage of knowledge spill-overs, especially in the early stages of the industrial lifecycle − The foreign direct investment strategy, in which SMEs exploit firm-specific ownership advantages abroad.

Recent Government Initiatives

1. Augmentation of the corpus of Credit Guarantee Trust Fund from INR 25 bn to INR 75 bn, to be fully funded by the Government of India

2. Increased coverage of the loans under the credit guarantee scheme from INR 10 mn to INR 20 mn.

3. Increased coverage of the Credit Guarantee Scheme for loans being extended to micro and small enterprises by NBFCs as well

4. In the Union Budget FY18, the Government proposed that under the scheme of presumptive income tax for small and medium tax payers with turnover up to ` 20 mn, 6% of their turnover which is received by non-cash means will be counted as presumptive income as against 8% of their turnover earlier.

5. To promote cashless transactions, it was proposed in the Union Budget FY18 to exempt BCD, Excise/CV duty and SAD on miniaturised POS card reader for m-POS, micro ATM standards version 1.5.1, Fingerprint Readers/Scanners and Iris Scanners.

6. The Government of India launched an e-Commerce portal called TRIFED and a portal called ‘Tribes India’, which will enable 55,000 tribal artisans get access to international markets.

7. The Reserve Bank of India (RBI) now allows "inter-operability" among Prepaid Payment Instruments (PPIs) such as digital wallets, prepaid cash coupons and prepaid telephone top-up cards. The RBI has also instructed banks and companies to make all know-your-customer (KYC)-compliant prepaid payment instruments (PPIs), like mobile wallets, interoperable amongst themselves via Unified Payments Interface (UPI).

8. To increase the participation of foreign players in the e-Commerce field, the Govt of India (GOI) hiked the limit of foreign direct investment (FDI) in the E-commerce marketplace model up to 100 per cent (in B2B models).

9. The National Institute for Transforming India (NITI Aayog) has set up a high-level committee to consider issues related to eCommerce including FDI. The Food safety and Standards Authority of India (FSSAI) has also issued draft norms for licensing online food operators. The Consumer Affairs Ministry is also planning to regulate eCommerce through the proposed new consumer protection law.

• The government has implemented various schemes for the promotion of MSMEs. The total expenditure on these schemes as on Oct 31, 2017 was ` 33.5 bn as against ` 4.5 bn till Oct 2016.

SME Trends: 1. Growth rate (number of MSME units) : 4.5% (till FY11) 2. MSMEs are the second largest employer in India after Agriculture 3. MSMEs Account for 90% of the industrial output units of India 4. SME Rating Agency (SMERA) was formed in Aug 2005 to facilitate the process of lending to SMEs. 5. SME Exchange was established by NSE and BSE respectively in 2012 for greater visibility, enhanced brand image and

raising funds through stock market 6. As of May 2018, there are 150 companies listed in NSE SME Exchange with INR 2221 Crore raised through IPO 245 companies listed in BSE SME Exchange with INR 2246 Crore raised through IPO They eventually get moved to the main exchange according to their market valuation 7. As of March 2017, the MSME project of the World Bank has disbursed USD 265.38 million facilitating SME finance

Benefits of listing in SME platform 1. Governance Structure 2. Capital Access to Expansion 3. Improved Credit Rating 4. Easy Finances 5. Branding

Impact of Demonetisation

• Crunch of working capital

• Fall in Consumer demand

• Supply disruptions

Post Demonetisation

• Shift to cheque or electronic payment

• Primary sectors which have shifted in textile, agricultural products, electrical equipment, steel consumer durables and automobiles.

Access to Finance

Why is there a demand supply mismatch?

• Perceived credit risk involved in SME Financing

• Availability of invoices, proper accounting systems, validity of buyers.

• Alternative financing instruments to SME

1. Peer to peer lending through airtel money, m-pesa

2. Factoring by selling accounts receivables: India’s factoring of account receivables is at 2% of China’s factoring market

3. Supply chain finance : HSBC introduced Distributor Finance Program for financing and collection of any SME’s supply chain

4. Foreign Exchange and Advisory & Hedging solutions

5. Inward and Outward remittance services

6. Foreign Currency Accounts

7. SME Credit Card and SME Smart score

Digital advertising spending was about 12 percent of total advertisement spending in the country. eCommerce leads digital spending followed by Telecom and Banking, Financial services and Insurance (BFSI) with focus on social media marketing, search engine optimization, content marketing and emailers for marketing their brand online. Digital advertising is expected to exceed $3.5 billion by 2020. The GOI recently introduced a six percent equalization levy, informally known as the “Google Tax,” to indirectly tax international internet companies like Google and Facebook operating in India by adding a levy on payments made to them for the digital advertising space or services for online advertisements.

Sellers

Fulfilment Centres

Pickup Hub

Sorting centre Line Haul Delivery Hub Customers

Local connections, Dedicated Lines

Manage and store inventory

Key KPI s to be considered for ecommerce model 1. Delivery experience is different 2. Reliability 3. Reach 4. Speed 5. Scale

33

Objective

Crux: Perspectives and solutions on how MSMEs can build momentum on growth and capture

opportunities presented by global markets - B2C cross-border trade (CBT) e-commerce. (B2C CBT e

Commerce expected to quadruple by 2020, P.S: 500 mn USD in 2016)

Questions

1. What can be done to encourage more B2C exports from India in the MSME space? Recommend

efforts that can address existing infrastructure, logistics, policy and technology. --- 50

2. Suggest key marketing initiatives to promote India as a leading MSME export sector ---30

3. How can India MSMEs be educated on how to leverage global opportunities? --- 20

Challenges: complicated shipping and exports procedures,

Benefits of MSME using e-commerce

● 60% reduction in marketing and distribution costs

● 27% higher revenue growth.

34

Ministry of Micro, Small Medium Enterprises

- Promoting growth and development

- Adopt cutting edge technology

- Creating new enterprises

- Providing support through existing enterprises

Structure of Ministry of MSME

- Small & Medium Enterprises

- Agro & Rural industry division

- Integrated Finance wing & Data analytics and Technical coordination

- Office of Development Commissioner

35

36

37

38

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40

41

42

43

44

45

46

47

48

49

50

51

52

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COIR BOARD

54

55

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4-step process for e-commerce into another country

57

Stakeholders for CBT - India

58