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Complex Fulfillment Simplified
Impact of Digitalisation on E-‐Commerce and Logistics Industries in India
Shloka Shetty
“ My perspective about the past, current & future trends in the logistics & e-‐commerce industry considering the structural changes of the industry, the high growth rate of the Indian economy, the aspirations of 700 million young Indians and their power to spend, all of which are accentuated by the digital revolution in India, which makes all products and services just a click away.”
Shloka Shetty 2
Table of Contents
Digitalisation in India .................................................................................................................................... 3 What is Digitalisation? ..................................................................................................................................................................... Digitalisation in India ........................................................................................................................................................................
Impact of Digitalisation on Various Industries in India ...................................................................................... 4 Telecommunications Industry .......................................................................................................................................................... Taxi Industry ..................................................................................................................................................................................... Fashion Industry ............................................................................................................................................................................... Logistics Industry .............................................................................................................................................................................. E-‐Commerce Industry .......................................................................................................................................................................
Background Information on Logistics Industry in India ..................................................................................... 5 Market Overview ............................................................................................................................................................................. Products and Services ....................................................................................................................................................................... Drivers and Challenges .....................................................................................................................................................................
Digitalisation in Indian Logistics Industry ......................................................................................................... 6 Status Today .................................................................................................................................................................................... Voice of Customer ........................................................................................................................................................................... Impact on Logistics Suppliers ............................................................................................................................................................
Future of Digitalisation in Indian Logistics Industry .......................................................................................... 8
Background Information on E-‐Commerce Industry in India ............................................................................... 9 Market Overview .............................................................................................................................................................................. Products and Services ....................................................................................................................................................................... Status Today………………………………………………………………………………………………………………………………………………………………………………..
Digitalisation in Indian E-‐Commerce Industry ................................................................................................. 10 Staus Today ....................................................................................................................................................................................... Digital Operations in E-‐Commerce Workflow ...................................................................................................................................
Future of Digitalisation in Indian E-‐Commerce Industry .................................................................................. 11
From the Producer’s Perspective .................................................................................................................. 12 Interview with Logistics Supplier………………………………………………………………………………………………………………………………….. Interview with E-‐Commerce Supplier…………………………………………………………………………………………………………………………...
From the Consumer’s Perspective ................................................................................................................. 15 Interview with Logistics and E-‐Commerce Consumers…………………………………………………………………………………………………….
Conclusion and Key Recommendations ......................................................................................................... 16
References .................................................................................................................................................. 18
Shloka Shetty 3
Digitalization in India In the last decade, India has experienced a large-‐scale digital transformation, driven by consumers, the government and businesses.
Digitalization in India
What is Digitalization? Digitalization is the use of digital technologies to change a business model and provide new revenue and value-‐producing opportunities; it is the process of a business’ digital transformation (1). Cloud computing, mobile computing, social media and business analytics drive this transformation.
• Consumers -‐-‐ Indian consumers are fast going digital—smart phones and tablets have now become household items. Digitization of consumers in India is reflected in IT spending trends. The Indian market is expected to attract 155.6 million smart-‐ phone shipments in 2017, accounting for 10.3 percent of the worldwide smart-‐ phone market (2).
• Businesses -‐-‐These changing consumer trends, facilitated by government initiatives, are compelling businesses to look at their business
• Governments -‐-‐ Governments at the Centre and in States are also doing their bit by building digital infrastructure through the Digital India campaign.
These multifaceted effects of digitalization, within the Indian context, can be further seen in view of its impact on 5 major Indian Industries.
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Impact of Digitalization on Various Indian Industries
1. Telecommunications Industry -‐ The Indian telecom industry is one of India’s fastest growing industries, expanded at a CAGR of 11% between the Fiscal Year 08-‐12(4). This was primarily due to wireless services (a front-‐running example of digitalization in India), which accounted for 97.3% of the overall subscriber base for telecom services in India, as of February 2015(5).
2. Taxi Industry -‐ The availability of online cab booking due to
increased digital literacy has caused the Indian taxi industry to grow at a rate of 17% CAGR between FY 15 and 16(6). Yet, this expansion has been concentrated solely on taxi companies that have online services, such as Ola, Uber and TaxiForSure, who take up most of the market share of the industry(right).
3. Fashion Industry -‐ As a result of digitalization in India,
consumers have greater access to apparel and accessories through the Internet and digital devices. Additionally, they can compare products, prices, service levels, and the feedback of fellow consumers online. Therefore, the purchase of fashion products is not only easier, but also more thorough and efficient. This has caused a large-‐scale increase in the size of the Indian fashion industry.
4. Logistics Industry -‐ The logistics industry has benefited from
GPS navigation, real-‐time weather data feeds as well as smart containers , which are all part of the digital transformation of this industry. Automated electronic data exchange from ship to ship and ship to shore to increases efficiency, safety and security of maritime navigation and communications. (7)This is why the logistics industry is forecasted to grow at a high rate (right)
5. eCommerce Industry -‐The proliferation of mobile devices
combined with internet access via affordable broadband solutions and mobile data are driving the tremendous growth in India’s e-‐commerce sector. The surge in the growth of online retail transactions via marketplaces such as Snapdeal, Amazon and Flipkart is due to the underlying mobile technology and the ready availability of online access.
CAGR
11%
Indian Logistics Market Size Forecast 2013-‐18(US$ Billions)
Shloka Shetty 5
Indian Logistics Industry – Background Information
Background on Logistics Industry in India
Drivers
Ø Global Trade Boom Ø Rapid Economic Growth and FDI in
Logistics Ø Growth in Retail Sector Ø Rise in e-‐Commerce Ø Implementation of GST in India Ø Digitalization in logistics services
Challenges
Ø Poor infrastructure (although government spending on infrastructure is slowly rising)
Ø Lack of skilled manpower Ø Rise in real estate costs Ø Trade Regulations
Logisacs Industry
Modes
Road Freight Rail Freight Air Freight Coastal
Shipping
Services
3PL 4PL Reverse Logisacs
Freight Forwarding
Courier Service
Infrastructure
Warehousing
Cold Chains
CFS/ICD Port
Market Overview (8) Ø Amalgamation of courier, freight, Third Party and Fourth Party Logistics Ø Courier market shows highest CAGR, while freight forwarding has largest market size Ø Indian logistics market is valued at around $90-‐$120 billion US Dollars, and contributes to approximately 13% of the
Indian GDP Ø It is expected to grow at a CAGR of 12.17% by 2020, and has significant business earning potential in domestic
market Ø 3PL and Reverse Logistics are emerging markets with huge market potential and scope for expansion
Generally, India’s logistics market is huge but unexploited. With the increasing globalisation, logistics players in India have
to face the challenges since worldwide sourcing and deliveries requires global logistics support. The above figure portrays the overview of Asia-‐ Pacific logistics market and the position of India as compared to other countries within the region.
Unlike China, the development in the Indian logistics market is relatively slow and still in the infancy stage in India. However with the entry of several foreign logistics companies into the country, domestic logistics players are realising the advantage of supply chain management and trying to adopt them into their business to remain competitive. As a result, recent years has been witnessing increasing service levels in the industry. Growth is varied within different industry segments. Some industry segments are highly fragmented with many organized and unorganized units. About 50% of the logistics services are in unorganized sectors.
Challenges and Drivers of Digitalization in Indian Logistics Industry:
Products and Services:
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Status Today
Indian logistics firms are moving from a customary set up to the incorporation of IT and technology to their operations to decrease the cost incurred and meet the service demands. The logistics industry in India is evolving rapidly and it is the interplay of infrastructure, technology and new types of service providers that will define whether the industry is able to help its customers reduce their logistics costs and provide effective services.
Digitalization in Indian Logistics Industry
Customer Needs and Expectations in the Logistics Industry
Customer satisfaction is very important for logistics companies seeking competitive advantage, because they realize that if they do not satisfy the expectations of customers, their place will be taken by other companies whose activities will be more concentrated on customer expectations. Therefore, logistics companies must ensure every customer service related aspect, no matter what it includes: acceptance of orders, their execution or the solution of problems.
Logistics service quality is the result received comparing customers’ expectations with customers’ perception of service quality. Clients, prior to ordering the service, already have expectations of what the service provider should offer them. Therefore the quality of logistical service perceived by the client is the difference between the perceived service and expectation. The quality of service is closely related to customer expectations. In today’s competitive environment, the pursuit of customer satisfaction highly depends on the organization’s overall service quality.
Using Digitalization and Technology to Fulfill Customer’s Needs and Expectations
According to a survey by PWC on the Indian logistics market(9), technological solutions used iin the industry were evaluated the worst among the key performance indicators(KPIs), suggesting that service provider are not equipped with customer expectations justifying technological equipment (physical) . The concluding results of this research indicate that logistic service producers are fairly conservative and cautiously consider innovations. Consumers on the other hand, properly accept IT integration and feel lack of technological innovations in logistics processes at different stages of the customer service. Thus, with the proliferation of technology in every aspect of the industry, Logistics operators are to keep up with the pace if they wish to retain customers and acquire new ones. But companies in Logistics and Distribution face the challenge of delivering exceptional customer experience on wafer thin profit margins. Whilst investing in IT and warehouses, fleet management systems, etc, investing in customer facing solutions is equally important.
Omni-‐channel Opportunity Companies need to establish their presence on the communication channels that their customers prefer. And with the growth of e-‐commerce the business clientele base of Third-‐party Logistics providers and Supply Chain Management companies are rapidly increasing. Operators can provide services across multiple channels including web, mobile, email, IVR, and social media. In-‐Sync with Evolving Customer Demands With changing market dynamics and technology advancements, customer demands have transformed posing a new set of challenges for logistics operators to tackle;
-‐ Flexibility -‐ Visibility and Transparency
Scalability Requirements The demand for logistics services are likely to increase during sale periods and holiday seasons with the increasing number of orders, especially with 3PL providers. In such scenarios, the technology should be able to scale up to meet the requirements of business demands.
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Impact on Logistics Suppliers
The logistics industry and logistics service providers are hampered by low rates of technology adoption and poor skill levels. On the technology front the industry now seems to be paying serious attention with use of RFID, vehicle tracking technologies, warehouse management system etc. While acceptance is perhaps is not an issue anymore, the marriage between IT and domain requirement needs to be resolved. Automation in processes is still only in its infancy. Further progress is dependent on a certain level of standardization which is made more difficult by the fragmentation in the industry. This drawback needs to be tackled at the earliest.
In addition to the technology related issues the skill levels of in the logistic industry also require to be upgraded urgently. As now courses focusing on logistic industry remain few and far between. Also logistic industry is still not looked at as the industry of choice for young graduates thereby making hiring of quality professional manpower challenging. Some of the skills required in this sector are technology skills, driving skills including safety procedures, industry understanding and multi operator’s skills.
Limited Adoption of Technology and Digitalization
But with the infrastructure largely under-‐developed and incapable of catering to a growing economy, logistics management in India becomes too complex. The poor condition of infrastructure directly translates to higher turnover, pushing up the operating costs and reducing efficiency. There are other problems such as complex regulatory compliances and limited adoption and utilization of technology, which has resulted in increased paper work and inability to communicate effectively with customers.
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In spite of dismal infrastructural scenario, the hopes of the logistics sector are kept up by the various upcoming infrastructural projects like logistics parks and hubs and other initiatives by public and private sectors. The future of the logistics sector depends not only on the continued development of infrastructure but also on the capability of the service providers in adopting themselves and making optimal utilization of technologies.
There is a substantial opportunity to save on transportation and In Transit Losses with the adoption of technology, as seen by the relatively low cost of technology adoption:
Constituents of Total Logisitcs Cost
India
Transportation 35% Warehouse and Handling 9% Inventory 25% Packaging 11% Customers and Shopping 6% Transit Losses 14% Technology Cost <1%
Source:http://ops.fhwa.dot.gov/Freight/freight_analysis/econ_methods/lcdp_rep/index.htma
According to Accenture,
“Digitalization and technology offers opportunities, but many LSPs are struggling to figure out how to adopt new ways of working. For instance, e-‐commerce platforms provide an online solution for seamless processes from order to invoice. If LSPs fail to employ logistics solutions using latest technology, they’ll see a rise of niche players providing these platforms who are ready to jump in the game with the intent of becoming a 4PL service provider.”
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“The promise of ‘digital India’ and the dream of better highways married to the tech savvy companies adopting innovative supply chains, promises rainbow rides from start to finish”.
-‐ PwC
It’s the commencement of a new age for the Indian logistics sector—drawing more investment, creating more employment and also the buzz about 'Make in India’ campaign. Riding on the back of a vigorous GDP growth, globalization, FDI in logistics, growth in e-‐commerce, and increasing government support, the logistics sector is set to make an indelible impression in 2017. Right now, a number of new logistics concepts point to how services will be commissioned and executed in years to come.
Digitally enhanced cross-‐border platforms -‐ The internationalization of businesses, especially small and medium enterprises (SMEs), depends on reliable, easy-‐to-‐ use logistics systems with global reach. Digitally enhanced cross-‐border logistics can thus boost worldwide trade for the SME sector in particular. ‘Digitally enabled global shipping platforms not only connect individual sellers with millions of potential buyers. They display fully landed costs, offer printing functions for shipping documentation and include the option to place pickup requests. Customs filings, international packaging and import payments can be handled by service partners supporting the platforms, and the items can be sent to the international buyers with complete end-‐to-‐end tracking. Digitally enabled platforms can also consolidate demand from several shippers, optimizing the end-‐to-‐end logistics planning process and, based on warehouse location and targeted delivery location, suggesting appropriate transport modes.
Changing Delivery Capabilities -‐ Even now, in the aftermath of the digital revolution and the early years of the Information Age, the need to move physical goods from A to B endures. Delivery methods, however, are starting to change. The trend of
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crowdsourcing, and innovations in manufacturing (3D printing) and technology (drones, autonomous trucks) have widened the range of options and opened up logistics markets to new players.
Future Trends in Indian Logistics Industry
The growing technologies worldwide are expected to change the India logistics industry in future. At the time, the concept of e-‐commerce and open buying on the internet (OBI) are still in nascent stage in India due to the traditional mindset of the corporate and people, low awareness, absence of strong infrastructure and secure payment system and also due to the lack of privacy and safety on the net. However in the future, the growth of e-‐commerce and its logistics needs will become inevitable and India will overcome these barriers. The increasing online sales will force e-‐companies to forge strategic alliance with logistics service providers that can provide cost effective and seamless distribution solutions. As such, India can expect a shift in the retail logistics, B2B procurement practices and the way the distributions are handled. The adoption of new technologies such as GPS and RFID will take place rapidly in the future. The defence logistics will also emerge as an important area for new technologies in India.
The Bigger Picture
Change is the new constant. With strides in technology, there is a continuous demand for better products and services from consumers. There is a tremendous opportunity for innovation using IT, Big data, Advanced analytics and machine learning. Any 3PL(Third Party Logistics) that remains static in its services will struggle to keep pace with growing supply chain demands. Hence logistics providers need to constantly evolve and upgrade their services to align with consumer expectations.
Future of Digitalization in Indian Logistics Industry
Shloka Shetty 9
Market Overview: While India has an internet user base second only to China, only 14 per cent of the total internet users shop online in India, as compared to 30 to 35 per cent in Brazil and Russia, and 55 per cent in China.The e-‐commerce market in India was estimated at USD27.5 billion in 2016, and is expected to grow at a CAGR of 31% to touch USD80 billion
The top three to four players in the market currently command over 80% of the market share in the overall domestic e-‐commerce retailing space.
In the coming years, the e-‐commerce retailing industry is expected to witness the consolidation and emergence of few big players. Further, changes in the FDI regulations could also boost the penetration of major players and help them gain higher market share by FY20.
Electronics is currently the largest segment in e-‐commerce retail, projected to grow at a CAGR of approximately 43 per cent till 2020.
The share of electronics in online retail is, however, expected to decline with higher growth in other segments such as apparel (CAGR approximately 50%) and home furnishings (CAGR approximately 68 per cent) in the coming next four to five years. At present, the e-‐commerce retailing industry is witnessing approximately 1 to 1.2 million transactions per day, led by categories including apparel and electronics .
The penetration of online retail in the total retail market is expected to rise from 2.5 per cent in 2016 to 5 per cent by 2020. Of the total organised retail market, online retail penetration is likely to increase from 6 per cent in 2014 to
25% in 2020
Indian E-‐Commerce Industry – Background Information
Products and Services: The online travel segment comprises about 61% of the e-‐commerce industry in India, including travel and e-‐ticketing websites. Ticketing accounts for the largest share of the online travel market, with domestic air ticketing driving growth.E-‐commerce retailing is the second largest and fastest-‐growing segment. This is followed by the financial services and classified segments, job searches and online matrimony which contribute to about 15 per cent of the market by value.
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Status Today
Digital O
peraVo
ns
ApplicaVon Programme Interface (API) integraVon of e-‐commerce retailers’ system with the 3PLs
system
Focus on tech-‐enabled logisVcs:
Launch of Card Swipe on Delivery
IntegraVon of systems in case of a reverse supply chain:
At present, e-‐commerce retailers opt for superior technology platforms and integrated order management systems for offering automated fulfillment centres. The sector is witnessing a shift with fast-‐moving mobile and social technologies. E-‐commerce channels are integrating their customer relationship management software, social media marketing and search engine enhancement practices for better supply chain management.
Digitalization in the Indian E-‐Commerce Industry
The Indian e-‐commerce retail sector continues to grow and evolve. In its initial years, e-‐commerce retailers dealt with low product volumes, with limited geographic reach, and hence managing operations in-‐house was relatively less complex. Higher costs and limited external capability in case of outsourcing fulfillment also drove several e-‐commerce retailers to manage their fulfillment in-‐house. However, with an increase in the scale of business and the emergence of mid-‐tier e-‐commerce retailers, the sector seems to be undergoing a modular shift toward outsourcing the fulfillment process. A shift to the marketplace model and convenience to vendors are expected to drive the demand for outsourced fulfilment centres.
The increased penetration of internet services and faster internet services like 3G and 4G have contributed to the ease of selling and buying/purchasing products online. Additionally, with increasing smartphone penetration, the e-‐commerce retailers are also focusing on mobile apps as against websites. The use of digital marketing including mailers, digital billboards, mobile messaging and e-‐mails also help to target specific potential customers with special offers.
Online advertisements and electronic word-‐of-‐mouth via social networking sites further entice people to buy products. For instance, certain mobile companies exclusively sell via websites and mobile applications. More than 50 per cent of the orders for e-‐commerce retail giants are generated via mobile applications. In this context, the COD option has been instrumental in driving retail e-‐commerce growth in a developing market like India, with low penetration of debit or credit cards or even bank accounts to make online purchases. Features such as ‘online only discounts’, online coupons and free shipping facilities could further help in expansion of this sector. The growth in e-‐commerce along with low credit and debit card penetration has also led to an increased usage of mobile wallets in the country. One of the largest player in the mobile wallets market in India has more than 104 million users who carry out over 75 million transactions per month.
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The e-‐Commerce industry is driven largely by continuous innovation and technology-‐led solutions and these are expected to continue in the future. Enumerated are a few key future trends:
Innovation in Payments
The ever increasing use of digital wallets together with the newly launched UPI platform, will foster innovation in payments. The UPI platform will be leveraged to offer innovative payment modes to customers and also make CoD seamless by cashless fulfilment at the time of delivery. This would make payments even more seamless and will hopefully reduce goods return.
New Delivery models
Keeping in perspective the “choked traffic” situation in India’s metros leading to late deliveries or increasing the biker count to meet the delivery timelines, e-‐Commerce and Logistics service providers are exploring moving from synchronous hand delivered parcel system to
an asynchronous model, where parcels are delivered to a locker secured by a code sent as a text to the recipient. This experiment, if successful, is likely to help e-‐Commerce companies to enhance customer experience.
Collaboration of e-‐Commerce and offline entities
There will be a collaborative approach between e-‐Commerce companies and offline entities such as retailers, banking business correspondents, micro-‐finance companies, etc. for order fulfilment in tier 2 & 3 cities. Likewise, the extensive distribution network of entities who have secured small bank and payments bank licenses (For e.g. Telecom operators, India Post) will be leveraged by e-‐Commerce logistics service providers for enhancing and optimising the last-‐mile delivery to the new markets in the rural hinterland.
Technology and Wearables
The launch of wearables, such as Google Glass, Apple Watch and other Smart Watches, opens new opportunities for reaching out to customers. e-‐tailers would keep an eye on developments in this arena, although this might only be an urban phenomenon at the moment.
Efficiencies attained by Artificial Intelligence and the use of Drones
Anticipating the seasonal surge especially during festive seasons is a challenge for e-‐Commerce companies in terms of managing the supply chain logistics to provide on-‐time deliveries to all customers. Therefore, Artificial Intelligence technologies will be leveraged in the future to anticipate demand, manage price fluctuations and to overcome challenges of last-‐mile deliveries.
Automated Guided Vehicles (AGV) could solve many logistics problems of the e-‐tailers and result in highly successful product deliveries. For example, Amazon Prime Air is working on drone-‐based delivery of its products. Local knowledge of the delivery person complemented by GPS-‐based device could lead to efficient delivery of products.
Future of Digitalization in Indian E-‐Commerce Industry
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From the Producer’s Perspective
An interview with V.Balaji, CEO of Avvashya CCI (Logistics Supplier) ACCI is a logistic service provider catering to wide array of industry, including e-‐commerce. Can you explain your rationale to serve e-‐commerce clients? The Indian economy has been consistently showing good signs of growth, with the average GDP growth rate at 7.5% in 2015-‐16. The retail sector is showing a promising trend of 11% CAGR, growing from an estimated size of USD 600 Billion now to USD 1 Trillion in 2020. Although, currently the total e-‐Commerce spend in India accounts for less than 2% of the total retail spending, e-‐Commerce has become a key driver to create new markets in erstwhile unreachable geographies. The e-‐Commerce industry is expected to form the largest part of the Indian Internet market with a value of approximately USD 100 Billion by 2020. In addition to transforming and revolutionizing the retail sector in India, it is also facilitating Logistics companies to jump the evolution loop by providing means of logistics services, technology and training. E-‐com demand for services is majorly to handle complexity and mix of SKUs, Inventory accuracy, reverse logistics, sudden surge in order volumes, and seasonality of business, accuracy & speed to market. Keeping all the service requirement and need for E-‐com logistics we as ACCI have proved and showed the capability time and again meet the sector demands. ACCI has team of handpicked trained professionals from the industry to support the e-‐com operations supported by state of the art facilities and sustainable technology. What are some of the challenges & opportunities you see going forward for your company, especially the digital disruption and the opportunity it created? Indian logistics business is in the evolution phase where today customers have demand for end-‐to-‐end supply chain management, which has led to qualitative growth. Logistics providers have started providing end to end solutions with complete service offers like: PO management, Pickup coordination with customer’s suppliers, pick and consolidation at country of origin, returns management, international freight forwarding (FCL / LCL), CFS (Container Freight Station) services at port of arrival, Customs clearance, and transportation, warehousing and feeding to line. IT solutions like WMS, TMS, GPS Tracking, Oder fulfillment using Pick to Light, Voice Pick & Put to Light have become consistent across all warehousing service providers and with response time getting compressed day by day it’s become mandatory for industry leaders to invest in these basic applications. Even small time companies and startup express service providers have invested in Infrastructure & IT solutions to be competing with leading 3PL companies. Also, companies no long vary in investing into automation with the customer demands for it or the service needs it. The size & what type of automation has become a big business decision for customer to award business to 3PL companies. With the growth industry has invested a lot in automation & IT solutions and now for future engagements offer ready to move and operate warehouse facilities across India. What has been your experience with your e-‐commerce customers, and what are some of their key expectations? With the growing demand from customers and the need to attain a competitive advantage, quantum specialized services may increase in the near future, which could result in outsourcing of these services to the 3PLs. The logistics cost for e-‐commerce retailers can be split across the components of consolidation, sorting, line-‐haul and last mile delivery (this comprises a major chunk of the fulfillment costs. Return charges are additional to forward charges and therefore, may be in the range of 1.5 to two times of the forward charges. Logistics cost are further a function of being local, regional or national deliveries. These cost functions may however vary by scale and the use of technology. Further, a high percentage of returns (as high as 15 to 20 per cent) in the industry, and other incidental expenses such as misrouting and lost shipments add to the logistics costs. Also, other special deliveries such as time-‐bound and slotted delivery commitments along with the prevalence of the COD model increase the logistics costs. Generally, all the standard delivery costs including COD and returns are borne by the e-‐commerce retailers. These areas are where the e-‐commerce customers wants 3PL companies to provide best class services and that will be our focus area in coming years. (First mile logistics, Fulfillment, Processing/sorting, Line-‐haul, Last mile logistics, Returns, payment solutions -‐ Cash on Delivery (COD), Inventory Management, Value added services like barcoding/labeling, stickering, Pre-‐packing etc.)
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An interview with Mr. Rajdeep Datta, Operations Leader HSSSC Amazon (E-‐Commerce Supplier) What are your thoughts about the huge growth your industry is experiencing? Indeed, this is truly an amazing Journey for us with tremendous learning, innovations etc. Indian market is huge with the tremendous size of the market. India is leapfrogging from Mom & pop shops to the E-‐commerce platform to purchase, pretty much everything. We have established as one of the largest brands in India & have a nationwide presence. India has around 300-‐odd million Internet users, out of its total population of 1.3 billion this is growing at a CAGR of 50% YOY. This is fueling the growth of online commerce from establishing itself in the country. For any other industry, it takes decades of effort to have companies that are worth billion dollars. But in India, out of the nine startup unicorns, four are horizontal online marketplaces. And despite the recent shutdowns and funding crunch affecting the startup ecosystem, digital commerce has established itself. The latest study by the Internet and Mobile Association of India (IAMAI) has, in fact, found that at a CAGR growth rate of about 30 percent between December 2011 and December 2015, Indian digital commerce stands at Rs. 1,25,732 crore. The report estimates that it will hit Rs. 2,11,005 crore this year. Online retail has grown by 57 percent since December 2014; electronics goods and fashion contribute close to 49 percent of overall spend in e-‐tail. Horizontal marketplaces are the clear winner. In 2015, $9 billion flowed into Indian startups, with ShopClues, Flipkart, Snapdeal and PayTM bringing in a fourth of the amount. There are speculations about the e-‐commerce companies are at the verge of running out of cash due to the so called huge discounts being offered to your customers, which Is also a well known that the cash burns of your investors funds with the claim to change consumer behavior. Is this true? Behind numerous headlines of a cash crunch hitting major Indian e-‐commerce companies, and their valuations being questioned, is a revelation not too many people are talking about. Indian e-‐commerce was emblematic of frenetic growth until very recently, but the last six to eight months have seen the industry come to a grinding halt, making it an inflection point for all the players involved. It is true that online retail market stagnated between May 2015 and 2016 in terms of the value of goods sold. While in May last year, the e-‐commerce biggies clocked a gross merchandise value, or GMV, run rate of $9 billion, that number has only inched up to about $10 billion at the end of May this year, translating into an 11% annual growth. In December last year, the total GMV run rate had reached $10.5 billion on the back of the festive season, which typically sees a rush of discounting from all e-‐tailers. GMV is overall sales on an online marketplace, excluding discounts and returns which are an integral part of the e-‐commerce market. The data gleaned from primary research and vetted by multiple stakeholders in the industry indicated that Flipkart , the country's largest online retail player, has seen its GMV run rate stall at about $4 billion for almost a year, while an aggressive Amazon has gone from clocking $1 billion to $2.7 billion in gross sales. However, Amazon's operations in India only began three years ago and it's been gaining ground on a smaller base. What's worth noting is that Flipkart notched up a 400% growth the year before, when it's GMV zoomed from $1 billion to $4 billion, post which the numbers have gone flat. What are some of your major challenges? We have number of things that have changed over the years to our advantage in the last few years. we have a very well established procurement, fulfillment Centre operations all over the country & a efficient delivery mechanism. Our technology, procurement & delivery services has undergone remarkable transformation. We invested a lot in our logistics infrastructure by creating separate fully owned company & built our vendor network across India. Without a doubt, India has been a profitable ecommerce region in the last 7 years. Thus many venture capitalists, angel investors, private companies and high net-‐worth individuals are pouring money in ecommerce, no matter how small or big the company. Only condition being the start-‐up needs to have potential to lure in the target market. With a population of more than 1.28 billion, Indian is a goldmine waiting to be explored. But logistics has been and still is a major issue because of which ecommerce companies haven’t been able to reach all pockets. Experts believe that in the next decade organized retail will grow from 0.1% to 5.3%. Tier 1 cities are nearly exhausted. The next decade would belong to infiltrating Tier 2 & 3 cities and reaching out further down. This would require strengthening the logistics & delivery arm, which would also include building ample warehouses, good tracking systems and hiring trained & trustworthy workers. The future demands market leaders in ecommerce to raise funds in order to sustain the growth. An ETRetail news report stated ‘Indian online retailers such as Flipkart and Snapdeal must collectively raise $20 billion (Rs 1.27 lakh crore) in the next five years to be able to sustain growth, investment bank Goldman Sachs has estimated.’ Is this why Flipkart is looking to raise debt for the first time with Rs 3,000-‐crore rupee bonds and Snapdeal revived talks with Alibaba. As far as top etailers are concerned, none of them are competing on any product/service differentiating factor.
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What is the impact of Goods and Service on the Indian E-‐Commerce Industry? Today e-‐commerce in India is mired in a host of taxes: VAT / CST / Excise / Service Tax / TDS with more than one tax applicable on any given transaction. Involvement of logistics / reverse logistics, advertising & promotion services, goods like software, music, e-‐books etc. makes it hard to differentiate Goods & Services component of each transaction. The prevalence of statutory forms / e-‐way bills etc. make it complex to do interstate transactions. Market places also need to comply with requirements of registrations and declaration of turnover to multiple state tax departments. Under GST, India would become a common market and drive uniformity, reduce compliance costs. Due to restrictions on cross utilization of input of central taxes against state taxes there is price escalation due to taxes sticking to products sold. A number of e-‐commerce transactions are also undefined in tax laws (Ex: e-‐wallet, gift vouchers, drop shipments, advance receipts, COD etc.). With interstate transactions becoming tax neutral vis-‐à-‐vis local sales under GST, the warehousing strategy of ecommerce companies would also need reengineering to meet client proximity needs and not be driven by tax consideration. On the positive side pricing of product, profitability would be more predictable and agnostic to destination of customer. For e-‐commerce companies who buy stock, store inventory and sell, in place of 12.5% Excise they will have to shell out 17-‐18% GST thus driving up prices. They will also be taxed on unsold inventory held in warehouses.
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From the Consumer’s Perspective
Interview with Mr. and Mrs. Siddharth Chowdhury (Logistics and E-‐Commerce Consumers) How frequently do you use e-‐commerce platforms for your day to day shopping needs & why? I use the services of digital platforms for my shopping needs, such as garments, toiletries & many other personal, official requirements. I find this is very convenient to shop in term of time saved, avoid traffic, delivered at my door step as per schedule agreed & many times. Very economical. For me it is fantastic! How do you manage if the items ordered does not fit you or wrong size or item is sent? Is the return of the shipment is easy? Does it cost additional charge? No it does not. Generally I use the cash on delivery with the e-‐commerce company I use. Most companies I believe offer these services. So, generally I examine & even try out the garments before I pay for it. My friends say that even if we buy through credit card the amount is refunded promptly upon rejection free of cost. Do you think the e-‐commerce business is here to stay, especially keeping in mind the amount of money these companies lose? I think this is a very efficient way of doing business. Over a period of time, I am sure these companies shall withdraw many of the discounts & free bees they offer today. I am sure their strategy is to change the behaviour of consumers & create online demand. Once this is achieved, these companies will start making profit & continue to grow the business. However, I believe this concept is here to stay & more & more products, services will come to our door step using on line services.
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Conclusion and Key Recommendations
Government’s Role
Increase internet penetration At the heart of the e-‐Commerce lies the ability to not just stay connected online but also to do so at a fast speed. India ranks relatively lower when compared to its Asian counterparts, the U.S. and China in respect to Internet speed. Additionally, many parts of rural India are yet to receive broadband connection. While efforts have been made in this direction, the Government plans to facilitate Internet connectivity for over two lakh Gram Panchayats. PPP (Public Private Partnership) projects in this space would become instrumental in enhancing the reach of the Internet to rural parts of India.
Seamless integration between Government departments and agencies An integrated and coordinated approach is much needed between different government agencies, such as Policy-‐makers, Income Tax, Sales Tax, Direct Tax, Excise, and Registrar of Companies, to ensure faster turnaround, efficiency and transparency for all stakeholders in the e-‐Commerce ecosystem. With instances where one state is levying a flat entry tax on all e-‐Commerce consignments and another state barring taxi-‐hailing companies from dynamic surge pricing, the Government is likely to limit the business models of e-‐Commerce players. The Government should ensure a uniform regulatory and tax structure across the states to prevent such instances from dampening the growth of e-‐Commerce in India.
Faster implementation of initiatives The Government has already launched several initiatives such as Digital India, Skill India, Innovation Fund, and Start-‐up India. However, the success of these initiatives lies in speedy and result-‐oriented implementation. Thus, faster implementation of these initiatives would have a positive impact on the e-‐Commerce industry.
Training and Skill development e-‐Commerce has already become an attractive destination for budding entrepreneurs and MSMEs. This has generated both, blue-‐collar and white-‐collar employment opportunities in India. Further, functions such as logistics, analytics, pricing, inventory management, transportation, last-‐mile delivery etc. are unique and highly specialized. Lack of skilled manpower in these areas is one of the bottlenecks faced by the e-‐Commerce industry. To address this challenge, joint programmes by the private and government sector would be instrumental to ensure a steady flow of trained talent who have the ability to quickly adapt to the dynamic growth phases experienced by this industry. Towards institutionalizing this recommendation, strategic alignment between the Central and State government is imperative to strengthen this talent development initiative. For example, e-‐Commerce private players could feed into the Skill India initiative of the Government to make it more industry relevant while the State governments identify potential talent pockets in their area of influence to feed the raw potential into this programme.
Follow a procurement process to appoint Public Sector Enterprises (PSEs) A process whereby PSEs and Private Sectors Companies are selected using bids or tenders to ensure that the Public Sector and the Public Exchequers get the best service possible should be enforced. This will benefit the B2B e-‐Commerce companies.
Create customer and sellers scoring database A consultative approach with participation from all stakeholders in the e-‐Commerce industry should be encouraged to come up with a scoring database of customers and sellers. Stakeholders should determine key scoring parameters based on previous online shopping behaviour for buyers. Similarly, scoring can be assigned to merchants based on their quality of products delivered, etc. The scoring mechanism will discourage the abuse and fraud instances from both buyers and sellers.
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Empowerment of Logistics Ecosystems
Develop a robust infrastructure India needs a deeper and wider network through efficiencies in road, rail, sea and air transportation. Better road connectivity, shorter turnaround time at sea ports; and a resilient railway service ecosystem will enhance fulfilment and last-‐mile deliveries for e-‐Commerce.
Enable sharing of railway containers To strengthen logistics in India and to reap cost benefits in the railway freight system, sharing of freight containers should be allowed. This would enable e-‐Commerce companies to find a collaborative approach to use the current railway freight network.
Promote digital modes of payment CoD is a major portion of e-‐Commerce transactions today. This results in risks of carrying cash and inefficiencies in cash lifecycle management, thus digital payment though credit/debit cards, net banking, wallets etc. should be promoted. Customers could be incentivized to promote payments via digital mode. Launch of the Unified Payments Interface (UPI) is likely to address CoD challenges.
Optimize Reverse Logistics Technology-‐enabled efficient solutions need to be developed to manage the complex framework of reverse logistics. E-‐Commerce players should consider differential pricing for online shopping to minimize instances of returned good.
Facilitate easy movement of goods across States To ensure faster delivery of goods across the country, there needs to be an efficient mechanism in place at border check posts and railway cargo centres, which allows for a thorough yet speedy clearance of e-‐Commerce consignments.
Adopt smart technology Technology-‐enabled solutions such as apps, low-‐cost hardware devices, e-‐signature of customers could be leveraged to reduce dependencies on paper-‐based fulfilment. Also, technology-‐enabled solutions across the logistics supply chain could reduce turnaround time and enhance traceability of goods-‐in-‐transit.
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for-‐retail-‐inv.html
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market-‐capitalisation
