It has been a divided house on E Commerce Market Growth in India & also for future of E Commerce Companies. There have been statements on how E Commerce excluding travel (Etail) would become a 40 Billion USD market by 2020. The primary determinant of this has been attributed to growth of Internet penetration which is currently being & going to be driven by 3G & 4G on hand held devices. Statements have been made about how e commerce in India is where China was about a decade ago. All the latter could result in creation of minimum 8-10 companies having size of USD 5 billion & above. On the other hand there have been voice of concerns which speak about deep discounting being undertaken by the current etail players & which are burning cash for growth but profitability does not seem to be in sight. The war chest of cash created by them will help them grow but that may not lead to a sustainable business model as expressed by the naysayers.
Below data represents the history & current state of E tail across China, USA & India with E tail (E Commerce without Travel) being the dependent variable & GDP per Capita, Internet Users & Urban Population being the Independent variables.
Note:
1)Ecommerce Size is only for Online Shopping by End Consumer excluding Travel
2) Sources – World bank and Multiple Sources
A small regression analysis run on the information point to some interesting results
- Urban Population is not a significant independent variable
- GDP Per Capita & Internet Users do influence dependent variable E Commerce
- None of the Countries exhibit behavior which can be strongly correlated with each other. They follow a different pattern
- Beyond a point, increased Internet Base hardly affects e commerce
- GDP Per Capita is a significant independent variable when compared to Internet Base
- The Inflexion Points which show quantum leap in US & China E Com Size are not fully explained by either GDP or Internet
- Projection for India does not translate into USD 40 Billion Market by 2020 assuming GDP growth rate of 8% & Internet Penetration of 40% population by 2020
Other Interesting Points to Note
- The Inflexion Points or Quantum Leaps are primarily on account of Independent Variables which today are not known or if known have not been fully quantified
- It is very possible that these Inflexion Points have to do with Cultural variables(Buying Behavior Individual as well as Group). China has a significant homogenous population.
- Other reasons also exist & one of them could be payment avenues. USA is a primarily Cards Driven Payments Market with China being a Non Cards but Payment Gateway (Ali pay, Ten Pay) driven E Commerce Market. India currently is a COD driven market. Chinese perception of Debt is completely different from American Perception of Debt. Hence the completely different payment means.
- Chinese E Commerce is more a market place driven Model Unlike USA & for that matter India which today looks like a Hybrid.
- Deep Discounting could be a primary reason for explosive growth seen in India in past 2 years primarily driven by bargain hunters & Novelty seekers
- The Product Categories amenable to E Commerce also don’t seem to be uniform in pecking order across the countries
- Indian Physical Infrastructure is way behind that of China & USA but smaller geography as compared to both may not be much of a deterrent.
- Chinese Market does not show evidence of deep discounting for growth & is profitable. US Market is skewed towards inventory liquidation & is more of the latter.
E Commerce is here to stay & will form a reasonable part of Retail Basket within India. Whether it touches 15% which China will or remains close to 5% which USA has cannot be predicted with any reasonable certainty for next 10 years. Brick & Mortar Models will undergo transformation but they have enough time on hand to reinvent their long term future. Prime Mover Advantage may not necessarily translate into being the dominant market share player after 10 years as Inflexion (Explosive Growth) may elude in first half of 10 years. It is possible that Slow & Steady in this case may win the race.
The Biggest Beneficiary here is going to be the Indian Customer at least for a reasonable time. Writing Obituary for E Commerce & Players in India is unwarranted but there is a need to rein in Euphoria Horses on the Extrapolated Potential as it is not going to touch 40 Billion USD by 2020
This is a reprint of my article published on linkedin