India Needs an Alibaba to Accelerate E-Commerce
How does one describe an online retailer that manages to make USD 1 billion worth of sales in just 85 seconds after its marquee event goes live on the digital platform? Words such as behemoth or 800-pound gorilla of e-commerce do not truly describe Alibaba, which recently reported that the gross merchandise value of its various platforms touched a whopping USD 10 billion in less than 30 minutes after the launch of its Single’s Day – an online shopping festival in China.
Now, compare what happened this Monday in China with India’s very own festival sales where the total revenues across all e-commerce platforms what still below what Alibaba managed to garner in 30 minutes flat. Which brings us to the moot question: How is it that in spite of online deals and huge ad spends, India’s e-commerce continues to be a laggard?
What Causes This Lag?
A report published in the Business Standard suggested that Amazon and Flipkart sold goods worth USD 3 billion over this festival season (till October 31). More than 42,500 sellers on Amazon received at least one customer order in the first 36 hours of the sale making this season the best thus far in India’s e-commerce history (23% higher than last year). Amazon’s Great Indian Festival saw the single largest day of Prime sign-ups and Flipkart announced that by all indications 2019 was the biggest festive season sale that India has witnessed.
And yet, we are nowhere close to how much Alibaba seems to sell in China. What could be the reason for such a huge difference between these two markets – considered to be the biggest two for goods and services across the world? Let’s take a quick look at some of the differentiators…
Low Internet Penetration: According to the Internet and Mobile Association of India (IAMAI), there are 451 million monthly active internet users at end of the financial year 2019. India is second only to China in terms of internet users. China has about 750 million users. Lesser literacy rate and more diversity are two reasons cited for lesser internet penetration in the country as compared to China.
India is a late entrant: China entered the ecommerce sector in 2002 when eBay invested $30 million. Alibaba Group made its debut a year later, with Taobao (including T-Mall) to make its debut into the C2C market. India entered the sector a few years later. The concept of ecommerce gained popularity only after Flipkart came into play with its deep discount model, albeit selling only books. Though online shopping has been present in the form of booking airline and train tickets and some hotel reservation, its use was limited.
Controversies galore: The irresistible pricing offered by online marketplaces has been questioned by traders of brick and mortar stores. As this report published in Sify.com suggests, there is an ongoing battle between the confederation of all India Traders (CAIT) and Flipkart and Amazon that presents a strong case in point. While CAIT said that ecommerce giants are breaking FDI norms by offering deep discounts, Flipkart claims that it follows all rules. India is yet to come up with an ecommerce policy that would encourage digitization while taking care of the interests of small players.
Alibaba, the Show Stopper
At a time when India’s e-commerce is far from being on the smooth road to success, take a look at where Alibaba is going with its business model. Company founder and chairman Jack Ma swears by the advanced technology capabilities and even lays claim to the alphabets AI (artificial intelligence) by describing it as Alibaba Intelligence. Not surprising, given the success rate of the company’s ability to track and target customers while continuously thwarting malicious online behavior.
Additionally, Alibaba is known to tie up with small stores by offering them VR-based technology that helps consumers visualize themselves wearing new clothes or experiencing new products without actually trying them on. This helps them get a ‘feel’ about their purchases, sometimes considered a pre-requisite for Indian shoppers seeking to purchase dresses.
Alibaba’s e-commerce marketplaces – business-to-consumer Tmall and Taobao – are China’s dominant shopping platforms, hosting thousands of merchants selling products as varied as Tee-shirts, household sundries and four-poster beds. The firm’s competitors include longtime rival JD.com, which sources goods and sells them directly to consumers, and four-year-old Pinduoduo Inc that managed to break into the top ranks by courting China’s rural residents with deep discounts and a group-buying model.
E-commerce in China is also heavily reliant on an army of logistics companies and couriers as well as payment systems such as Alibaba-backed Alipay and WeChat Pay from Tencent Holdings Ltd. For example, with a wide global network, Cainiao Smart Logistics Network, where Alibaba has a majority-stake provides software to and shares data with warehouses, couriers and logistics firms.
Alibaba’s revenues for the JAS quarter rose 40 percent year on year versus 56 per cent in the same quarter of last year. Their immediate response was to diversify and out came news of Alibaba moving into financial services, cloud computing and AI, while JD.com took a crack at enhancing its logistics and advertising capabilities.
With Alibaba Group’s proposed initial public offering (IPO) in Hong Kong is seeming imminent after the company won approval to move forward with the listing, it looks like the company would raise between $10 billion and $15 billion in the process. Jack Ma had told Bloomberg some time ago that Alibaba was expecting the IPO for quite some time as he hoped to list closer home as the move would help him curry some favor with the regime in Beijing while serving as a hedge against trade risks.
India Has the Potential
However, things aren’t all that bad in India too, as was evident from the records that Amazon and Walmart-owned Flipkart set during their online sales festival. This year, both platforms claimed record sales on the first day with sales having gone beyond metros. Rapid digitization in India’s Tier 2, Tier 3 towns and smaller cities have shifted the focus of ecommerce giants outside metros, thereby increasing the scope of India becoming the world’s largest ecommerce market sooner than later. And these are positive signals indeed of a thriving industry.
According to a report by India Brand Equity Foundation (IBEF), Indian e-commerce market is expected to hit $200 billion by 2026 and is driven by increased internet and smartphone penetration. Moreover, the total user base is expected to reach 829 million by 2021, up from 560 million in 2018. (Read the full report here)
We need a revolution for Indian ecommerce to reach Alibaba’s or for that matter replicate China’s ecommerce success. In that context, one can think of the billionaire Mukesh Ambani moving a step closer to creating an e-commerce giant for India. After heralding a digital revolution in the country’s telecom sector with the launch of Reliance Jio since 2016, he now plans to set up a $24 billion Alibaba-like ecommerce entity in India.
Perhaps an Ambani-like brand or icon is needed to successfully beat Amazon and Flipkart in the country’s e-commerce market just like Alibaba dominates the China Market. And the rest will be history!