Ready for a digital leap?

PREPARING FOR THE DIGITAL LEAP

A number of Indian companies are leveraging cross border e-commerce to expand their business. Can this medium be the next big catalyst for India’s exports?

BY VIRAT BAHRI

The pandemic has precipitated a meteoric rise in e-commerce, which raises expectations that it will be the dominant medium of commercial exchange in the near future. A report by Payoneer titled One Giant Leap, noted how global e-commerce revenues grew by over 80% YoY in Q3 and Q4, 2020. Forecast for US e-commerce penetration till 2030 surged from 21% of all retail to 34%.

This rise has focused the spotlight on the huge potential that e-commerce has in international trade, through the niche but fast emerging phenomenon of ‘cross border e-commerce’. In essence, cross-border e-commerce is defined as the selling of goods from a website of a national store in one country to another party in a foreign country. It can operate in B2C, B2B, or C2C modes.

Businesses today have the opportunity to trade within their domestic country, residence, or internationally with other countries through powerful online platforms like Amazon. According to Zion Market Research, global cross-border B2C e-commerce market revenue was estimated at US$ 562.1 billion in 2018 and is predicted to reach US$ 4,195.4 billion by 2027, implying a CAGR of nearly 28.4% during 202027. This rise is fuelled by growing internet penetration, increased propensity for e-commerce, integrated logistics frameworks,

GLOBAL CROSSBORDER B2C E-COMMERCE MARKET REVENUE WAS ESTIMATED AT US$ 562.1 BILLION IN 2018 AND IS PREDICTED TO REACH US$ 4,195.4 BILLION BY 2027, IMPLYING A CAGR OF NEARLY 28.4%.

secure payment options and the rampant rise in globalisation.

Companies get a vital route to expand internationally and even OEMs can bypass long channels to directly reach customers. They have the strong backing of data now to also ascertain buyer behavior and preferences across markets. Customers, on the other hand, are able to access products from multiple suppliers, giving them the luxury of ever increasing choice and research-based decision making. Over 50% of customers used D2C for buying consumable or durable products during the COVID pandemic, according to Zion.

Industry experts assert that from an e-commerce and technology penetration point of view, the pandemic has accelerated the transition by at least a decade.

SIZE OF INDIAN E-COMMERCE MARKET

250

200 188

150

100 84 99

50

0 14

2014 20

2015 39

21.9

2017 2018 30

2020 2021 2024 2025

Source: Statista; figures in US$ billion; Data points post-2018 are projections 200

2027

HOW BIG IS IT?

Projected to reach around 15% of total retail in a few years, e-commerce is not exactly overrunning traditional retail in the near future, as one would like to believe. But still, the numbers are huge. Amazon has projected US$ 20 billion in exports from India by 2025, twice its earlier target.

E-commerce in India is expected to grow by 21.5% and hit US$ 74.8 billion in 2022, according to GlobalData. Customers were already buying non-essential products such as clothes and electronics on e-commerce websites before the pandemic. But now, they are also open to buying essential categories like groceries.

E-commerce is likely to be the fastest-growing segment within the overall retail industry in India in the coming 5-10 years, growing its share of total retail from 3% to 1015%. It is also likely to play a larger role in India’s cross border trade and business. India crossed US$ 1 billion in exports for cross border e-commerce in 2020. Categories like handicrafts, home and linen, bedsheets, curtains, upholstery and apparel are enjoying strong demand abroad. It is expected to rank among the top 10 countries in terms of cross border e-commerce growth.

India’s potential can also be gauged from the segment’s growth in its key export markets. For example, when you look at the US market, online shopping was estimated at US$ 861 billion in 2020 with merchants based in the US, according to the US Department of Commerce. This was a growth of 44%, nearly thrice the 15% YoY growth witnessed in 2019. Mckinsey states that around 73% of US companies make cross border payments daily.

By 2022, cross-border e-commerce is expected to be a regular occurrence across North America, Latin America, APAC, and EMEA, according to Citcon. It further projects that European countries will account for around 28.3% of global cross border sales of US$ 1.2 trillion in 2022.

THE NEW WORLD OF TRADE

Among the companies that are taking the route to cross-border e-commerce, one prominent category is of the traditional brands that aim to increase their online presence significantly. They have already been listing on various marketplaces for the domestic market, and are now exploring the opportunity to go global. The second major phenomenon being observed is the rise of D2C brands across categories. They are finding cross border e-commerce as a viable route to access any market across the world.

Marketplaces like Amazon, Tokopedia, Lazada and Shopee are available to help a company target specific markets. Venkat Nott, CEO, Vinculum, comments, “Technology has completely flattened the earth a long time back and SAAS products like us have ready integration to market places and logistics companies across South East Asia, Middle East and US etc. So a brand

IT IS ONLY A MATTER OF TIME WHEN CROSS BORDER E-COMMERCE VOLUMES WILL GROW TREMENDOUSLY, AND PLAYERS WILL WANT TO LOOK AT THE OPPORTUNITY COSTS OF WAITING IT OUT

can easily start listing its products into marketplaces and they are able to manage orders and entries sitting in one place. You don’t have to think about which market place should I sell to, how do I integrate, how I manage my orders and who will ship on my behalf.”

But to succeed in D2C cross border e-commerce, one needs to take a lot of care to understand the end consumer’s tastes and preferences and the nuances that you need to succeed there. A brand has to look at whether the cost arbitrage works for it in the particular market, including elements like duties, platform costs and most importantly, shipping costs.

But there are other elements of cost economics. While your product is virtually on the marketplace, it has to physically be available in that market (or in close proximity) to ensure timely delivery. Minimum order quantities become important, and shelf life is a key factor when it comes to perishables. Lastly, you need partners who can import on your behalf and take care of aspects like compliances and payments.

While this is still complicated, the digital medium gives you a relatively inexpensive route to test and expand your business in international markets. Experts believe that it is only a matter of time when cross border e-commerce volumes will grow tremendously, and players will want to look at the opportunity costs of waiting it out, rather than the risks of plunging in.

Deep Bajaj, CEO, Sirona Hygiene, agrees wholeheartedly and vouches for the power of cross border e-commerce in helping his company scale its business of feminine hygiene products across global markets. He comments, “To a very large extent the three core areas (finding your own distributors, finding your customers and taking care of logistics) are taken care of, at least in markets where we are selling. But exporters need help when it comes to compliances to stock the products and take them back to the home country. If we work on this aspect, the world is playground for brands like us.”

CAN INDIA ACE THIS E-COMMERCE SPACE?

According to Dr. K. Rangarajan, Centre Head & Professor, Indian Institute of Foreign Trade, Kolkata Campus, the fact that India will scale in e-commerce is a given. But the actual question is whether it will grow in tune with its potential and contribute more significantly to India’s ambitious export target of US$ 1 trillion by 2027.

For this, he strongly emphasises that a synchronised coordination of all stakeholders is important. Every transaction involves a variety of stakeholders – logistics, e-commerce platforms, certification bodies, customs, regulators, payment service providers, etc. If any country does not clearly define guidelines, then larger players may do so, which will be to the detriment of the entire industry.

For SMEs, there are significant challenges, one of which is the lack of trust regarding digital transactions, digital signatures, etc. Facilitation centres across states will play a major role and need to be facilitated by respective governments to address such issues.

A major factor is whether the platforms will ensure you get your payments, and if so at what cost? This is even more critical in the case of returns. Basically, if the customer

SHARE OF E-COMMERCE IN US RETAIL SALES

30

25

20

15

10

5

0

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Source: Payoneer, Bank of America, US Department of Commerce, ShawSpring Research

For SMEs, there are significant challenges due to the inherent lack of trust regarding digital transactions, digital signatures, etc.

in any country rejects the product for any reason, getting it back can be expensive, time consuming and stressful at the same time.

Global branding is another significant challenge, particularly for new entrants in the market. How does a new brand, especially in a higher value category, assure the target customer of product quality and genuineness? Generating brand awareness, preference and recall entail significant investments, without which a majority of the brands can get lost in the clutter.

Venkat believes that this hurdle can be crossed through branding investments, but with the help of market inputs, connections and government support. A strong nation brand recognition in any product category can provide a significant boost to players in that category.

For instance, New Zealand has identified officials for marketing categories of products from the country. They address questions like - How do we establish the brand? What connections are required in the target market? How do we make sure that Made in New Zealand is recognized with quality? How do we facilitate brands to scale?

Enterprise Singapore is a government agency that strives for the cause of enterprise development. It works with committed companies to help them build capabilities, innovate and internationalise and also helps to propel the growth of Singapore as a hub for global trade and enterprise. As the national standards and

GENERATING BRAND AWARENESS FOR SUCCESS IN CROSS BORDER TRADE ENTAILS INVESTMENTS, WITHOUT WHICH MANY BRANDS CAN GET LOST IN THE CLUTTER.

accreditation body, it strives to build trust in Singapore’s products and services through ensuring quality and standards.

However, India may need to be wary of trying too much at once. Rajat Wahi, Partner, Deloitte, suggests, “If you look at what South Korea, Japan or other countries did, they are going after specific industries and putting a lot of their might behind that. South Korea is in electronics and automobiles, while Japan has been specifically looking at consumer technology. So I think we have to figure out what is important for us.” Factors that may be considered in this regard include share of GDP and employment, availability of natural/human resources & future growth potential.

Dr Rangarajan agrees that strong nation branding is critical as firm-level branding is not going to be easy in the initial stages. He suggests that the government can go for organising E-fairs where potential export products can be showcased and some initial dialogue/discussion can be arranged. More platforms can be created that command the trust that brands like Amazon have gathered over the years. With greater decentralisation, Dr Rangarajan is positive that this can be taken up by state governments as well.

Finally, he opines that the flow of goods needs to be simplified at the regulatory level. Digitisation should be implemented to the extent that an exporter, no matter where he is located, can comfortably understand e-transactions, e-payment, e-signatures etc. Otherwise, he will be looking for solution providers, who will add to the transaction cost.

Multimodal transportation is critical in the present day and age, whether it is e-commerce or traditional export, so will a product be able to travel with a single logistics document which is accepted by every authority? Digitisation is not just about the superiority of the technology but more about the acceptance of different documents across agencies involved. Regulating these platforms will also be important, along with a single window to tackle issues.

If these issues are addressed effectively, India has a lot going for it when it comes to capitalising on cross border e-commerce, thanks to its entrepreneurial dynamism and strong base of SMEs with a wide range of products. Certainly, it is an opportunity that the country cannot afford to pass.