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COMMENTARY 68 THE JOURNAL OF COMMERCE www.joc.com Vinita Jindel FEBRUARY 6.2017 NETTING BUYERS IN INDIA WITH NEARLY A fifth of the world's population but only 13.5 percent of its Internet users, India remains an interesting case for e-commerce companies looking to tap into the rapidly developing market. Online buyers in India were estimated to exceed 100 million by the end of 2016, compared with 50 million in 2015, according to a study conducted by Google and For- rester Consulting, India. According to a report by the Associated Chambers of Com- merce and Industry of India, India's e-commerce market was likely to hit $38 billion in 2016, a massive jump from the $23 billion revenue the industry clocked in 2015. Consumers aged 18 to 35 are the key demographic for online com- merce, spending more money online in a given year than any other age group. India has the youngest popu- lation in the world, with more than 50 percent younger than 25 and more than 65 percent younger than 35. In 2020, the average age of an Indian is expected to be 29, compared with 37 in China and 48 in Japan. According to "Internet Live sta- tistics," only 10 percent of the Indian population was using the Internet in 2011, but ease of smartphone avail- ability, competition among Internet service providers, and the govern- ment taking interest in this sector has pushed Internet penetration to 35 percent. Congested roads, traffic jams, the unavailability of parking space and the pleasure of shopping with- out leaving their comfort zones were seen as the primary reasons 65 per- cent of buyers in India are compelled to shop online. In India, cash on delivery is the most preferred payment method, accumulating 75 percent of the e-retail activities. Credit card pen- etration is low, because of the lack of systems to evaluate credit his- tory and risk with issuance of credit cards to a large segment of the popu- lation and the preference of many consumers to pay for purchase with cash in a heavily cash-based economy. But India's demonetization — the stripping of legal status — of two of the country's most popular notes in November eliminated a significant portion of black money (cash that evades taxation, a potential big boost for credit card usage and, by exten- sion, e-commerce. Cash-on-delivery orders at ShopClues.com, an upstart India-based e-commece platform, fell 30 percent in the two weeks after demonetization, but prepaid orders increased 15 to 20 percent. The average Indian spent $89 on e-commerce in 2014, according to an ASSOCHAM-PwC study, which said future growth will rely more on increased spending from existing buyers than from first-time online buyers. India's per capita income in 2014 was $5,833, so it translates to 2 percent spend on e-commerce by the average Indian. E-commerce companies are expected to invest $6 billion to $8 billion in logistics, infrastructure and warehousing in the next few years, the ASSOCHAM-PwC study said. The e-commerce market in India is expected to touch $80 bil- lion by 2020. For now, there is a very low air cargo penetration in India, and only a few airports are equipped to handle large volumes of express delivery parcels. As e-commerce gathers momentum and moves to the Tier-II and Tier-III cities, there will be increasing demand to expand air cargo connectivity to smaller towns. The industry is expected to invest about $8 billion by 2025. According to Amazon CEO Jeff Bezos, the company plans to invest another $3 billion in India, boost- ing its committed investment in the country to more than $5 billion. Amazon has built 21 fulfillment cen- ters with more than 5 million cubic feet of storage space in India. Wal-Mart Stores is in advanced discussions to invest $1 billion for a minority stake in India's Flipkart Online Services, an alliance that could help the companies battle Amazon.com in e-commerce. Major players of the e commerce market in India are Flipkart, Amazon. in and Snapdeal, with market share of 37 percent, 23 percent, and 14.5 per- cent, respectively, in March 2016. Amazon pushed itself forward from third position to second with growth of 64 percent in 2016 from 2015. According to the World Bank, 67 percent of the Indian population was rural in 2015. The true potential of India's online shopping will only be unlocked if Indian retailers can figure out ways to reach out to the often-unnoticed rural market. The rural youth can be tapped for their demand in fashion, electronics, and cosmetics, because many trends and brands aren't easily available locally. It's important to note that 89.7 percent of India's post offices are situated in rural areas, giving e-commerce com- panies a vast infrastructural network to work with. Products most sold online in India include jewelry, music, health and beauty, videos and DVD, toys and games, apparel, consumer electron - ics, computer software, hardware, and books. Slow I nter net speeds, t he lack of cash-on-deliver y, unfa- vorable return policies, frequent cancellations, fake products, under- developed distribution systems, and variation in the displayed and received goods are few factors that can affect the growth of e-com- merce in India. Another challenge is the lack of dialect content that limits user access to only English-speaking Indians. Development of user- friendly applications for uneducated masses will encourage rural India to go shopping online. With India's middle class alone being almost as large as the total US population, the online retailer that can crack these unique aspects of Indian consumer market will domi- nate that market. JOC Vinita Jindel is a senior research analyst, and head of the SJ Consulting office based in Jaipur, India.

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