Will m-Commerce lead the way for e-Commerce in India?

As of now, India has 10 % population penetration in internet usage. This is in stark contrast to the global average of 35%, and much below the average of the developed world at 78%. Though the population base is big enough for a thriving e-commerce industry, India’s e-commerce potential at the moment is limited by a number of factors:

  • Infrastructure system – India still is a cash driven economy with very low availability of the credit systems. This is a bottleneck for many of the consumers willing to purchase goods online, and is the primary reason for India’s unique jugaad of payment via Cash on Delivery. However, many large players are wary of such a system that is manpower intensive, and requires time to collect the cash from the consumer’s doorstep.
  • Slow internet speed – India still has less than 5% broadband penetration among its internet users, compared to 30% globally. The slow net speed results in several payment gateways rejecting transactions because of the time lag in connecting to the server and getting confirmation. This results in poor user experience and discourages further attempts at shopping online.
  • Poor logistics infrastructure – For most of the e-commerce companies selling merchandise, the delivery of the good to the end mile is still critical. This requires excellent logistics and transportation infrastructure which has been a glaring concern in India.

To address such concerns, the government recently launched the ambitious National Broadband Plan with an outlay of USD 12 billion, which aims to bring 160 million households under broadband connection by 2016. This would take broadband penetration to that of the developed countries, opening up significant opportunities in sectors like education, business, entertainment and e-governance. However, it is feared that if we miss out on the intervening years, the Internet revolution could just bypass India.

This opens up an excellent platform for the private sector to contribute by pitching in and leveraging the strong telecom infrastructure already in place. With more than 67 million smartphones in the country and a ubiquitous 3G connectivity, high-speed mobile internet penetration far outpaces the broadband penetration. Though high speed fiber network is still important for organizations and institutions, mobile internet speed is sufficient for individual consumers – the main segment of customers in e-commerce.

Just as mobile telephony overtook the Indian wired telephone network thus revolutionizing voice-communication and sms, jugaad innovations in m-commerce are paving the way for a similar transformation in e-commerce. Mobile payments such as Airtel money and mobile to mobile transfer can circumvent the need for a credit card payment which has been so far unavailable to the mass public. Mobile e-commerce or m-commerce can really help capture the Fortune at the bottom of the pyramid. Already 45 % of the online users in India access so using only their mobile and contribute close to 3% of the e-commerce revenues. M-commerce is well established and trusted for small payments such as downloading ringtone and music. This suggests some trust is already established in the virtual mobile payment system.

Critics of m-commerce point to the small screen size of the handsets and suggest it would fail to gain momentum. However this argument fails to stand ground. Myntra is a leading online fashion portal and earlier had only 4% of its revenue coming in from mobile. However, they realized the advantage m-commerce offered in capturing the demand of Tier 2 cities and small town India, and after they redesigned their website to suit mobile screens they witnessed explosive growth in revenues generated from mobile purchases – they were able to garner 20% of their revenue from m-commerce last year. Additionally, 70 % of Indian e-commerce is for travel bookings and classifieds, which can be easily transferred to a small screen. The travel bus ticketing giant RedBus, attributes their success to presence in the mobile segment via apps that consumers quoted were its differentiating factors offering ease and convenience.

The m-commerce also offers other benefits such as geo-contextual shopping experience which is unmatched by any other media. Zomato and Justdial have shown leaps and bounds in their growth since they launched apps that use a consumer’s GPS position for better targeting of services.

To sum up, m-commerce is ready to take India’s e-commerce success to new heights. However it needs government and public support. The government should offer significant incentives such as promotion of FDI in e-commerce and telecom. High pricing of the 3G spectrum, and the failure to share 3G spectrum across competitors will only hamper India’s e-commerce growth story, and is bad for the consumer. Nonetheless, with year-on-year growth of 57%, m-commerce stares ahead for an exciting run.


Satvik Dudeja is a PGP1 student at IIM Ahmedabad, and a member of the Consult Club. 

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The Sustainability Imperative in FMCG

The rapidly growing FMCG sector in India accounts for about 2.2% of the GDP. The sector has stood its ground in the midst of recessionary pressure and volatility in the markets, and is poised to register steady growth. With rising disposable incomes, evolving consumer lifestyles, growth of modern trade, greater awareness of products/brands, and availability of online channels, the imperative for firms in India to develop core areas of differentiation is on rise.

Figure 1. Growth in the Indian FMCG Sector (CII FMCG Roadmap 2020)

Figure 1. Growth in the Indian FMCG Sector (CII FMCG Roadmap 2020)

An impetus on environmentally friendly business practices under the ambit of enhanced social responsibility is one such differentiating strategy that FMCG majors like HUL, P&G and ITC are now deploying. Some of the drivers for this differentiation have been the increasing concern for climate change, depleting natural resources and action by different stakeholders: the government through policy, the consumers through brand selection, and the community (NGOs) through increased awareness.

Figure 2.  FMCG Focus Areas (Booz and Co.)

Figure 2. FMCG Focus Areas (Booz and Co.)

 

Opportunities

There are 3 major practices that FMCG firms in India can utilize to realize the sustainability advantage:

  1. Green Energy Sourcing
  2. Product and Service labeling
  3. Packaging Material

An analysis of these options from the perspective of the 4 major stakeholders of FMCG firms – the Government, the Investors, Retailers & Consumers, and NGOs is as follows:

Green energy sourcing

Sourcing energy from renewable sources (Wind and Solar) has the potential to reduce the energy costs of FMCG majors in India by up to 90% and carbon foot-print by 85% depending on the location and the availability of power evacuation infrastructure near the factories, warehouses or installations. One of the major policies formulated by the Government to incentivize greening of energy sources by the industry was the Accelerated Depreciation and Generation Based Incentives offered. Apart from meeting the strategic cost management targets, these schemes have served as alternate sources of revenue for FMCG majors. This led to a massive increase (21% over 2010-12) in the percentage of energy sourced by FMCG majors from green energy. HUL and ITC spearheaded this growth.

However, with the replacement of the generation based incentive regime by the Renewable energy certificates mechanism, a slow-down in the rate of installation of the green-energy capacity has been observed.

Another major opportunity that the FMCG firms can leverage is the sustainability certification system. Various green certifications like ISO 14001 and Leeds Green Building/Factory are opportunities for differentiation. These certifications have gained special relevance given the rising consumer awareness and sensitivity to environmental issues.

Product and Service labeling

rohit blog 4

Benchmarking production processes and services to best sustainability practices is increasingly emerging as another major differentiation. The eco-label, green-seal and eco-logo stamps are being deployed on offerings to differentiate them from competition offerings. In India, this concept has gained traction recently with the development of the Ecomark scheme by the Central Pollution Control Board (Ministry of Environment and Forests). The major driver of the Ecomark scheme is the reduction of environmental and health hazards due to industrialization. Signaling through accreditation encourages aware consumers make informed decisions and can thus be leveraged by FMCG firms.

Figure 3. Differentiating eco-product marks in-use around the world

Figure 3. Differentiating eco-product marks in-use around the world

Packaging Material

Innovative sustainable packaging is another thrust area for the FMCG industry. Given the increasing cost and environmental ramifications of conventional packaging solutions (in spite of recycling and reusing), FMCG firms are increasingly evaluating biodegradable options for packaging. The use of biodegradable films and paper-centric packaging solutions has witnessed a tremendous (160%) rise during 2009-2012.

Innovative methods of utilizing non-biodegradable waste are also an opportunity that the FMCG sector is undertaking. A case-in-point in this regard is the initiative by a Canadian firm Terracycle, which converts cigarette butts into plastic skillets and containers.

Figure 4. Terracycle - Model

Figure 4. Terracycle – Model

With increasing levels of consumer awareness and government regulations, sustainability is gradually transforming from being a differentiator, into a primary business driver. Major FMCG firms must capitalize on the first mover advantages and establish themselves as industry leaders in this space.

Rohit Sharma is a PGP1 student at IIM Ahmedabad, and a member of the Consult Club.