India Expands Digitization and E‑commerce

Jul 24, 2021

Plenty of room for growth in B2B and B2C markets both at home and abroad

By Suroopa Chatterjee, Art Valley


While India is home to a huge number of tech-savvy young people, a large percentage of the population still conducts business using traditional offline tools and practices, which has been a challenge with the implementation of anti-Covid regulations and social distancing.

According to Bangalore based RedSeer Consulting which held the Ground Zero 5.0 event recently, Indian online retail is set to become the third largest online retail market by CY2030 after the US and China with an annual gross merchandise value (GMV) of $55 billion in CY2021, an increase from $38 billion in CY2020 to $350 billion in CY2030. As part of this development “Kiranas”, which are small family owned grocery shops, are expected to achieve approximately $1.5 trillion in sales by 2030.


Homegrown B2B innovation: Udaan is a standout

The pandemic, along with the Make in India push by the government, has also given rise to regional and local innovations. With the increase in popularity of supply chains in urban India, the emergence of Udaan (India’s version of Alibaba) was just what the small stores in rural India needed.

Kirana stores are small, family-owned Indian shops that also sell food items. They contribute around $650 million to India’s $1 trillion retail market.
Udaan has stepped in here and become the largest food player, although it also offers many other products. It began by solving the stocking problem for kirana stores. A new entrant who is selling wares has genuine problems when it comes to getting stock from wholesalers and often has to rely on middlemen who can be less than reliable when it comes to quality and pricing. The Kirana owner has a serious problem sourcing goods.

The five year old start up Udaan has found success having taken 80% of the B2B e‑commerce market, delivering goods it stocks in 200 warehouses across the country to about 1.7 million retail stores in 900 cities every day. Suppliers receive their money on time once Udaan takes their products. Retailers enjoy credit which they would otherwise only get from wholesalers at exorbitant rates. All operations are done through a smartphone app which assists small owners to build a history of reliability in payments. Banks and financiers then gain confidence to provide the funds they need for growth. The platform has a user base of 3 million registered buyers and sellers ranging from manufacturers, millers, farmers, pharmacists, restaurants, grocers, and hotels.

In a published statement Vaibhav Gupta, one of Udaan’s three co-founders, remarked: “We’ve solved the problem of trust on the internet.” The firm is backed by, among others, Lightspeed Venture Partners, an early investor in Snap Inc., and Yuri Milner’s DST Global. It’s one of India’s fastest-growing “unicorns”, as startups valued at $1 billion or more are known.


From offline to online

While Indian consumer’s gradual acceptance and adoption of digital platforms rose during the country’s lockdowns as they discovered this route was a fast and easy way to satisfy their needs, the Economic Times of India reports that online B2B commerce is still less than 1% of the total retail market; that means there is still a lot of room for growth.
The need for specialized delivery services has also grown with the increase in e‑commerce that in turn led to overall growth in the logistics sector. With logistics demand on the rise it spells good news for employment as its opening doors for almost 5 lakh gig workers in the second year of the pandemic.

However with increased consumer demands and the dependence on supply chains, each unit or element involved in running supply chains had to constantly be updated in terms of compliance as worker, product, transport and facility sanitization protocols must be in order.
This has increased management costs compared to pre-covid times and also brought in insurance costs.
According to RedSeer, India has become the fastest growing market for e‑logistics with over 3 billion shipments in 2020 and modern logistics operators are expected to deliver 2.5 billion direct-to-customer (D2C) shipments by 2030.


E‑commerce performance and export potential 

Another positive outcome of Covid-19 is that there is a likelihood of a shift of global supply chain business from China to other countries. About 70% of the survey respondents saw India benefitting from this and expect a fair shift of manufacturing share from China to India (Ficci-Dhruva Advisors Survey conducted in December of 2020 covered more than 150 Indian companies).

“Companies like Udaan,” says Abhishek Shankar of Limerine, “are significantly reducing the costs of doing business and also the time it takes to build capital. Manufacturers and retailers can use the flexibility of the available capital to explore international markets,” – Shankar continues: “Currently, some brands, such as Lenskart, have started retail and online operations in North American markets.” Udaan, Lenskart and others, with the help of partners who are part of its value chain, can help Indian SMEs to launch their own brands or sell in international markets. Limerine, a “conversational automation” company, has also seen Indian products venture into the international markets for alternative foods and cosmetics.

Well known e‑commerce platforms like Amazon and Flipkart in India have taken measures to assist local entrepreneurs reach global customers with their unique products. Mumbai-based toys brand, Jackinthebox has dived into B2C exports through e‑commerce. They have customers across 15 countries including the US, Middle East and Canada. Touchstone, a costume jewelry brand owned by Archana Garodia Gupta, is another company that has sped up its operations to reach international customers using e‑commerce platforms offered by major players.


MSMEs and foreign trade policy

In the new scenario, Indian MSMEs can gain if e‑commerce aids economic development. Experts say that MSMEs can compete more effectively with services and offers provided by foreign competitors through the increased use of B2C e‑commerce exports.

To support this, the government’s foreign trade policy should be set to strengthen B2C e‑commerce exports. The government is tilted towards economic recovery through exports, and India’s proposed foreign trade policy for 2021–2026 suggests a number of steps to empower SMEs. The government needs to create a knowledge infrastructure to optimize the use of e‑commerce to bring in growth through exports.

According to experts, MSMEs should be encouraged to sell online, the government should facilitate the simplification of exporter/port registration and other compliance requirements and create partnerships between MSMEs and known industrial houses to help MSMEs establish their profiles online. There should be incentives to build warehouses and data centers in India to optimize e‑commerce supply channels and to create tax incentives for manufacturing products that can be scaled up by using e‑commerce platforms.

For startups or entrepreneurs to maximize the use of digital platforms to sell their products, up-skilling or training is necessary.
Also the country must encourage and build an appropriate legal and regulatory ecosystem to drive growth through e‑commerce exports. Sound legal measures and rules provide ease of process and minimize bureaucratic red tape. Make in India can truly be sustained by the government through leveraging the role of digital markets.


The way forward

The pandemic has revealed that businesses can be revived and reset by adopting technology and training with existing methods. One has to adapt, adopt and innovate. Small and medium-sized businesses (SMB) in particular have thrived and survived the pandemic by timely adoption of technological advancements, digitizing day-to-day operations. In India a large number of SMBs still resort to age-old ways, maintaining manual accounts, individually checking for payments, writing all payables, and making decisions based on intuition. Adopting digital support is the way forward by digitizing paperwork, invoices, quotations, stock and deliveries, updating inventories, real-time tracking of payables and receivables, as well as taking preemptive, data-driven decisions based on business acumen.

In today’s ever-competitive world, digital transformation of businesses is a necessity to stay ahead of the curve. Digital adoption will catalyze operational speeds, minimize inefficiencies, help avoid wrong decisions, improve cash flows, give better access to financial products that take businesses forward.

India’s future is looking up because it’s a crossroads of technology, financial engineering and business friendly policies that can leverage SMBs’ productivity and success.

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