"For self sustainability, investment in technology is the safe bet for E Commerce entities" - Phani
|DIPP rules regulating foreign investments (FDI) in E Commerce|
Context – Volatile regulatory environment
Regulatory norms are one of the macroeconomic factors that impact the business. Entities operating in the free market segments would have to be vigilant of such uncertain factors and are required to place controls to align their business objectives. However, as the ecosystem evolves adjusting the operations to unprecedented regulatory norms would have detrimental effects on stakeholders. Recently, there is a cacophony on the new e-commerce regulations in the media demonstrating these rules as blow to the foreign funded marketplaces. In contrary, let’s understand how these changes would have minimal effect on the large entities and also ponder upon the critical aspects that make these brands self sustained in the volatile environment
Aren’t rules established earlier? – Yes, they are already in place since 2016
Apart from delineating few points on equity and promotional discounts there are no much surprises in the recently issued press note by DIPP when compared to the one issued in 2016. It appear that these rules might have “strategically” timed to leave minimum or no impact to the market leaders. Reason being, with the amount of customer loyalty, huge 3rd party seller’s base and supply chain innovations these players will continue to make profits even with the new set of rules.
For instance, firstly in the Amazon stakeholder’s letter, Bezos stated that third party sellers constitute to more than 50% global sales on Amazon. While, it is unclear on the sales constituents for the other part of the pie, it is prudent that Amazon is showcasing its commitment on increasing its seller’s base in India. Moreover, Amazon and its fellow businesses would definitely continue to leverage the leeway of 25% given in the regulations as a marketplace. Hence, it is highly likely that these sales would dip with the issuance of current notification.
Secondly, in the last couple of years there is a decreasing trend in the amount of promotional offers on the marketplaces largely due to poor performance of affiliate marketing firms. This is largely attributed to the dip of investments in these sectors, resulting in lesser spending on promotions by affiliate firms. As a result, experts feel that the promotions thru (coupons, cash backs and gift cards) have reached a tipping point. It is clear that, the big players have anticipated the changes and started working towards lean models in engaging these firms.
However, it is also noteworthy to mention that, with the digital shopping penetrating swiftly in the Indian households, there is a lot of spending observed even within the frugal customers. Hence it is too late to regulate this sector. Hence, it can be assumed safely that the majority of sales would remain intact.
Investment in technology is a safe bet for emerging marketplaces
Barring small brick and motor vendors, online merchandising has becoming a compulsive activity for most of the businesses to ensure proper digital presence as there is a huge congregation of consumers on the internet platform. In India, this trend is evident and medium scale manufacturers look online store as an opportunity when compared to the financial odds of setting up a conventional store. Taking lesson from the established businesses, investment in technology is observed as the differentiator in their success journey. Besides advancements in the delivery patterns, supply chain optimization is one key area that I would like dwell upon for the emerging players
Supply chain optimization: Quick and efficient supply chain management is one of the key success factor for any ecommerce business. As the transaction happens in the front end, majority of the activities that associate to final delivery of the product happens in the supply chain. Hence, the factors like seller relationship, warehousing and logistics management would be radical in ensuring a memorable last mile delivery. This is applicable to both inventory and marketplace models. Consequently, the FDIs can be allocated to strengthening the supply chain, as the new rule is also indicative to seller centric services like warehousing, logistics, order fulfillment, payments and customer care services.
For instance, again take Amazon, it has a bunch of supply chain strategies like its warehouse location are placed strategically to ensure quick delivery to the customer. Moreover, it has invested in the automation of order fulfillment in the warehouses to ensure speed and accuracy in the delivery process as a result currently Amazon had more than 45,000 warehouse robots. Strategies like these will give the business huge economies of scale which reduces the overall per unit supply rate and provide huge competitive advantage.
In conclusion, these so-called new set of guidelines would have a minimal impact for established marketplaces. If at all there is a negative impact, the slump in sales during the transition process (losses) would be accommodated by process standardizations in the supply chain and other operations, which may cost few jobs. Personally, I feel this is highly unlikely scenario. In the digital world, E Commerce thrives on the consumer wave hence with strong ecosystem online shopping will perpetuate and will continue competing with conventional outlets.
Phani Kumar is a solution architect for E Commerce entities. He is currently leading the digital transformation of one of the largest retail group in Australia. In the past, he had provided technology consulting to various entities and has experience in programming, project management and business development. He resides in Melbourne and has great appetite for new technologies and start-up companies. Besides reading books, he enjoy travelling and hanging out with friends. He is open to discuss business ideas, technology updates and networking. He can be reached at email@example.com
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