The image of a Chinese dragon breathing fire is catching the global imagination, while the Indian elephant trundles along at a leisurely pace. China and India have lot in common but are also vastly different. The growth trajectory of China has surprised many observers. Lately, Chinese online ventures like Alibaba have parachuted into the eCommerce space and made pots of money for investors. Can India, which has always been a step behind China, replicate this online success? The answer is not a simple yes or no.
If we look at the phenomenal rise of Chinese online companies like Alibaba, there is something common to them. Alibaba was off the block in the late nineties. It raised $5 million in the same year. It had the first mover’s advantage. It had no competition and therefore could afford to do as it liked. It also attracted investments in dribbles.
By comparison, today’s Indian eCommerce ventures have fierce competition and have to work in an environment which is almost do or die. The latest breed of Indian online stores started off the block quite late, Flipkart in 2007 and Snapdeal in 2010. The pressure to perform was enormous and it forced Indian players to offer unrealistic discounts which could prove disastrous in future.
The loss of over $20 million by Snapdeal during the current financial year looks ominous. But initial losses alone don’t reflect on the future of any online entity. Amazon continues to bleed and still remains a favorite on the bourses. This means we probably have to look at eCommerce platforms differently from brick and mortar companies because valuations are usually unrealistic.
Market size is also important. According to a Forrester report China’s retail spending topped $307 billion in 2013 and is likely to exceed one trillion by 2019. Alibaba gobbles up the lion’s share at 80%. The Indian part of the eCommerce story is laughable in comparison. This will reach $6 billion in 2015, according to Gartner. The bulk of the market is cornered by three etailers – Flipkart, Snapdeal and Amazon. So you can imagine the kind of ferocious competition that exists between them.
Online shopping can only be enjoyed by those who have internet access. According to CNN, China has now surpassed 649 million users, outnumbering the US population two to one. What’s surprising is that the growth in internet users is led by mobile. India has 243 million internet users. Yet both China and India have more connections in cities than in rural areas.
To increase the eCommerce user base, there is a need to push for internet connectivity in smaller towns and outposts. In this context, the digital India campaign by the Indian government is relevant. It has embarked on an ambitious program of laying 7 lakh km of optic fiber cables over the next three years, which will help over 2.5 lakh villages get high speed connectivity.
Another interesting observation is that the US has only 280 million internet users but the eCommerce market is still huge – $294 billion in 2014. Therefore a direct correlation between internet access and online sales cannot be presumed. Yet there are other factors which impact the eCommerce market, such as purchasing power. China and India are quite similar in this respect. Consumers have less money to spare for buying online.
The growth of eCommerce is also tied to the overall economy. The past two decades have seen the Chinese economic juggernaut moving at a breakneck speed. However its growth rate, which remained in double digits for a long time, is expected to taper in the coming years. The 7.4% GDP growth in 2014 is expected to go down further. The high growth rates in the past fueled the economy and led to the creation of online giants like Alibaba. India, in comparison has witnessed much slower growth. A forecast of 6.4% GDP in 2015 is still lower than China’s.
India lags behind China in all parameters which influences the growth of eCommerce platforms. It is therefore surprising to see foreign investors ready to place their bets on Indian eCommerce entities. Softbank, the original investor in Alibaba, has put in $627 million in Snapdeal. What made Softbank, a shrewd and conservative investor, bet on an Indian ecommerce platform? Or Amazon promise to invest $2 billion in its Indian arm?
Maybe ordinary people like us cannot fathom the rationale and logic behind big time investments. Maybe figures by themselves hide more than they reveal. Therefore, despite the statistics, it may still be possible for India to spawn another Alibaba. Chances are that we will see a number of smaller but successful eCommerce ventures in future, instead of a single big behemoth cornering the Indian market.