E-COMMERCE AND ITS IMPACT ON INDIAN SMEs

*Sudheera Lingamaneni
Faculty, P.V.P.Siddhartha Institute of Technology
E-mail: sudhiral@gmail.com Contact No: 9640958999
** Dr.P.Adi Lakshmi
Head of the Department, MBA, P.V.P.Siddhartha Institute of Technology
E-mail: lakshmijampala@gmail.com Contact No: 9491348818

Abstract

With the increasing usage of internet in a country where majority of population vote for net
neutrality and abide for digitalization of services, it is important to note that e-commerce is
taking leaps and bounds. As the budget and time are getting constrained, consumers have
heightened to experience self service through e-commerce. We are witnessing that majority of
the start-ups setting their stores online before even establishing a physical one, this is done not
only to establish them but also to study the market pulse about the acceptance of their product or
services. The present paper examines the latest trends in e-commerce and its profound influence
on SMEs. The study used secondary data to analyze the present market situation of e-commerce
industry and its impact on SME’s which indeed a backbone for Indian economy.

Keywords: Internet, India, E-commerce, Trends, Economic growth, SME.

Introduction:

In this 21st century indeed it’s of internet that has become major ingredient for a rapid lifestyle.
Internet has become central hub for everything, for explorations, for communication, to connect
with people for official purpose and as a medium of exchange. Thus given birth to new method
of trading termed as ‘E-commerce’, where, buying and selling of services or product happens
over web, i.e. Internet. Hence e-commerce can be defined as “the use of the Internet and other
networking technologies for carrying business transactions” (Turban et al. 2006). So it is
apparent that the degree of Internet dissemination in a country will have direct impact on the
growth of e-commerce sector. With speedy raise in internet penetration, heightened market
awareness, intensified experience and convenience of buying and selling through internet, shall
further stimulate e-commerce growth not only in India but, across the globe.

Literature Review:

KPMG report on ‘e-Commerce Rhetoric, Reality and Opportunity’ states that, e-commerce
industry needs the necessary support from all stakeholders to surpass the challenges and to
venture profitability. The Government, the regulatory agencies, Payment processing gateways,
logistics service providers and the e-Commerce players have to step-up and evade these
challenges. Awareness drives initiated by the regulatory bodies to get wider users (including
SMEs/ MSMEs) on to the e-Commerce bandwagon. E-commerce sector offers smashing benefits
not only to the Indian economy, but also to SME, the customers and the society at large.

“Future of E-Commerce; uncovering innovation” report by Deloitte & ASSOCHAM States

that inclusion of new category of services like repairing, healthcare would play a vital role to
accelerate the growth of e-commerce market in the coming years. In a vast country like India it is
of highly complex to manage Supply chain and logistics in e-commerce business in a vast
country like India to reach country side and remote area.

Marry meeker (KPCB) report on “Internet trends”, claims that, Indian e-commerce model is
driven highly by mobile internet. Flipkart, Snapdeal, are experiencing near around 70% of their
business order through mobile Apps, which is much more than many of the e-commerce
behemoths across the globe. This incursion of internet coupled with the increasing confidence of
consumers to purchase online, has led to a tremendous and unprecedented growth of Indian e-
commerce industry in the last two years .

Report on ‘E-Commerce in India’ by Nitish Desai Associates - Government need to well-

define taxation policies for the e-businesses depending on transaction types and business models.
Necessary steps need to deploy for more transaction security. The legal value of electronic
transactions shall be equivalent to other forms of communication such as on paper in writing;
and further, the law shall be technology‐neutral to accommodate emerging technologies or
generics.

Objectives of Study:
1. To study about latest trends in Indian e-commerce industry.
2. To study the impact of e-commerce on SMEs

Research Methodology: This paper is confined to study e-commerce industry in India.

Present study is descriptive in nature and is based on secondary data. Secondary data is availed
from text books, various websites, magazines, journals, news paper and reports given by various
survey institutions. Detailed study and analysis of available maximum secondary data on the
topic were made keeping the objectives in mind. Period of data is between 2013-2015.

Latest Trends in Indian e-commerce Industry: The giant e-commerce companies like
Amazon, Flipkart and snapdeal are competing tough to procure and retain their customer base by
providing them attractive discounts and schemes. Following are latest trends in Indian e-
commerce industry:

Time for stronger Mergers & Acquisitions: Giants in the e-commerce business are on an
acquisition spree with an objective to expand their portfolio, increase their customer base, and
provide a better shopping experience to customers. Flipkart acquired Appiterate, AdiQuity and
WeHive Technologies Pvt.Ltd so as to boost its profitability through m-commerce. Mahindra
auquired BabyOye to desegregate its offline store Mom&Me. With a span of 3 months Food
Panda acquired just eat India and Tasty Khana. Ola cabs bought TaxiForSure to increase its own
share in taxi market. The biggest acquisition in e-commerce sector happened with snapdeal
acquiring Freecharge-a mobile recharge platform, overtaking last year acquisition of Myntra by
flipkart. MartMobi is acquired by Snapdeal. These trends are expected to step-up in the coming
years as the industry is backed by scaling up operations and high valuations.

M-Commerce- most influential aspect of e-commerce: With a decrease in data tariff rates,
70% of users accessing internet through their mobiles leading to the majority of purchases in e-
commerce through tablets and smart phones. Giving a major scope for e-commerce companies to
develop apps and provide additional discount for purchases through Apps. Acquisition of mobile
technology organizations by giants in e-commerce depicts clear vision of the companies to
expand and strengthen its m-commerce. As per KPCB & Marry Meeker report - in this financial
year 70% of business for e-commerce companies happened through mobile Apps. It is clear
indication the year of 2015 and coming years will be for M-Commerce.

Vertical specific e-tailers on the rise: To differentiate their services from mainstream e-
commerce players, vertical specific e-tailers find it to be supportive to focus on a niche services
or products. Cost effectiveness, convenience, user-friendly experience and richness of info. are
of critical aspect in this industry specific venture. Ola cabs, BigBasket, UrbanClap for best
professionals in the entire service industry ranging from counselors, yoga teachers, architects,
photographers and lawyers. Similarly Timesaverz for home services, Healthkart, Lenskart in
health care, MakemyTrip, IRCTC, Goibibo, Cleartrip in travel segment, Fabfurnish, Pepperfry,
zansaar in furniture segment, Jabong. Yepme, Myntra in fashion vertical MagicBricks,
CommonFloor, 99acres in real estate segment are of upcoming companies in their respective
verticals.

FDI in E-Commerce sector: At present FDI is prohibited in business-to-consumer

(B2C).Foreign players enter the India e-commerce markets by investing in some of the local
start-ups. Government has started consultations with stakeholders on allowing FDI in retail e-
commerce before the end of this financial year, has raised our beliefs that the future is for e-
commerce industry.

Retailers are going online: Consumer opt to shop at e-retailers who have offline stores thus
leading giant retailers to focus on their digital strategies to capture the growing benefits of online
platforms. Reliance retail, Shoppers stop, Big Bazaar are few examples to state. Easy and vast
reach of customers through online channel is the major reason for offline retailers to launch e-
commerce websites.

SMEs in India:
In India, SMEs have low operational costs and limited investment on fixed assets. It is
characterized as highly unorganized and is scattered across vast geographies. SMEs make a
significant contribution of around 40% to industrial exports and 45% to industrial output 17% to
Indian GDP thus playing a crucial role in Indian economic development. It is evident from the
annual report given by ministry of MSME that SMEs generate large portion of employment
opportunities in service and manufacturing sector, which are growing at an impressive rate of
34% and 18% year on year. No. of new entrants in SMEs is growing at an average of 31% in
service sector and 23% in manufacturing sector.
The above stated achievements are of possible mainly due to internet penetration in India, where
in SME community started exploring its opportunities as online sellers who can access shoppers
and consumers across the globe. Earlier, SMEs in India were traditionally dependent on domestic
trade but, with the advent of latest developments in internet SMEs have now started exploring
opportunities for global trade. A report on ‘unleashing potential’ given by FICCI and Nathan
Associates states that 43% of SMEs participate in online sales without any website. As per
survey by snapdeal and KPMG around 27% of SMEs using internet are engaged in e-commerce
business,51% of SMEs believe in the use of technology driven innovations where as 22% are
complete ignorant about the potentiality of business through internet.

Impact on SMEs by E-Commerce- too real to ignore:

In recent years, the growth of the global e-commerce market has made SMEs to expand beyond
their domestic market. Indispensible presence of e-commerce is of significant to be much
competitive and a platform for to achieve global scale for their business. SME street survey
reveals that 85% of the SMEs who adopted e-commerce believe that it is a cost effective medium
to grow sales. Around 77% of the SMEs who have adopted e-commerce were listed on online
marketplaces

Key Factors for SMEs to adopt e-commerce:

Potential benefits to SMEs by e-commerce:

As per a survey, SMEs who adopt internet for business boost 51%higher revenues, which results
in 49% more profit and 7% wider customer base than their offline-only counterparts.
Increase in revenues: Through e-commerce SMEs can offer a business platform that can be
accessed across geographies there by increasing the volume of sales and revenue. Flexibility to
conduct business, global consumer base, speedy reach to market can boost the SME revenues to
the tune of 51%.
Low cost of distribution and marketing: By adopting e-commerce SMEs can reduce 60-80%
of their spending on trade shows, offline advertising and on call centre’s there by optimizing the
overall sales and marketing. It also reduces the cost associated with traditional marketing as well
costs incurred to open stores at multiple locations.
Increase in profit margins: Reduction in overhead costs and upfront capital investment can
increase profit margin up to 49%. Reduction in costs allow for a more competitive pricing
strategy which in turn can positively impact sales volume. increase in transaction volumes
further increase overall profit values.
Improved geographic reach and accessibility: With low costs SMEs can enter international
market and also an opportunity to compete with giants across the globe in their industry across.
With disappearance of geographical boundaries in the virtual market place, SMEs can sell their
products 24X7 across the globe without any time zone restrictions
Shorter time to market: Adopting e-commerce enables faster and transparent communication
between SME sellers and buyers and avoids chaos in supply chain. They can eliminate redundant
process , improve order management capabilities, streamline communication, thereby increasing
the market relevance and possibility.73% SMEs agree that ecommerce helps make accurate
market comparisons.

Conclusion: In today’s world technology has become a key differentiator for successful growth
and sustainability of any organization. Business need to be updated with the emerging
technologies and adopt them to be competent enough in the market. E-Commerce is no longer a
trend but it is a business reality that cannot be ignored. Adopting e-commerce by SMEs could
result in more benefit than perceived harm. SMEs need to view e-commerce as a strategic
channel for creating their brand awareness and to hold broader customer base even out of their
domestic market by providing unique shopping experience, which in turn also helps them to
identify the untouched or unaddressed segments there in to achieve double digit business growth
within a decade .With poor website designs or with no online presence can put business at
serious risk, especially in retail and tourism sectors. SMEs need to overcome inhibitions and get
in the e-commerce business or else with in less short time it can lead them to be out of
marketplace. Government and regulatory authorities should create more awareness and
encourage SMEs to adopt this technology which can shape the future of SMEs in particular and
country’s economy as whole.

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