Challenges and opportunities of e-commerce in Indian Software Industry

Introduction

E-commerce as anything that involves an online transaction. This can range from ordering
online, through online delivery of paid content, to financial transactions such as movement of
money between bank accounts.

This paper has analyzed some of the challenges and opportunities of e-commerce.

Elizabeth Goldsmith and others (2000) reported that the general category of e-commerce can be
broken down into two parts:

1 E-merchandise: selling goods and services electronically and moving items through
distribution channels, for example through Internet shopping for groceries, tickets, music,
clothes, hardware, travel, books, flowers or gifts.

2 E-finance: banking, debit cards, smart cards, banking machines, telephone and Internet
banking, insurance, financial services and mortgages on-line(Elizabeth Goldsmith and
others,2000).

Farooq Ahmed (2001) reported that the enormous flexibility of the internet has made possible
what is popularly called e-commerce which has made inroads in the traditional methods of
business management. All the facets the business tradition with which we are accustomed in
physical environment can be now executed over the internet including online advertising, online
ordering, publishing, banking, investment, auction and professional services. E commerce
involves conducting business using modern communication instruments: telephone, fax, e-
payment, money transfer systems, e-data interchange and the internet. The WTO has recognized
that commercial transactions can be broken into 3 stages. 'The advertising and searching stage,
the ordering, and payment stage, and the delivery stage.'

1:1 GROWTH OF E-COMMERCE:

Electronic commerce or e-commerce encompasses all business conducted by means of computer

networks. Advances in telecommunications and computer technologies in recent years have
made computer networks an integral part of the economic infrastructure. More and more
companies are facilitating transactions over web. E-commerce provides multiple benefits to the
consumers in form of availability of goods at lower cost, wider choice and saves time. People
can buy goods with a click of mouse button without moving out of their house or office.
Similarly online services such as banking, ticketing including airlines, bus, railways, bill
payments, hotel booking etc. have been of tremendous benefit for the customers. Most experts
believe that overall e-commerce will increase exponentially in coming years. Business to
business transactions will represent the largest revenue but online retailing will also enjoy a
drastic growth. Online businesses like financial services, travel, entertainment, and groceries are
all likely to grow (http://www.gatewayforindia.com/technology/e-commerce.htm).

As per the findings of Internet and Mobile Association India the total value of E-Commerce
activities within India has Crossed Rs.570 Crore during 2004-05. Internet and Mobile
Association India a non-profit organisation founded in January 2004 by leading Indian Internet
portals, projects that e-commerce revenues in the country will reach Rs 2,300 Crore in the 2007
financial year, growing at 95 percent over the year 2006. This pertains to the Business-to-
Consumer (B2C) segment. Please refer Table 01.

Table 01: E-commerce market size of India

Year 2002-03 2003-04 2004-05 2005-06 2007-08

Business to Consumer 130 255 570 1,180 2,300

transaction in Rs.
(Crore)

Percent Growth - 96 124 107 95

Source: (www.iamai.in).

1:1.1 FACTORS INFLUENCING THE DISTRIBUTION AND FORMS OF GLOBAL E-

COMMERCE

Nir B. Kshetri (2001) reported that the twin forces of globalization and the Internet have the
potential to offer several benefits to individuals and organizations in developing as well as
developed countries. Apart from economic benefits such as more choices and the convenience of
shopping at home, the twin forces can make progress on educational and scientific development,
mutual aid, and world peace; foster democracy; and offer exposure to other cultures. To fully
exploit the potential of the Internet and e-commerce, policy makers in developing as well as
industrialized countries are taking initiatives to develop the global information infrastructure
(GII) and connect their national information infrastructures to the GII (Gore 1996).

All countries are not likely to benefit equally from the virtuous circle of Internet diffusion
created by globalization and multiple revolutions in Communication technologies (ICTs). Forces
influencing the distribution of global e-commerce and its forms include economic factors,
political factors, cultural factors and supranational institutions. Economic factors mainly
influence perceived relative advantage of Internet use whereas political and cultural factors
influence the compatibility of the Internet with a society. Supranational institutions' initiatives
are influencing the price, quality and availability of ICT products and services, mainly in
developing countries, thereby increasing relative advantage of Internet use. Moreover
international institutions are influencing laws, regulations and policies in developing countries
making them more compatible with Internet use. The influences of these factors on Internet
adoption in general and the three phases of online transaction advertising and searching phase,
payment phase and delivery phase are presented in Table 02.

Table: 02 Factors influencing the distribution and forms of Global e-commerce

Stage Economic and infra Socio cultural Political legal Supranational
structure related factors factors institutions
factors

Internet Per capita GDP Literacy rate and The internet's UNDP-introduction
adoption computer skill democratic nature of the internet in
incompatible with many countries.
authoritarian
political

Availability of English language skill structures GATS-competition in

telephone and telecom sectors
computer

Pricing structure Viewed as a tool of Tariff and non tariff ITA- reducing the
cultural imperialism barriers to ICT price of ICT
in some products products.

Buying/selling Availability of credit Intellectual property Redress UNCITRAL model

online protection mechanisms in case law
of problems in
online transactions

Advertising Operating speed of Influence of language Ban on some Products can be

and searching computer and and symbols used on website in advertised and
phase modern size site visited and authoritarian searched globally on
purchase decision regimes GTPN of UNCTAD

Payment Penetration rate of Forms of payment: Governments' UNCTAD smart card

phase credit cards check, wire transfer, concern on the
cash on delivery etc, outflow of foreign
currency.

Delivery Delivery means and Products stolen some Tariff and non- tariff Electronic delivery
phase infrastructure countries barriers free of custom duties
in WTO member

Challenges and opportunities of e-commerce in Indian Software Industry

Market Size
Indias retail market is expected to nearly double to US$ 1 trillion by 2020 from US$ 600 billion
in 2015#, driven by income growth, urbanisation and attitudinal shifts. While the overall retail
market is expected to grow at 12 per cent per annum, modern trade would expand twice as fast at
20 per cent per annum and traditional trade at 10 per cent#.

Indias Business to Business (B2B) e-commerce market is expected to reach US$ 700 billion by
2020.## Online retail is expected to be at par with the physical stores in the next five years.

India is expected to become the worlds fastest growing e-commerce market, driven by robust
investment in the sector and rapid increase in the number of internet users. Various agencies have
high expectations about growth of Indian e-commerce markets. Indian e-commerce sales are
expected to reach US$ 120 billion! by 2020 from US$ 30 billion in FY2016.Further, India's e-
commerce market is expected to reach US$ 220 billion in terms of gross merchandise value
(GMV) and 530 million shoppers by 2025, led by faster speeds on reliable telecom networks,
faster adoption of online services and better variety as well as convenience@.

Indias direct selling industry is expected to reach a size of Rs 23,654 crore (US$ 3.51 billion) by
FY2019-20, as per a joint report by India Direct Selling Association (IDSA) and PHD

Government Initiatives opportunities

The Government of India has taken various initiatives to improve the retail industry in India.

Government of India has allowed 100 per cent Foreign Direct Investment (FDI) in online
retail of goods and services through the automatic route, thereby providing clarity on the
existing businesses of e-commerce companies operating in India.

The Government of Andhra Pradesh signed pactsworth Rs 1,500 crore (US$ 222.36
million) in a wide range of sectors including retail and steel and gas with Walmart India,
Future Group, Arvind Lifestyle Brands Ltd and Spencers Retail, during the Partnership
Summit in Visakhapatnam, while also unveiling a retail policy aimed to attract retail
businesses to invest in the state.

The Ministry of Urban Development has come out with a Smart National Common
Mobility Card (NCMC) model to enable seamless travel by metros and other transport
systems across the country, as well as retail purchases.

IKEA, the worlds largest furniture retailer, bought its first piece of land in India in
Hyderabad, the joint capital of Telangana and Andhra Pradesh, for building a retail store.
IKEAs retail outlets have a standard design and each location entails an investment of
around Rs 500600 crore (US$ 7489 million).

The Government of India has accepted the changes proposed by RajyaSabha select
committee to the bill introducing Goods and Services Tax (GST). Implementation of GST
 is expected to enable easier movement of goods across the country, thereby improving
retail operations for pan-India retailers.

The Government has approved a proposal to scrap the distinctions among different types
of overseas investments by shifting to a single composite limit, which means portfolio
investment up to 49 per cent will not require government approval nor will it have to
comply with sectoral conditions as long as it does not result in a transfer of ownership
and/or control of Indian entities to foreigners. As a result, foreign investments are
expected to be increase, especially in the attractive retail sector.

Road Ahead

E-commerce is expanding steadily in the country. Customers have the ever increasing choice of
products at the lowest rates. E-commerce is probably creating the biggest revolution in the retail
industry, and this trend would continue in the years to come. Retailers should leverage the digital
retail channels (e-commerce), which would enable them to spend less money on real estate while
reaching out to more customers in tier-2 and tier-3 cities.

Both organised and unorganised retail companies have to work together to ensure better
prospects for the overall retail industry, while generating new benefits for their customers.

Nevertheless, the long-term outlook for the industry is positive, supported by rising incomes,
favourable demographics, entry of foreign players, and increasing urbanisation.

Challenges of e-commerce in Indian software industry

Although, major portion of e-business sectors have affected by the below mentioned challenges
but still there are few online giants like Makemytrip.com, flipkart.com, Snapdeal.com who have
overcome the challenges and represents the perfect growth trends of eCommerce in India.

With over 50% of total online orders coming from mobile, its quite evident that by the end of
2015 transactions from mobile devices will far exceed those from desktops. The leading online
fashion retailer, Myntra has already announced its plans to convert into a mobile-only
marketplace by the end of the year. Snapdeal receives around 65% of its orders from mobile and
expect it to increase to 90% by the end of this year. E-commerce merchants just cannot afford to
overlook these figures and need to embrace it at the earliest.

Its true that e-commerce is still growing in urban markets but exponential growth is coming
from Tier II & Tier III cities. While we are still struggling to provide internet connections to a
billion laptops, we have successfully managed to serve data on one billion mobile phones. For
many consumers in tier II and III cities, it is the only device that helps them connect with the rest
of the world.

Poor Knowledge and Awareness: When it comes to ratio of internet consumers,

scenario is not so admirable one. Majority of Indian rural population are unaware of
internet and it uses. Surprisingly, most of internet savvies or urban population are also
suffering from poor knowledge on online business and its functionalities. Very few are
 aware of the online corruption and fraud and thus darkness still exists. A reliable survey
reveals that 50% of Indian online users are unaware of the solution of online security.

Online Transaction: Most of Indian customers do not possess plastic money, credit card,
debit card and net banking system, which is one of the prime reasons to curtail the growth
of ecommerce. Nevertheless, in recent years, some of the nationalized banks have started
to issue debit cards to all its account holders. This is undoubtedly a positive sign for
Indian online entrepreneurs.

Cash On Delivery:Cash on Delivery (COD) has evolved out of less penetration of credit
card in India. Most of Indian E-commerce companies are offering COD as one of mode
of payment for the buyers. 30%-50% of buyers are also taking advantage of this mode of
payment while making purchase of any product and service over internet. COD has been
introduced to counter the payment security issues of online transaction, but this mode has
been proving to be loss and expensive to the companies. It is seen that majority of the
customers denied to make the payment at the time of delivery of the product. Hence,
companies tend to lose the sale along with product transit fees. In order to curb the
problem of COD, online companies should take some judicial steps; otherwise basic logic
behind the ecommerce business will be at risk.

Online Security : In case of start up and small business, Business owners are ignoring
the importance of authentic software due to budget constraints. They are even failing to
take the initial steps to secure and protect their online business through installation of
authentic protection services like antivirus and firewall protection, which indeed a crucial
step for successful online business players.In India, maximum number of business
entrepreneurs used unauthorized software in their server, which usually does not come
with upgraded online security. Such pirated software leaves room for virus, malwares and
Trojan attacks and it is highly risky task to make online transactions in the systems,
which may disclose or leak sensitive details of credit cards and online banking of the
users. These kinds of droopiness should be banned in Indian ecommerce sectors.
Affiliation to SSL certificate should be imposed as a mandatory action for every owner.

Logistics and Shipment Services: In India, logistics and courier services required lots of
improvement. While, perfect and strong logistics service is one of the key reasons behind
the success of any online company, India is lagging far behind in this sector as most of
the town and small villages are still not covered under serviceable area of many of the
courier and logistic companies. Ecommerce is hampered in a big way owing to the
limited services offered by the courier service companies.

Tax Structure: Tax rate system of Indian market is another factor for lesser growth rate
of eCommerce in India in comparison to other developed countries like USA and UK. In
those countries, tax rate is uniform for all sectors whereas tax structure of India varies
from sector to sector. This factor creates accounting problems for the Indian online
business companies.

Fear factor: Fear of making online payment is a universal psychological factor of Indian
customers. With the spread of knowledge on online transactions and its reliability, some
percentages of customers have overlooked this fear and they are fearlessly engaging
themselves in online shopping. But still, majority of customers are not aware of online
 transactions and its security. They often reluctant to disclose their credit card and bank
details and preferred to stay away from online world of shopping.

Touch and Feel factors: Indian customers are more comfortable in buying products
physically. They tend to choose the product by touching the product directly. Thereby,
Indian buyers are more inclined to do ticketing and booking online in Travel sectors,
books and electronics. Companies dealing with products like apparel, handicrafts, jewelry
have to face challenges to sell their products as the buyers want to see and touch before
they buy these stuffs.