FDI in Ecommerce, when?

Dr Bharat Jhunjhunwala
United States’ Senators Mark Warner of Democratic Party and John Cornyn of the Republican Party have asked President Obama to pressurize India to open up the ecommerce sector for Foreign Direct Investment. Japanese ecommerce giant Rakuten has also asked Prime Minister Modi to do the same. On the other hand, Swadeshi Jagaran Manch, the economics’ affiliate of the BJP, has asked that amount of foreign investment permitted in Indian ecommerce companies like Flipkart should be restricted. The Manch feels that entry of MNCs will kill the incipient Indian ecommerce industry.
The basic objective of the economy is to increase the production of goods and services and reach them to the consumer. Ecommerce is making this smooth and easy. The link between the producer and consumer is established directly. A mobile phone manufacturer can make a website and announce that he has a ten models of handsets available for sale. A consumer can pay to him directly and have the handset delivered at his address. The need to appoint a distributor and to reach the many models to the shops is eliminated.
The consumer gets more choice as well. I needed to buy a mobile handset. I visited four or five mobile shops but found all of them were carrying the same “popular” models. They could not provide me with a model that had capacity to store large number of contacts, had a long battery life and had less thickness. So I browsed and found a handset manufactured by a less known company that suited my requirements. My choice was expanded. Similarly, a book publisher told me that ecommerce has enabled him to sell old stock of his books. These books had laid in the warehouse for years. Bookshops did not want to display these old books because that took a large amount of space. They wanted to place only the recent releases on their shelves. The publisher uploaded the details of these older books on the web. And, Lo! These too started moving. The few consumers spread across the world were able to see these and started to place order. It was possible to reach the consumer without having to display the books in a shop.
The retailers are on the receiving end though. They find customers slipping out of their fingers. There have been street protests by retailers in the last festive season as they found customers buying goods at discount from the websites. Such transitions have happened in the past as well though. The horse-driven tonga was replaced by the auto rickshaw. The STD booth has given way to mobile shops. Now retail shops are giving way to ecommerce. We have lived through these earlier transitions and there is no reason why we cannot live through this one as well.
The future belongs to ecommerce. Question is how do we fructify this imminent opportunity. Economists have the concept of “infant industry.” New startups need protection for some time till they are mature and can face competition from established giants just as the infant baby requires nurturing for 20 years before she can take on competition. Modi must provide protection to domestic ecommerce ventures for some time but not permanently. Permanent protection will breed complacency and inefficiency.  Objective must be to cajole domestic companies to become global and take competition in the home countries of the competitors. There is no harm to allow MNCs to enter once our companies have acquired that acumen.
A major problem in growth of ecommerce is the insecurity of transaction. A UK study found that 38 percent consumers browsed on the net to select the product they wanted to buy; then they went to a store to buy it. Reason was that they felt insecure with ecommerce. They could come back to the store in case they faced a problem. I read of a person who bought a software online. The CD came but not with the specifications ordered. The buyer complained and was told to return the CD which he did. But then came the reply that the CD returned was not the one that was supplied. It was simply not possible to get refund for the transaction. Such experiences arise because of the anonymity of supplier through ecommerce. Therefore, the Government should take steps to enact an “Ecommerce Act” and setup an ecommerce police. It should be possible for a person sitting in Brazil to recover his money from a e-fraudster located in Burdwan, for example. The Government should also setup a authentication system where the consumer can be assured that his money will not be stolen. That will jumpstart the global entry of Indian ecommerce and also provide new venues to the retailers under distress.
The shopkeepers also have to tighten their belts. They must focus on the new opportunities that are being created. There are many services that will need the old ways of supplying. The student, for example, will still need to sit with the teacher to get tuition in mathematics. Ecommerce can facilitate this. A friend of mine has got herself listed with a tuition website in the United States. She provides tuition to American students through the web. This was possible only through ecommerce. Similarly, globalization is leading to a huge demand for translations of documents form one language to another. It is possible for a translator sitting in his home at Gurgaon to translate a document from Japanese to German and provide to a British Multinational Company. Our retailers should move into provision of such services. Instead of crying hoarse about ecommerce taking their bread away, they could encourage their young to learn foreign languages.
A market for the supply of location-based services is emerging. Amazon cannot supply one kilo each of five varieties of fresh vegetables to the homemaker at 11 am. It is possible to do this through a local website. A Company in Gurgaon receives orders for vegetables in the morning; buys them from the wholesale market and delivers to the consumer at her house. Or a beautician or a physiotherapist can sell his services over the net. It will be difficult for a large company like Amazon to do this because verification of the quality of the services provided is not easy to do on a large scale. I once booked a hotel room with balcony and running hot water through a popular travel website. After check-in I found there was no balcony in the room; and the wash basin had no cold water. It had only hot running water! Such mishaps are inevitable for a large ecommerce venture. The rape of a woman by a taxi hired through the popular Uber site has exposed the difficulties of micromanaging delivery of services by a big company. The small traders must spot such opportunities and shift away from selling those products where ecommerce has an advantage.
(The author was formerly Professor of Economics at IIM Bengaluru)


Please enter your comment!
Please enter your name here