Big Billion Days to End for Flipkart and Amazon? Online Retail Giants Mum Over FDI in Ecommerce For consumers too, the guidelines may not be good news.
Opinions expressed by Entrepreneur contributors are their own.
You're reading Entrepreneur India, an international franchise of Entrepreneur Media.
In a major reform, the government has cleared 100 per cent Foreign Direct Investment (FDI) in online retail consumer businesses that operate as marketplaces, Department of Industrial Policy and Promotion (DIPP) said in a notice on March 29. Marketplace model means that the companies act as a facilitator between buyers and sellers by providing a technology platform.
As per the guidelines issued by DIPP on FDI in e-commerce, FDI has not been allowed in inventory-based model of e-commerce, where the company owns the goods that are being sold through its platform.
To bring clarity, the DIPP has also come out with the definition of 'e-commerce', 'inventory-based model' and 'marketplace model'.
The catch here is that most of the large e-commerce players in India operate as marketplaces. But these kinds of companies will not be permitted to have more than 25 per cent of their sales come from one vendor, even if that vendor is the company itself. This has left big players such as Amazon and Flipkart in a limbo, who have merchants (WS Retail for Flipkart, Cloudtail for Amazon) which account for a substantial chunk of sales.
Needless to say that the offline retailers who were against the predatory pricing, are happy as this would mean no more jaw-dropping discounts online, their prices will be at par with what offline market retailers offer.
Industry reactions on government's move
Welcoming the move, Mebelkart's Rahul Agarwal says,"This is a welcome move as the previous e-commerce norms were being flouted by some e-commerce companies by giving preferential treatment for their own selling companies. This move gives every seller on a marketplace equal opportunities. This is good for the manufacturers, retailers and distributers in India."
"Earlier it was a fight between capital and local sellers. Not it will be local sellers vs local sellers. Business will not be build just on discounts but also on true value a platform builds. The move on not letting marketplace decide prices is also refreshing," he says.
"We at Mebelkart believe in supporting the local ecosystem of suppliers, manufacturers and interior designers and hence it is a very positive change against the predative pricing which a few business tend to follow," he added.
Sanjay Sethi, CEO and Co-founder, ShopClues is upbeat about the move. He said, "100% FDI in e-commerce is a great initiative for the marketplace format of e-commerce retailing as it will help attract foreign investments in the country. It will be beneficial for consumers and will help in supporting the vision of Make in India as well and also create more job opportunities in the country. The clarity of the definition of e-commerce and marketplace model categorically will allow many players (national and international) to enter the industry through marketplace route. "
V Sivaramakrishnan, Finance Director, Venture Factory says,"This is a clear case of policy lagging behind practice. Anyway it is better late than never. Flipkart and Amazon have over the years used their affiliated retail arms (WSR and Cloudtail) to drive faster adoption of e-commerce through wider selection, superior quality of service and sharper pricing. However over the last year or so both these companies have already moved towards a model where other retailers are getting priority. The 25% cap on GMV from any single-seller group may not be as restrictive as it sounds. The problem could be in the point that the marketplaces are not allowed to discount the products of sellers directly or indirectly. This could hamper the overall level of discounting on the platforms particularly during periods of spike sale. The levels of discount on the platforms may now be determined by the real efficiencies in supply chain rather than the investors' money in the bank."
Kiran Murthi, CEO, AskmeBazaar said, "We offer core digital services like payments, shopping and delivery to our 15 million base of merchants who are currently using search and listing. In that sense, we have been working hard to build the required digital infrastructure that allows merchants to build their businesses online. This announcement is amazing and a clear vindication of our approach. We would like to take this opportunity to thank the government for clarifying this.
Sujayath Ali, Co-founder and CEO, Voonik said,"The clarity from Government on FDI is godsend for true marketplaces like Voonik who do not have seller concentration and who do not get involved in pricing or discounts. 25% limit on individual seller and non-involvement in pricing are good moves to rein in players who operate on pseudo-inventory models."
Manoj Gupta, Online Marketing Head, Craftsvilla says, "It is good to finally see that government has cleared the ambiguity on FDI in ecommerce especially wrt to marketplace models. Given Craftsvilla is one the purest form of marketplace, we are completely aligned on the various parameters of marketplace defined in the press note. This will also ensure that pseudo marketplace models run by few ecommerce companies are finally challenged and there will be more rationalization of pricing and discounts as ecommerce companies will be required to have lesser control on those. Given that concentration of sellers is part of the press note, some horizontal ecommerce companies might have to become more long tail in their seller base."
Pushpa Bector, Executive Vice President and Head, DLF Mall of India, says "It is a positive move by GOI leading to making the entire retail ecosystem more competitive. The move will only benefit the entire retail ecosystem in India and make it more competitive. The policy change has opened the flood gates for established foreign e-commerce companies to enter the country and this will compel Indian e-commerce companies to rework their business models and do away with deep discounting strategy that they been doing for a while now. I think the policy change will revamp some percentage of the online consumers' buying behaviour and drive them back to malls and high street shopping that provide a unique experience that is missing when one does shopping online."
Amit Singh, Founder & CEO, Allsupermart.com - a startup who has developed an organised ecosystem for local shop vendors to sell their product and services online. In an email to us, he stated: "The government's announcement on allowing 100% FDI in e-commerce market place model will be beneficial to players like us as it will enable in focusing more on the innovation and business aspect. The clear definition by DIPP for 'e-commerce', 'market place model' and 'inventory based model' will help in organizing the ecosystem. Allsupermart being a market place player welcomes the government's announcement as it will help us grow in many ways."
Forrester Forecast Analyst, Satish Meena, in reaction to the FDI announcement said, "Good to see that the government giving clarity defining the industry. However this is status quo in terms of policy as 100% FDI was already allowed in marketplaces. This clear definition by the government removes the doubts and makes things more transparent for foreign investors.This will certainly help more investment in marketplaces as not every investor is confident about putting money through loopholes. So this is good news for the top marketplaces looking for more funds to grow the business as they can approach new set of investors who were waiting for a clarification from the government."
"However there is still no clarity about the inventory led model operating through marketplace. The other troubling part is shifting the responsibility of delivery goods to the customer and customer satisfaction is moved to the seller instead of marketplace which is not a good news for customer," he added.
Aditya Kandoi, Co-Founder, CareOnGo said, "Foreign investment is a key component driving the Make in India Campaign. By allowing the 100 per cent FDI in e-commerce marketplace the government has helped lift the long perceived bureaucratic mind block around the business and will give the necessary push to the spirit of start up culture in general. Further more the 25 per cent cap on total sales and well formulated policies will help pave a level playing field and curb predatory pricing".
Ashish Jhalani, Founder eTailing India and Indian School of e-Business said,"When it comes to Flipkart, Amazon, Snapdeal and others this makes the definition of marketplace clear and also clarifies how foreign funds can be used. The clarification will help other marketplaces (smaller ones) to attract funds from international investors and possibly attract strategic partners. In some cases we may be able to see international players completely take over some small players if they wish to enter India."
On it affecting online purchases, he said: "I don't see much impact for consumers from the move in the short term. Long term it may help as we may see more mid/niche players emerge."
Srikanth Reddy, Founder and CEO, LatestOne.com said, "We welcome the FDI move on market place and definition of rules, particularly with reference to deep discounting and level playing field. The only differentiator between a success & failure in e-commerce was funding until recently. We believe a company should survive on fundamental strengths in the biz model by a combination of value addition, technology prowess, operations efficiency and digital sales & marketing capabilities. The new rules will ensure that the fittest will survive and not the ones with the funding and that is how, it should always be. It is also good timing because some of the investors have burnt their fingers by investing on "hype" and they have started demanding performance now. This will ensure that performance driven companies will succeed against funding driven companies. This will also give Indian funded companies a great chance to succeed, in a level playing field. Being an Indian company, we had always demanded that the wealth created from the new consumer internet companies must remain in India to some extent. These rules will indirectly ensure that condition is also met. We are really pleased with this announcement from the Govt."
Ankita Jain, Co-founder, GoPaisa said,"It's a both good and a bad news because for smaller merchants it will become even more difficult to survive as now the bigger players will get tons of investment which would lead to creating a entry barrier for smaller and niche players but 25% restriction on a single seller is a good part because now they will have to curb on there ws retail and cloudtail sales and push the other sellers which would in turn increase the shift of consumer purchases to other sellers products. Gopaisa.com Is a B2B platform so it does not affect our platform but still a lot of things are unclear from govt end which needs to be cleared."
Anil Joshi of Unicorn India Ventures said,"In my view this is an good move and very positive policy move for ecom companies. Government has now defined ecom market place for which 100% FDI is allowed, which means now ecom companies operating as market place can attract 100% FDI however they would need to ensure that they are just an market place and don't allow over 25% sale by any one vendor including group companies. Over all this will allow more capital participation from foreign investor and will enable ecom companies to carry on their sector development initiative which needs lot of capital infusion. In all positive move for ecom companies."
Anuj Puri, Chairman & Country Head, JLL India finds feels that this move is going to open the floodgates to a host of other players in this segment. In an email, he stated, "Overall, this is positive for the retail industry; more rational behaviour will now prevail in terms of market trade practices, and mounting of losses by most e-commerce companies will be curtailed. Online sales may reduce as deep discounts disappear, although losses will also be capped. If we look at the West, e-commerce and brick-and-mortar players coexist happily, and this dynamic can definitely reflect on the Indian terrain as well. With e-commerce in India still at the nascent stage, the base being low even now and the growth rate very high, there is enough scope for both e-commerce and brick-and-mortar retail to flourish."
Choking discounts flow - bad news for consumers?
The online retail in India has so far grown on discounts and sale methods, which came from their own pockets, but now they will not be allowed to influence the selling price for goods and services listed on their platforms. So is it goodbye to big billion days? While Flipkart and Amazon have chosen to stay silent so far, Snapdeal has welcomed the move. Snapdeal co-founder Kunal Bahl took to Twitter to congratulate the centre for supporting the industry. He tweeted: "Always a great feeling when you stick to the course that you believe in, pays off: Focusing on a pure marketplace and not doing inventory."
(Industry reactions - inputs from Samiksha Jain and Sneha Banerjee)
What's your take? Leave your comments on our Facebook page.