There’s no sale without scale. Or at least not in the virtual world. Ladies and gentlemen, grab your mouse tightly – the great e-commerce chess game has begun.
As the Amazonian giant from the USA makes its great leap into the subcontinent, local e-commerce players in India, such as Flipkart and Snapdeal are scrambling. But wait – there just maybe a silver lining in the offing, as China rubs its magic lamp and produces an investor in the form of Alibaba.
In a dramatic move that has swiveled eyeballs in the FinTech world, Alibaba has agreed to double up on its investment – putting down 1,100 crore (Approx. US$177 million) to increase its stake in PayTM, and more significantly, launch PayTM Mall, a direct rival to homegrown e-commerce players.
Take note: this is Alibaba’s third investment in PayTM, in a systematic increase on its hold on India’s digital commerce platforms. Other Chinese investors such as Tencent are also following suit, which makes us wonder what the future holds for India vs. China in the e-commerce universe. Inchin Closer takes a look at where it stands today:
|At present, India’s piece of the e-commerce pie, which rests at approx. 16 million USD is barely 2% of China’s which is a whopping 681 million USD and growing.||However the growth potential for India is huge and pundits predict that it will easily cross 60 million USD by 2021 – a massive CAGR of over 31% in five years.|
|China had the head start over India in e-commerce and is the #1 market globally in e-tail sales. However, e-tail in China took off to a bumpy start when the economy was at a low in the early 2000s, and has only recently gained its massive momentum.||By contrast, India has lagged behind on the e-commerce shopping cart, but it’s jumped on the bandwagon around 2010, when the economy was booming, and is rapidly gaining velocity. In fact, India is the world’s fastest growing e-commerce market today, and some believe that it will catch up to giants like the USA and China in the next 10-15 years.|
|The bulk of India’s e-commerce sales today are in the electronics and mobile phone space – where the margins are thinner than a microchip. Apparel is the next biggest seller online while other items from house-hold goods, to furniture, to groceries, are still taking wing.||China’s e-commerce market is far more diversified and while fashion is certainly a big seller, what emerges next is healthcare. As a result, investors like Tencent are actively pursuing Indian healthcare apps such as Practo and Lybrant, which connect patients with doctors through a mobile platform. For those who understand the Chinese landscape, this is not so surprising, as there is a huge demand from the Chinese populace for healthcare services. Practo and Lybrant specifically target the shortage of healthcare professionals in rural areas.|
|There is no doubt that India’s big push in e-tail has been artificially accelerated by its willingness to accept cash-on-delivery, flexible return policies, and venture capital investments that have helped the bubble to grow. It is a fiercely competitive market place where the “bargain basement” is literally the “discount window” as vendors compete ferociously to offer the best deals online.||However, investors in the FinTech sector are cautious about the pace of penetration, and feel that India’s growth may be more gradual as the infrastructure for Internet and mobile communications will affect the growth of the sector. Moreover, while turnover may be growing, investors are questioning when the profitability of these enterprises will kick in – for sales to be profitable, the scale needs to increase exponentially.|
Anil Ambani, whose Reliance Communications, sold its 1% stake in PayTM to Alibaba, is laughing his way to the bank. His original investment of INR 10 crore has netted him a return of INR 275 crore with this sale. But Jack Ma’s Alibaba is no novice to this game, and there’s no doubt that the Chinese billionaire must see vast potential in the Indian e-commerce market to have taken this strategic step.
Not only has he upped his PayTM holding, he also holds a 5 percent stake in domestic player, Snapdeal. So why pick PayTM over local competitors Flipkart and Snapdeal? Again, for those who understand Alibaba’s modus operandi, the decision is completely logical.
Alibaba has a very clear strategy that focuses on payments. It’s the e-wallet payment model that seals the deal. Alipay is the predominant mobile wallet in China – as PayTM is in India – and Alibaba has made a concerted effort to garner investments in mobile payment services in Asia and overseas. Not only does PayTM’s mobile wallet platform come to its (financial) aid in this situation, the instability at both Flipkart (management shuffle) and Snapdeal (layoffs) make PayTM the safer bet. But perhaps the longer term thought process is to make a strategic shift toward offering a heightened degree of service at a multinational level – thereby increasing its scale globally, and thereby lift the sector out of its current bargain basement mentality and towards a more profitable platform. Let’s see if he can make the e-commerce genie grant his wish.