If you’re considering expanding your business into Asia Pacific, India may be the place to begin. It’s the fastest-growing e-commerce market in the region, worth 16 billion USD in 2014. While only a small fraction of the population is online, 75% of them are below 35, the demographic most likely to participate in e-commerce. There are a few significant drawbacks which may prevent you from expanding into India, so here is a detailed look at everything you need to know before you make that decision.
In the Everything You Need to Know series, we take a look at a specific e-commerce market to help you decide whether you should expand online sales across borders. As a provider of comprehensive payment processing services, we at DalPay specialise in cross-border commerce and have first-hand experience facilitating business in over one hundred markets worldwide.
Online marketplaces vary significantly around the world in a wide number of ways, such as their level of economic development, shopping habits, preferred payment methods, access to technologies, legality, logistics, etc. Because of this, there are a great many factors to consider when choosing which international markets to expand to. This series is designed to provide you with all the information you need to choose which countries are a good fit for your business and to begin selling across borders.
Unless otherwise noted, figures in this article are sourced from:
The growth of e-commerce has changed the way people shop all around the world. While still representing only a fraction of total retail sales, e-tailers are part of the foundation of the global digital economy, which in turn has an effect on the lives of everyone who takes part in the economy, whether or not they buy or sell online.
It is not just a matter of convenience. There are two key reasons why e-commerce has been so successful: first, it allows consumers to purchase and receive goods without ever leaving their home; and second, it allows barriers to commerce such as distance and geopolitical boundaries to be break down.
India is the fastest-growing e-commerce market in Asia Pacific, so if you’re getting ready to expand your e-commerce business into the region, India may be a good place to start. However, it is still primarily a cash-based economy and there are some restrictions which may limit what you’re capable of selling. To help you decide whether it’s the right cross-border market for your business, we’re going to take a closer look at the market trends and realities of selling online in India.
- Total population: 1.2 billion
- Internet penetration: 11.4% (137 million)
- Mobile penetration: 72%
- Online shoppers: 20 million
- E-commerce sales: USD 16 billion
- M-commerce sales: USD 800 million
- E-commerce annual growth rate: 37.4%
The reality is that India is an immature e-commerce market. As the above figures show, internet penetration is still low. Being the second most populous nation, that still represents a very large community of internet users nationally, but the number of online shoppers is also quite a small proportion of that group, with only 20 million people.
Still, 20 million is nothing to scoff at, and that number is growing, with the young, middle-class mobile-ready population in particular driving the growth of cross-border commerce. Hindi is the dominant language, but 20% of the population is fluent in English and that proportion is higher among younger demographics, the same demographics that are more likely to shop online. English-language websites can therefore be effectively marketed in India.
What You Need to Know
- The US and China are the main countries for cross-border e-commerce sales to India.
- The demand for international consumer products is growing more rapidly than domestic distributors can keep up with.
- Consumer electronics, apparel and media products represent the vast majority of online retail spending.
Preferred payment methods
Credit card penetration is very low in India, with only 2% of the population owning a credit card. For online payments, credit cards represent 24% of total value, behind bank transfers (29.3%) and cash-on-delivery, which leads with 37.5%. The popularity of cash-on-delivery indicates a low acceptance for online payments. The lack of credit card penetration and low market share of e-wallets (1.5%) pose a challenge for international sellers.
However, m-commerce may be the solution. Already representing 4% of e-commerce payments, nearly triple those represented by e-wallets, the 10 million mobile shoppers in India spent 800 million USD in 2013. 30% of total e-commerce traffic comes from mobile devices and 14% of all websites visited via mobile device were e-commerce sites.
With 72% mobile penetration and e-commerce being driven by a younger, increasingly connected and mobile crowd, m-commerce is poised to become the driving factor in the continued growth of e-commerce in India.
As the second-biggest internet market after China, India is naturally a target for cybercriminals, accounting for 6.5% of all attacks. According to research conducted by Aite Group, 37% of Indian cardholders has experienced fraud in the past 5years, more than in any of the other 16 countries surveyed.
The Reserve Bank of India adopted PCI DSS in 2013 and has enforced two-step verification procedures, identifying the need for payment card security relatively early in the development of the local e-commerce industry. As a result, Sift Science has placed India low on its list of countries most subject to e-commerce fraud.
The legal restrictions may prove to be too much of a challenge for many e-tailers considering selling physical goods to India. India requires that cross-border retailers source 30% of their products and services locally, which means that businesses shipping all their goods from a centralised location will face significant barriers when selling to India.
However, there are no sales taxes on goods shipped into India and certain types of goods, including laptops and other consumer electronics, aren’t subject to duty. So it’s important to consider what type of goods you’re selling and where you are supplying them from when deciding whether India is a good market for your business.
Indian E-Commerce in Brief
- 20 million potential customers and growing
- High demand for international consumer products
- No sales tax
- Low credit card penetration
- Low e-commerce penetration
- 30% of products must be sourced locally
On the plus side, India is the second-largest internet market in the world and the fastest growing e-commerce market in Asia Pacific. Though still an immature e-commerce market, nearly the entire population has access to postal delivery to their door, which is rarely true in emerging markets, so the necessary infrastructure for e-commerce shipping and fulfillment is in place.
On the downside, it’s still a cash-based economy, with few people owning credit cards or e-wallets, which, coupled with the fact that e-tailers are legally limited in their ability to sell certain products, is why the U.N. Conference on Trade and Development called India one of the least e-commerce friendly markets.
Still, the number of internet and mobile device users is expected to more than double in the next 5 years, with most of the growth accounted for by young, middle-class, English-speaking consumers. This is an untapped consumer base whose loyalties are undecided and who are thirsty for international consumer products. Considering the growth of this audience, there may be the best time to begin selling in India, despite the hurdles.
Expanding into a new international market is a risky venture but a very rewarding one if done correctly. For the latest information about how you can build and maintain a strong e-commerce enterprise and keep it compatible with legislation and buying habits at home and abroad, subscribe to the DalPay Blog and follow us on Facebook and Twitter for the latest industry news.