E-commerce in India

Market entry strategies for Canadian e-commerce companies in India

The retail market in India has been growing at a rapid rate primarily driven by domestic demand. Some of the factors for this rapid spike include:

• increasing internet penetration
• smart phone usage
• digital literacy
• changing demographics
• the increasing amount of women entering the workforce in the country

How to enter the market?

Opportunities in India have attracted a large amount of Foreign Direct Investment (FDI) into the country with new businesses interested in setting up their operations. Selecting the right model for market entry is an important task for companies planning to enter the market. Companies can select:

• Traditional Market Entry Model
• Cross-Border E-Commerce Model
• Domestic E-Commerce Model

Traditional market entry channel

Based on the scale of its operations, there are three ways a foreign company can choose to enter the Indian market:

• by appointing an Indian distributor
• as a foreign company
• as an Indian company

It is important to remember that India is a large and diverse country, with over 30 regional languages and different rules and regulations in different states. Regional distributors can make it easier to better understand the cultural differences and can be a better business approach. An ideal distributor will have an extremely good relationship with banks that will enable the extension of credit and have the capacity to market a full range of products.

An integrated e-commerce enabler can also be appointed. These are service providers that help a brand execute its digital strategy through a one-stop solution. E-commerce enablers typically charge a specific percentage of the foreign company 's monthly turnover and the fee depends on the type of service package chosen.

In order to set up a liaison/representative office, rules dictate that the foreign parent company must have built up at least three years of profit in its home country and a net worth equivalent to USD 50,000 (CAD 66,750). The main advantage of a liaison office includes the fact that compliance costs are lower as it is not a legal entity.

To set up a branch office, a foreign parent company is required to have a minimum of five years of profitable existence and a net worth of at least USD 100,000 (CAD 133,500).

The primary advantage of a branch office is that, unlike a liaison office, branch offices can generate revenue from local market sales and repatriate profits to the foreign parent company.

The last step in the traditional model of market entry is to form a bona fide legal Indian entity by a joint venture or a wholly owned subsidiary. This method is usually recommended when the foreign company has gained sufficient market understanding and is ready to make a large scale investment in the business.

E-commerce marketplaces

E-commerce in India is dominated by third-party marketplaces. There are a number of different third-party marketplaces operating under various models. Below is a non-exhaustive list of major e-commerce marketplaces in India:

• General merchandise: Amazon, Flipkart, Shopclues, Paytm Mall, TataCliq, Alibaba (B2B)
• Beauty, Fashion and Cosmetics: Nykaa, Myntra, Purplle, Sephora, Limeroad Meesho NNow, Snapdeal
• Groceries: BigBasket, Amazon Fresh, Jio Mart, Kaze Living, Grofers
• Baby products: FirstCry, Hopscotch
• Home furnishings: Home Centre, Pepperfry
• Health and personal care: 1mg, HealthKart, IndiaMART (B2B)

Prominent domestic e-commerce models entry strategies in India:

• Marketplace model
  The e-commerce websites act as a facilitator between the buyer and the seller. Sellers have the key role of managing inventory, stock, logistics and driving sales.  
• Inventory-based model
  Under this model, the inventory is owned by the e-commerce company and is directly sold to consumers. This model provides better post-purchase customer experience and fulfillment.
• Hybrid model
  Also known as a managed marketplace model, the hybrid model is a mix of marketplace and inventory-based e-commerce models. The future of e-commerce lies in the hybrid e-commerce model where a company trades its own labels, as well as provides a platform for other merchants to sell their products.

For Canadian companies determined to enter the Indian market, the success or failure of their endeavor lies in the way they choose to enter the market. The choice of entry model should be determined on a case-by-case basis.

Below are two case studies that illustrate different scenarios and their solutions.

Fruit Jam Import - Integrated enabler

The import of food products into India is controlled by the Food Safety and Standards Authority of India (FSSAI). A fruit jam company wanting to enter the Indian market faced a major hurdle in the form of the documentation required to obtain FSSAI clearance for their product. Instead of going with the offline retail, they found their solution in partnering with an integrated e-commerce enabler who acted as a one-stop shop for designing, developing and executing the company's e-commerce strategy.

Air Purifier Import - Cross-border e-Commerce

In India, the import of electronic and IT goods is prohibited without obtaining a clearance from the Bureau of Indian Standards (BIS). While the regulation mandates clearance for almost 50 different types of product categories, other goods are exempt from the requirement - for example, air purifiers.

Since air purifiers are exempt from BIS Clearance norms, the Cross-Border E-Commerce model would be best suited for a company wishing to export those products. With the help of this model, a company would be able to readily expand their prospective customers to an international scale and, by utilizing an established marketplace platform, they can automatically generate customer traffic.

Cross-border e-commerce

Cross-border e-commerce refers to the kind of e-commerce that involves more than one country. According to a recent report by digital payment merchant site PayPal, the amount of Indian online shoppers buying products from other countries is increasing. The cross-border e-commerce market is beneficial for consumers as they are given access to a wider range of foreign products at lower prices.

There are two ways to approach the cross-border e-commerce market:

• Sell through a company's existing website hosted outside of India: This is the easiest way to approach the market. The company's website can be used as a marketing and branding tool rather than a sales platform.
• Utilize a cross-border marketplace: This approach used by Amazon, eBay attracts more companies as it allows them to cut the middleman and increase the profit margin. This approach provides full protection to buyers and sellers.

Using social media to promote your products

As social media has stepped into each spheres of the virtual space, the web became a marketplace where people can interact to find the best product suited and tailored to their needs.  The most popular social media sites used by e-commerce businesses in India are Facebook (89%), WhatsApp (43%) and Instagram (41%). Other social platforms, such as Twitter and LinkedIn, are catching up with the already popular platforms.

Facebook

Facebook is one of the leading social media platforms for consumers as well as marketers in India, with more than 400 million active Facebook users^{Footnote 1} in 2021. By 2025, the number of active Facebook users in India is expected to pass 650 Million.

According to data from Facebook in 2015, Chumbak generated 35% of its online revenue via Facebook. The Chumbak Facebook page had 350,000 followers and the site had 300,000-500,000 monthly unique visitors.  Similarly, The Newsfeed Smartapp, which is live on India's e-commerce giant Flipkart's Facebook page, has already had some great participation rates. Hundreds of thousands of users have played the game, vying to win gift vouchers from Flipkart, all from a single Facebook interactive post.

Among people surveyed who message businesses, 79% of Indians responded that being able to message a business helps them feel more confident about the brand. Building a presence on Facebook Messenger or WhatsApp is common for companies doing business in India and allows people to browse products and services and then purchase them directly in the conversation.

WhatsApp

Facebook-owned messaging platform, WhatsApp is extremely popular in India and is often the preferred method of communication within the business community, but also to engage with customers and do promotion. WhatsApp had over 390 million ^{Footnote 2} monthly active users in India in 2020. WhatsApp does not allow business accounts, however the application offers a free business app called "WhatsApp Business".

WhatsApp and the WhatsApp business apps have the following features:

Companies can use WhatsApp (free of cost), especially businesses that have products requiring assistance. Businesses can send product videos and answer demonstration requests directly through the application. Companies can even use WhatsApp to send order status, order tracking links, etc. In the future, WhatsApp also aims to verify each business and link it to their Facebook profile, so that only authentic businesses and stores can reach out to customers.

Besides opting for the right entry model, it is equally important to do promotion and ensure that potential customers are aware about the existence of your product. This can be done using digital marketing practices such as:

• Search engine optimization (SEO)
• Social media optimization (SMO)
• Paid marketing
• Influencer marketing
• Email marketing
• Content marketing

Diverting traffic towards your brand in a country like India is not enough. Indian society has a very strong belief system based on family and this extends into business. Like people in many Asian and South American cultures, Indians place great importance on personal relationships. This extends to business dealings in a way that is not common in Canada and most Indians would like to know their business partners. Establishing personal terms is part of building mutual trust here.

Disclaimer

The Canadian Trade Commissioner Service in India recommends that readers seek professional advice regarding their particular circumstances. This publication should not be relied on as a substitute for such professional advice. The Government of Canada does not guarantee the accuracy of any of the information contained on this page. Readers should independently verify the accuracy and reliability of the information. Content on this page is provided by RNCOS, a Business Consulting Service firm which provides multiple services to companies wishing to engage in business expansion activities.