A study of foreign investments in Indian e-commerce and its effects on retail industry

I recently wrote a research article for Srujan (ISSN 2456-4079) - Vidya Prasarak Mandal's Dr. VNB Institute of Management Studies' annual research publication, on how foreign investments has driven the Indian e-commerce industry and  its effects on the retail industry & other allied industries like logistics, warehousing, payments, etc. 

Below is the abstract of the research paper and the whole paper is available here. 

Abstract

This article highlights the key investments of foreign institutional investors into Indian e-commerce companies over the last decade (2008-18) and explains the impact of these investments on the Indian retail industry.

It starts with an overview of the key online & offline players in the Indian retail industry across three large categories - electronics, apparels and groceries. That is followed by a walk-through of important milestones for the online organizations over the last decade in terms of investments, expansions and mergers & acquisitions along with a highlight of the key foreign investors who catalyzed these activities. The article then moves on to the impact of these activities on the overall retail landscape in India and how it has affected other allied industries (such as warehousing & logistics). The article concludes with the author’s commentary on future prospects of the Indian retail industry and what can be expected in the next 10 years.

This article is intended for students who would like to get a better understanding of an emerging industry (e-commerce), academicians wanting to explore its growth & impact and working professionals interested in better understanding or switching their careers towards e-commerce. The article is built upon research data from government sources (such as FDI inflow data), author’s own experience in the e-commerce industry, balance sheets & quarterly/annual results of retail companies & investors and sectoral analysis papers from consulting firms.

Styles of Leadership

Ramayana & Mahabharata are considered to be two of the greatest epics India has ever produced. While Ram is easily identified as the hero of Ramayana, there are many claimants for the title of hero of Mahabharata - the most popular one being Krishna. When Arjuna asked Krishna to be part of the Pandava army, Krishna famously agreed with one condition – that he would be just a charioteer. When the Pandava army had warriors like Arjuna, Bheem and all, it made sense for Krishna to take a role of someone who would just show the path and let the warriors run the show. Krishna had to step in only during crucial junctures in the war, when the warriors looked genuinely defeated and needed help. On the other hand, in Ramayana, poor Ram did not have that choice. He had to lead from the front and be actively involved in the war, since he was leading an army of monkeys.

This is one of the greatest leadership lessons that we can learn from Ramayana & Mahabharata. The approach taken by Ram is called as “Coaching style” of leadership where the leader is hands-on and sets clear goals and tasks to each member. He “guides” them to achieve success. On the other hand, the approach taken by Krishna is called as “Affiliative style” of leadership, where the leader forms emotional bonds with his team-members and “motivates” them to achieve success. 

Coaching leader guides the team

Affiliative leader motivates the team

A coaching style of leadership works best when the team is young or inexperienced or made up of not so great players. On the other hand, Affiliative style of leadership works best, when the team is made of experienced professionals who just need some direction, not hand-holding.

The third type of leadership style that is commonly observed is the “Authoritative style”. As the name suggests, it works with an authoritative person on the top, who sets the vision & agenda and mobilizes the team-members towards that vision. This style of leadership works very well when the team is adrift and clueless as to what really “needs to be done”. Steve Jobs is a classic example of this style of leadership. 

Contrasting to the authoritative leadership style is the “Democratic style”. This style emphasizes on collaboration & cooperation within the team and helps the team-members set workable goals and celebrates their achievement. This style is very popular in creative organizations that require constant innovation and exchange of ideas. It normally leads to a very participative work environment where contribution by all team-members is encouraged. Other than these four leadership styles, i.e. Affiliative, coaching, authoritative & democratic, there are more styles like altruistic leader, bureaucratic leader, pace setting leader, etc.

When it comes to individuals, each of us has streaks of these leadership traits in us and, we subconsciously pick the style that would work best for that situation.  So the next time you have to push your team to achieve a larger than life goal, take a step back and first think whether you are leading warriors or monkeys and then be the leader that the situation demands.

Reducing returns on e-commerce orders

Product returns is one of the major pain areas for all e-commerce sellers in India. Depending on the category of the product sold, the returns vary from 5 % to sometime even as high as 25 % (primarily for apparels). Below are the 3 major reasons for product returns:

• Buyer not available - The buyer might not pick up the phone, might not be available at the mentioned address, might not open the door, etc. This is seen especially when the order contains low value items and the deliveries are made during working hours. In this scenario, the product never gets delivered to the buyer and the forward and reverse logistics costs are borne by the seller / market-place without the transaction even happening. For obvious reasons this is observed more in Cash on Delivery orders as compared to prepaid orders. 

• Buyer doesn't like the product - This is seen primarily in apparels where the buyer returns the product after accepting it. The reasons for return could be issues with fitting, size differences, color differences, etc. It is also observed that products like leggings which are defined just by a size & color hardly get returned while products like  Denim pants which have waist width, length, cut, design, etc have higher returns.

• Broken product or product not working - This is primarily observed in categories like kitchenware, bathroom fittings, etc. where the packing & filler materials are critical for a problem free transport. This problem is also observed in electronics where the product might be received in good condition but might over-heat or hang on first use. 

When a return occurs, the seller suffers in the following ways:

• Market-place penalties -  To ensure a high quality of catalogs & consequently high customer satisfaction, the market-places substantially penalize the seller in case the return happens due to a faulty or wrong product. The penalties are levied even for cases where the correct apparel is shipped but the size, color, cut, etc are wrong.

• Forward & reverse shipping costs - For seller-shipped orders, the seller has to completely bear the logistics costs while for market-place shipped orders (i.e. market-place assigned courier partner picks the product from seller's warehouse), the seller bears the reverse logistics cost if the return is due to a seller's fault. 

• Delay/change in remittances - Normally the market-places remit the money to the seller (collected from the buyer) only at the end of the time-period mentioned in the return policy. So, if the buyer can return a product for up to 30 days, then the remittance to the seller will happen only after 30 days. Here also, in case the product stops working after the return period & the buyer raises a complaint, then depending on the seriousness of the problem & the popularity of the product, the market-place might agree for a return. In that case, the seller will get a debit note against the already remitted order and the deductions will happen in the subsequent remittance cycle. 

• Delay in receiving the returned product - For forward logistics, the number of pick-up points is less (market-place / seller warehouses) and number of delivery points are high (buyer addresses). It is the opposite for reverse logistics. Reverse logistics is still a maturing business  in India and most logistics partners have a smaller coverage for it as compared to forward logistics. So, picking up a returned product and delivering it to the warehouse inherently takes a long time. This leads to scenarios, where the market-place penalizes the seller for a return and the seller receives the return only after some days. This is even more exasperating for the seller in case the returned product is of a good quality (i.e. re-sellable) and got returned only due to fitting issues. 

• Product damage during return - The product might be damaged when it is returned and it is difficult to pin-point the party responsible for the damage (buyer or logistics team). In such cases, the seller suffers a double whammy as the sale is nullified and the returned product is also useless. 

Below are some good practices that the seller can incorporate in her fulfillment operations to reduce returns:

• Providing maximum details on the product page - While listing the product with the market-place, the seller should provide all possible details instead of just the mandatory ones. This ensures that the buyer has sufficient information to make an informed decision & reduces cases of buyer remorse. 

• Contacting the buyer for unique / high value orders - In case of high value items which also incur a high transport cost (such as TVs, washing machines fridges, laptops, etc) it is a good practice for the seller to contact the buyer & confirm the details (esp. the color, size/capacity, etc.) before dispatching the product. This eliminates product return due to shipping of wrong product. 

• Stringent quality check & physical verification during dispatch - This is particularly useful for apparels orders, where the color, size, fit, etc play a crucial role in product rejections. Many apparels sellers I work with do a physical verification of the picked product with a picture of the ordered product before packing it. This ensures that errors if any are detected & rectified right upfront, thereby reducing expensive returns & replacements.

• Appropriate packaging & packing material - Depending on the dimensions & nature of product being shipped, the seller should use the correct packing & packaging material. Materials could be polybag (apparels), corrugated boxes with bubble wrap (electronics & other breakable items), corrugated boxes with air filled plastic bags, etc.

How to move from COD to Pre-paid

As I finish a little more than a year in Indian e-commerce, I plan to share my thoughts & learning in the coming days. This is the first of (hopefully) many more posts to come on topics related to Indian e-commerce.

Today's post is about the problems surrounding Cash on Delivery and how sellers & market-places are now working on moving towards pre-paid orders.

Cash On Delivery (COD) has played a very important role in promoting and expanding Indian e-commerce market-places by building a "trust factor". However, for the seller & market-places, it creates substantial additional over-heads - some of which are given below:

• While delivering a buyer's order, the logistics companies charge an extra fee for handling cash - many times the complete cash handling fee cannot be passed on to the buyer due to pricing competition
• The logistics companies take a few days to remit the money to the market-places - normally 4-5 days
• The market-places then deduct their commission & other charges and then remit the money to the seller after a few days - normally remitted twice a month
• There can be cases of money getting stolen/lost in transit as it is hard cash

These issues create a substantial cash-flow problem for the seller thereby needing to go for expensive financing options. Over the last year or so, most sellers & market-places have realized this as an important problem in the seller eco-system and have taken some steps towards addressing it.

Cash backs 

 The easiest approach that has been taken to make the buyer pay upfront is by giving her a discount for pre-paid orders. These are normally being given as cash backs for using a specific card or wallet while placing the order. This cashback approach ensures that the bank or the wallet company provides the discount to incentivize the buyer to use their card/wallet (going as part of their marketing or customer acquisition budget) and the seller & market-places don't have to bear the burden of discount. For example, SBI typically provides a cashback for using its card for shopping on Amazon. A similar set-up can be seen between HDFC's credit card or PayZapp and Flipkart.

Cashbacks in wallet

Some of the market-places have now entered into the wallets business to ensure that they can control the entire payments value chain. PayTM & Snapdeal are two leading examples of this approach. Since PayTM started as a wallet and then entered the e-commerce market-place business, so it has adopted the cashback approach in a slightly modified way. PayTM discounts pre-paid orders on their market-place if the buyer uses the PayTM wallet. That way, the buyer gets a discount, but the cashback money continues to stay in the PayTM wallet. Snapdeal started as a market-place and then entered the payments business by acquiring Freecharge. So unlike PayTM, when Snapdeal entered the payments business, it had an existing e-commerce buyer eco-system and wanted this eco-system to adapt the Freecharge wallet. So, instead of making the buyers use the Freecharge wallet to pay for the e-commerce transaction, Snapdeal gives a small cashback (usually less than Rs. 100) into the buyer's Freecharge wallet so that the same can be used for other non-e-commerce transactions like bill payments.

Card on Delivery

A third approach, primarily adopted by Amazon, is to allow the buyer to pay with a credit/debit card when she receives the order. For the buyer, this ensures that the hassles of carrying cash & having exact change is removed and the payment also happens only after receiving the order. The logistics player also finds this more convenient as his delivery person only has to carry a card reading machine (normally connected to a smartphone) instead of carrying cash, depositing it at the end of the day, etc. This is advantageous to Amazon and its sellers also since the payment is received as soon as the delivery is completed and reconciliations and remittances can be near instantaneous.

What is different in this year's Indian elections

A Whatsapp message from a friend got me thinking on why this year's Indian elections seem to be different. Most people I talk to, seem to think that this election is going to be decisive. It seems to be a once in a life time opportunity to move away from our "not so fondly remembered" ways of building a nation and moving towards genuine development. The following seems to be some highlights of this election that we haven't noticed in previous ones:

Discussion about what matters

The whole charade about who is more secular and who helps which community has been mostly replaced by a discussion on things that matter to the citizens - employment, infrastructure growth, inflation, economic growth, corruption, governance, etc.

Participative elections

We are seeing people from all walks of life participate in the elections - either through main stream parties or through new offshoots. This includes 

• Business professionals - Nandan Nilakeni, Balakrishnan, Meera Sanyal, etc
• Ex-Army men - Gen. V.K.Singh, Rajvardhan Rathore, Sanjeev Tripathi (from RAW), etc
• Ex-Police officers - Satyapal Singh plus a few more (can't remember their names)
• Sportsmen - Mohammed Kaif, Baichung Bhutia, etc

Clear differentiation between the Prime Ministerial candidates

While on one side, we have Narendra Modi as the candidate who has grown ground-up and has established himself as a doer, on the other side we have Rahul Gandhi who represents the dynastic Indian politics and is projected as more of a thinker. This gives the voters a clear choice - either go with the one who gets stuff done or with the one who provides a vision for a team to work towards.

Sense of national pride

When Narendra Modi asks why India has so many problems even after 60 years of Independence, it makes us think about where we have failed as a nation and how we can use this election to correct our past mistakes. This makes us ruminate on what we are proud of & what we are ashamed of and forces us to use this election as a decisive step towards change.

Social networks to start a discussion

While we have seen political parties use all channels to reach out to voters, but, for the first time, social forums - both online and offline (like "chai pe charcha") are being used to discuss ideas, problems and solutions.

Getting stuff done

Over years, I have seen my friends, class-mates and colleagues achieve many success & failures in their professional life. There have been many cases of people achieving professional successes that were not expected of them and the expected high-achievers failing pretty miserably. The common pattern that I have seen in most of the successes is that the person had the ability to "get stuff done". It is a very loose phrase, but, it encompasses what we typically try to explain as various qualities like "self-starter", "motivated", "takes up challenge", "tenacity", etc.

In many challenging times, we know exactly what needs to be done to overcome the challenge. We also mostly know what we can possibly achieve and where we would require help from others, but, somehow we fail to over-come the challenge. Reasons could be internal (sheer laziness, feeling over-whelmed, etc) or external (uncooperative environment, poor quality resources to help, etc). However, the successful person typically sticks to the plan, reaches out to the right people & seeks help where needed, puts in the hard work and somehow miraculously always completes it. This ability to commit oneself to a planned approach and methodically working on over-coming obstacles inevitably leads to success. Steve Jobs once explained this as the difference between a janitor and a VP. A janitor gives reasons & excuses as to why something cannot be done. A VP does not have that privilege - he is expected to get stuff done. 

Some have the ability to "get stuff done" in a soft way by convincing and cajoling. Such people are typically remembered as a saintly/grandfatherly person - ex. Ratan Tata, Warren Buffet, etc. Others do it by pushing and steam-rolling people, and are remembered as arrogant but high-achievers - ex. Larry Ellison, Steve Jobs, etc. 

I believe that as we progress in our career, it is this ability to "get stuff done" that distinguishes the high-flying eagles from the low-flying crows.

Some things I learnt from Sachin Tendulkar

Now that Sachin has announced his retirement and we would not be seeing him in action for long, I started thinking about what impact did he really have on our lives. What can working professionals like me learn from a sporting great like him? The following are some thoughts that came to my mind:

Be the best in what you do - Then you become the obvious choice for awards, fame, recognition, reaching out, etc. So, let your work speak for you.

Change yourself overtime to suit the needs of the present - Over years Sachin transformed himself from an opening hitter, to a middle order stabilizing force to a guide/mentor figure. I see a similar characteristic in Narendra Modi also, who transformed himself from a strongman to a development oriented chief minister to a now aspiring action-oriented statesman.

You don't need to be a leader to achieve success - Sachin's captaincy was a disaster, but, that didn't stop him from continuing to grow and succeed as a batsman - i.e he was a good professional & a poor leader and yet successful.

Grow/Succeed in multiple things - I think beyond cricket, Sachin has ensured that he is successful in life in multiple things, esp. things which are not easy when you are always in the spotlight:

1. Maintaining a near spotless image and respected by all

2. A pretty happy family life (I think) - no affairs & broken relationships like so many other cricketers (ex: Saurav Ganguly)

3. No nauseating display of wealth even though he is filthy rich

Maybe the last two come from a typical middle-class upbringing.