India Country Guide 2018 Cross-Border Trading Report - IMRG

 
India Country Guide 2018 Cross-Border Trading Report - IMRG
India
Country Guide 2018
Cross-Border Trading Report
A report researched and compiled by IMRG, supported by
India Country Guide 2018 Cross-Border Trading Report - IMRG
INTRODUCTION                                                                                                             CONTENTS
India is a country full of contradictions. On one hand,     It describes what Indian shoppers are looking for and        Introduction                                    1
it might be very familiar indeed: as a reader, there’s a    how to speak to them. Think your current trading
                                                                                                                         Contents                                        2
pretty good chance that your website is at least partly     calendar is complicated, with Black Friday, Xmas &
built by Indian software developers, some of whom           Boxing Day, Back-to-School and a few others? You             About India                                     4
you know personally. On the other hand, suggest             ain’t seen nothing yet. Indians shop at festivals and for     India overview
‘India’ in a meeting, and you’ll hear words such as         family events, and there are an awful lot of festivals,
‘exotic’ or ‘bizarre’ amongst the first responses from      varying by region, celebrated by extended families            The internet in India
your audience. This Passport is a guide to picking your     spread across the country.                                   The Retail Landscape in India                   9
way through the contradictions of India, and of Indian
                                                            And lastly of course, you’ll need to navigate India’s         Retail in India
ecommerce, to enable you to decide if it’s a country
                                                            labyrinthine bureaucracy, and rather variable
worth targeting, and if so, how to do it.                                                                                 Online retail in India
                                                            infrastructure, to actually get your goods to your
It starts with the basics. On the one hand, India has       customers. The key issues, such as consumer and data          Summary
1.25 billion people. On the other hand, not all of them     protection law, payments, choice of parcel-delivery
                                                                                                                         Indians as online shoppers                  15
can read, of those that can, not all can read English,      channels, are discussed. So are its peculiar-sounding
and of those proficient in English, not all are likely to   import customs and duties tariffs: anyone for CEX…            Size of Prize
be able to afford your products. The practical reality      or maybe you’d prefer CESS?                                   Motivations
is that there’s a target market roughly the same size
                                                            In summary, India isn’t an easy target. It is, however,       Summary
as Germany with roughly the same wealth as Poland,
                                                            a very interesting one: there are plenty of target
with ecommerce growing attractively, but probably                                                                        How to reach Indian online shoppers         19
                                                            customers in several rapidly growing demographic
not explosively, strongly by about +20% per year and
                                                            segments; they are hungry for western goods and               Channel Choice
expected to continue to do so for a long time to come,
                                                            brands; and both local and international competition
and with growth in sales of international brands                                                                          Marketing to Indians
                                                            is relatively weak; there is steady and continuous
growing well ahead of this average.
                                                            growth in ecommerce supported by ambitious long               Search & Content
It explains the key challenge. On the one hand,             term forecasts; English is the language of commerce;
                                                                                                                          Summary
the Indian IT industry probably builds many of the          the general internet landscape is the familiar one of
world’s biggest websites. On the other hand, unlike         Facebook and Google; there is a real opportunity to          Practicalities: legal, payment, logistics   24
pretty much any other country in the world, India is        quickly gain first-mover advantage in your segment            Legal issues
taking active steps to prevent e-Commerce from out-         for your brand.
competing the millions of small shops that employ 8%                                                                      Payment
                                                            India is indeed a country full of contradictions. But it’s
of the country’s workforce… and voters.                                                                                   Logistics
                                                            also a country full of customers.
The result is ever-changing regulatory restrictions that                                                                  Summary
continue to prevent India from seeing the spectacular
growth in ecommerce experienced in some other
emerging markets, and exert a critical influence on
your choice of potential routes to market. However
an important side effect of these same changes is
that the big marketplaces – Flipkart and its fashion-
centric subsidiaries Myntra and Jabong, Snapdeal,
and Amazon.in - which currently dominate Indian
ecommerce are becoming much hungrier for, and
therefore more accommodating to, the needs of your
brand. The marketplaces route into India is worth
much more serious consideration than you might
normally give it for most countries… they aren’t (yet)
Alibaba but the direction of travel is becoming clear.

                                                                                                                                                                     3
India Country Guide 2018 Cross-Border Trading Report - IMRG
ABOUT INDIA                                                                                                                                                             Economics
                                                                                                                                                                        Measured in GDP per head, India is not a wealthy country (Figure 2), and you might perhaps wonder why you
                                                                                                                                                                        might target it at all. GDP growth is forecast to be 7.6% in the next couple of years, but although this is a rate
                                                                                                                                                                        we’d probably be very happy with at home, it isn’t going to transform India into a highly developed economy
India overview                                                                                                                                                          in the near future. Per head averages, however, are not the best way to look at India.
Demographics
                                                                                                                                                                                                   GDP per Capita comparison
There are a lot of people in India: 1,266 million of them1. Not all of them are potential customers for your
ecommerce offer. To start with, not all of them are literate in any language, let alone English (Figure 1):                                                             70,000

                                                                                                                                                                        60,000
                      India: Demographics by Age and Literacy
140,000,000                                                                                                                                                             50,000

                                                                                                                                                                        40,000
120,000,000

                                                                                                                                                                        30,000
100,000,000                                                                                                                                         Illiterate Female

                                                                                                                                                    Illiterate Male     20,000
 80,000,000
                                                                                                                                                    Literate Female     10,000
 60,000,000                                                                                                                                         Literate Male
                                                                                                                                                                             0
 40,000,000                                                                                                                                                                         USA      Germany      UK        France     Poland     Russia   Morocco   India

 20,000,000                                                                                                                                                             Figure 2 - GDP per Capita comparisons3
                                                                                                                                                                        Even if they are literate, only a small proportion of its population can realistically afford what you are
          0                                                                                                                                                             likely to be selling. Over half of all households have an annual income of less than £2,000 per year,
                                                                                                                                                                        and even the most optimistic forecasts predict less than 5% will have an income equivalent to the UK
                                                      40-44

                                                              45-49

                                                                      50-54

                                                                              55-59

                                                                                      60-64

                                                                                              65-69

                                                                                                      70-74

                                                                                                              75-79

                                                                                                                      80-84

                                                                                                                              85-89

                                                                                                                                      90-94

                                                                                                                                              95+
              15-19

                      20-24

                              25-29

                                      30-34

                                              35-39

                                                                                                                                                                        average (approximately £26,5004) by 2020 (Figure 3).

Figure 1 - Indian Demographics by Age and Literacy2
                                                                                                                                                                                                    Distribution of Annual Household Income
Literacy levels are higher amongst the young, a demographic much more likely to be online:
83% of 20-24 year olds are literate, compared to only 43% of 65-69 year olds.
                                                                                                                                                                                                             14% 2%
Indian demographics, including its national census, almost always make the distinction between urban and rural
populations – it really is almost two separate countries in terms of lifestyle. Roughly one third of the population is
defined as urban, which is currently where internet usage is concentrated.

                                                                                                                                                                                                         14%                                                         £23k

                                                                                                                                                                        Figure 3 - Distribution of Household Income5

1 CIA world factbook, 2016                                                                                                                                              3 International Monetary Fund World Economic Outlook (October-2016)
2 Census of India 2011, www.censusindia.gov.in                                                                                                                          4 ONS
                                                                                                                                                                        5 BCG, The Tiger Roars, Feb 2012
  4                                                                                                                                                                                                                                                                                          5
India Country Guide 2018 Cross-Border Trading Report - IMRG
Realistically, you are probably targeting just the top two income groups, roughly 6% of the overall population.         Demographics of internet access
But… 6% of India’s population is still equivalent to a country the size of Germany. Moreover, that 6% are
almost all literate in English6 which in turn gives them a global perspective and an appetite for global brands.        Published data points on actual numbers of internet users vary, but the general consensus appears to be about
                                                                                                                        20-25% of the population currently. This is forecast to increase rapidly, with much of the growth coming from
                                                                                                                        rural users, who by implication will almost certainly be using low bandwidth mobile-based connections: Figure 4.
Seasonality
                                                                                                                                                                Numbers of Indian Internet Users
India is big enough to encompass multiple climate zones. From a practical perspective, there are (sort of)
four seasons, but if your trading calendar is based on an Autumn-Winter (cold and wet) and Spring-Summer                                      700

(warm and dry) seasonality then it’s probably going to need some modification for India. The key factor is the
                                                                                                                                              600
monsoon, which affects most of the key population centres, and happens in what in the UK we would think of
as summer. For most of the rest of the year, much of India is rather dry.                                                                     500

                                                                                                                                   Millions
                                                                                                                                              400
                                                                                                                                                                                                                                                  Rural

                                                                                                                                              300                                                                                                 Urban

            Summary
                                                                                                                                              200

                                                                                                                                              100
            • There are a lot of people in India! Based on average statistics such as GDP/head,
                                                                                                                                               0
              they are rather poor, with literacy levels of only c65% in key age groups such as                                                        2013       2014      2015          2016           2017FC          2018FC
              30-40 year olds
            • H
               owever, general “average” statistics about India are unhelpful when considering
              it as a cross-border ecommerce prospect. There is significant inequality of wealth                        Figure 4 - numbers of internet users, urban vs rural7
              distribution, with around 6% of the population – about 80M people – likely to be                          More specific demographics are also changing rapidly. In 2013, only 27% of internet users were female, but this is
              plausible targets                                                                                         forecast to become 34% by 2018; similarly 60% of users were under 25 by 2013, forecast to become 46% by 2018.
            • T
               he plausibly addressable market is comparable in size to Germany and in wealth                          As internet usage grows, use of non-English content is forecast to increase:
              to Poland, and is growing steadily as India grows wealthier
            • S
               easonality in India should be borne in mind. Promoting your spring-summer                               “Currently over 200 million Indians are online and most of them are
              catalogue just when the monsoon starts to pour down is unlikely to be an
              optimal trading calendar
                                                                                                                        already proficient in English. We want to ensure that the next 300 million
                                                                                                                        who are not proficient in English find the internet just as easy to use”8
                                                                                                                        say Google, who have a vernacular language initiative ongoing.

                                                                                                                        Usage
                                                                                                                        What are all these users doing? This is a topic where that urban/rural divide is particularly stark (Figure 5).

THE INTERNET IN INDIA                                                                                                   Even as internet access has rolled out to rural areas, this hasn’t translated into much online shopping;
                                                                                                                        meanwhile enthusiasm for online shopping accelerates apace in the towns and cities.

                                                                                                                                                           Key uses of the internet, change 2013-2015
Absolute basics
Indian domain names end in “.in” and are used in a manner rather consistent with the usage of “.uk” – companies                                                                                                                   Email & Messaging
                                                                                                                                              2015 URBAN
are typically “.co.in” for example.                                                                                                                                                                                               Other Social Networking
It’s easy to register an Indian domain name. What isn’t so easy is to use it for retailing to Indian consumers. There                                                                                                             Entertainment
are extensive restrictions, which we’ll cover later in this report in the section on FDI (foreign direct investment).                         2015 RURAL

Suffice to say here that you certainly are not going to be setting up yourdomain.co.in and mirroring your home site                                                                                                               Retail

on it with some minor localisation changes.                                                                                               2015 BLENDED

                                                                                                                                                           0%     20%      40%        60%          80%            100%

                                                                                                                        Figure 5 - percentage of time spent on various online activities 9

                                                                                                                        7 B
                                                                                                                           ased on data from IAMAI, the Internet and Mobile Association of India, which mainly comprises many big players such as Google,
6 BCG, India@Digital.Bharat, Jan 2015                                                                                     Microsoft, Facebook, eBay, IBM, Flipkart, Ola and LinkedIn.
                                                                                                                        8 Managing Director Google India, Rajan Anandan, Nov 2014
                                                                                                                        9 Source: Comscore Media Metrix 2013, IMRB I-Cube 2015
  6                                                                                                                                                                                                                                                          7
Mostly they are doing all this from mobile devices (Figure 6), over mobile connections: the fixed-line infrastructure
in India was very under-developed at the point when mobile phones began to appear, which in turn removed                THE RETAIL LANDSCAPE IN INDIA – OFFLINE
many of the incentives to invest in it. There are less than 18M fixed line broadband connections in India for its
200M+ internet users10.                                                                                                 AND ONLINE
                                                           Device usage                                                 Retail in India
                                                                                                                        In this section we take a short look at the overall retail landscape in India, before moving on to focus in more
                                                                                                                        detail on specifically online retail later in this section and for the remainder of this report.
            Tablet

                                                                                                                        General retail landscape
Desktop/Laptop                                                                                                          Unlike almost any other country in the world, India retailing is dominated by small stores and street stands,
                                                                                                                        known as the “unorganised” sector: 92% of all retailing by value falls into this sector12. A secondary distinction is
                                                                                                                        made between single-brand and multi-brand retailing, and until 2012 overseas investment was not permitted in
                                                                                                                        multi-brand retailers. The result has historically been fragmentation. Organised retailing is currently growing at
      Basic Mobile                                                                                                      around double the rate of unorganised (30% compared to 16%13), but that still leaves it with a long way to go.
                                                                                                                        Total retail sales were approximately USD $463bn by the end of 2015 (Figure 7):

      Smart Mobile

                     0%              10%             20%         30%            40%            50%             60%
                                                                                                                                                                    India Retail Sales (USD Bn)
                                                                                                                                        500
                                                                                                                                                                                                                        463
                                                                                                                                        450
                                                                                                                                                                                         415
Figure 6 - device usage of internet users 11                                                                                            400                370
                                                                                                                                        350

                                                                                                                                        300

                                                                                                                               USD Bn
            Summary
                                                                                                                                        250

                                                                                                                                        200
            • T
               here are a lot of internet users in India. It currently ranks second only to
                                                                                                                                        160
              China in terms of absolute numbers of users
            • T
               here is a big gender skew, with only about a third of users currently being female                                      100
              (although those female users who are online spend more time there)
                                                                                                                                         50
            • M
               ost of these users are accessing via mobile devices over mobile connections.
                                                                                                                                         0
              By western standards, these are often quite slow. Any potential site implementation
                                                                                                                                                          2013                          2014                            2015
              targeted at Indian users should plan for somewhat slower connections
            • Time spent accessing retail sites has historically been low, but this is changing quite
                                                                                                                        Figure 7 - Total retail sales in India 14
              rapidly in urban areas; rural use of online shopping remains low
            • There are regulatory barriers to implementing retail ecommerce in India; simply
              registering a domain and localising your existing site is almost certainly illegal
              (see later in this report)

10 Telecom Regulatory Authority of India, Aug 2016                                                                      12 Associated Chamber of Commerce, India (ASSOCHAM), Jan 2015
11 Google Consumer Barometer 2016                                                                                       13 ibid
                                                                                                                        14 Euromonitor 2016
  8                                                                                                                                                                                                                                             9
India retail by category                                                                                                       In practice, the organised retail sector targets exactly those consumers most relevant as targets for ecommerce:
                                                                                                                               the wealthiest 6-10% of the population, typically living in the biggest cities which are also most accessible for
The overall category split of retailing in India is shown in Figure 8.                                                         home-delivery (see Logistics later in this report). When considering India as an ecommerce target, therefore,
                                                                                                                               it generally makes sense to consider only the organised retail sector as representing a real opportunity. So,
                                                                                                                               for example, if you are a non-Indian retailer or brand considering selling fashion in India, the total size of the
                       Overall category breakdown of retail in India                                                           addressable fashion sector is currently 28% (according to Figure 9) of the 8% of retail which is organised i.e.
                                                                                                                               28% x 8% x 463$Bn = approximately 10$Bn.

                                 11%    8%
                                                   6%
                                                                                                                               Top local retailers
                                                        5%                                                                     A fragmented market, which has historically been restricted for foreign investment17, has resulted in a very
                                                                                           3%              3%                  unfamiliar (to non-Indians) landscape of top retailers (Figure 10):
                                                        10%

                                                                                                                                RETAIL GROUP                TRADING AS…                                                ONLINE STORE?
                           60%                                                                     4%                                                       Pantaloons                                                 Yes
                                                                                                                                                            Fashion Station                                            No
                                                                                                                                    Future Group
                                                                                                                                                            Brand Factory                                              No
                                                                                                                                                            E-zone                                                     Yes
                                                                                                                                                                                                                       Yes, but not functional at the time of this
               Food and grocery         Other                 Apparel         Mobile and telecom        Food service                 REI Agro Ltd.          6TEN
                                                                                                                                                                                                                       assessment
               Jewellery                Consumer electronics                  Pharmacy
                                                                                                                                       Fabindia             Textiles, home furniture, apparels, and jewellery          Yes
                                                                                                                                                            CEAT Tyres                                                 No
Figure 8 - Category split of overall Indian retail 15                                                                                 RPG Group             Zensar Technologies                                        No

However it should be remembered that this includes the dominant unorganised sector. It may well be more                                                     KEC International Ltd.                                     No
realistic to consider data for the organised sector only, as this probably more realistically defines the                                                   Westside                                                   No
accessible market for an overseas retailer. This organised retail category breakdown is shown in Figure 9.                                                  Tanishq                                                    Yes
                                                                                                                                      Tata Group
                                                                                                                                                            Titan                                                      Yes
                           Category breakdown of organised retail in India                                                                                  Skinn                                                      Yes
                                                                                                                                                            Reliance Mart                                              Yes
                                                                                                                                                            Reliance Footprint                                         No
                                       14%                                                                                          Reliance Retail
                                                                                                                                                            Reliance Trends                                            No

                                                                                             Apparel and accessories                                        Reliance Jewellery                                         No
                                                                        28%                                                                                 Shoppers Stop                                              Yes
                           9%                                                                Food and groceries                 K Raheja Corp Group
                                                                                                                                                            Crossword                                                  Yes
                                                                                             Consumer durables
                                                                                                                                 Aditya Birla Group         Louis Phillipe                                             No
                                                                                             Personal products
                                                                                                                                                            Jewellery stores                                           Some have online stores, some don’t
                                                                                             Food services and entertainment
                             15%                                                                                                                            Watches                                                    No
                                                                                             Other                                     Gitanjali
                                                                                                                                                            Apparel                                                    No
                                                                        19%                                                                                 Chain stores                                               No
                                             15%
                                                                                                                               Figure 10 - top local retailers18

                                                                                                                               Conspicuously, and reflecting the current maturity and limitations of ecommerce in India, many of these top
                                                                                                                               retailers do not yet operate an online store.
Figure 9 - category breakdown of organised retail in India 16

15 India Internet, Goldman Sachs, May 2015
16 ASSOCHAM, Jan 2015                                                                                                          17 Although there are fewer restrictions today (excluding ecommerce – see below), foreign-majority-owned retailers are still obliged to
                                                                                                                               source 30% of their sales in India
                                                                                                                               18 IBEF 2016, supplemented by local research performed specifically for this report
 10                                                                                                                                                                                                                                                                      11
ONLINE RETAIL IN INDIA                                                                                                    These sites were powering ahead, based heavily on a model of offering significant discounts compared to the
                                                                                                                          general market, when the Indian government stepped in and changed the rules again, to heavily restrict the use
                                                                                                                          of promotional discounting. Given that low pricing has traditionally been the engine of growth for ecommerce in
                                                                                                                          every country, this has put a short-term damper on overall ecommerce growth in India 23, but this is expected to
FDI Restrictions                                                                                                          recover strongly once the market is reoriented to absorb these changes. (Moreover the secondary driver of growth
                                                                                                                          in markets such as India – the use of ecommerce by consumers to access to a broader range of brands and goods –
If you are reading this in a developed ecommerce market you will surely be aware that, prior to the current               still remains strong.)
maturity-curve phase of competing on ever more convenient delivery or collection, the initial biggest impact
                                                                                                                          It is particularly good news for brands and retailers considering using these marketplaces as channels to enter
of ecommerce on retailing was price transparency. Even now, Amazon makes no bones about aiming to have
                                                                                                                          India, the same change in regulations also restricted any marketplace to making no more than 25% of its sales from
“lowest possible prices”19, and it is well known that it (along with many competitors) continuously price-scrapes
                                                                                                                          a single seller. It is believed that both Amazon and Flipkart were previously relying heavily on a large seller that
competitor websites to maintain its price advantage. Given that retailing employs around 8% of the Indian
                                                                                                                          they in practice owned to “work-around” the FDI rules.
workforce – and voters – in a mostly unorganised mom-and-pop-store sector, this is not a maturity trajectory
that the India government has found attractive.                                                                           The effect of this change is to make them hungry for additional, larger, marketplace participants. If you are a brand
                                                                                                                          with strong international pedigree or significant potential appeal to (especially younger) India consumers, then
Moreover, unlike in China, where the advent of ecommerce has enabled millions of consumers to access goods
                                                                                                                          your negotiating position is strong. It is also likely that you can expect to see the active development of features
previously unavailable due to the communist-legacy of generally poor retail coverage, there is extensive retail
                                                                                                                          and functionality on the leading marketplaces designed to make them more attractive as places to present your
coverage in India, albeit small local retail “outdated” as seen through western eyes. The Indian government has
                                                                                                                          brand, and indeed this is already starting happen. Myntra, for example, already provide some basic shop-in-shop/
preferred to put restrictions in place, aimed at preventing the likely ferocious competition with all these small
                                                                                                                          brand-shop features, with more in the pipeline 24. 25
local retailers by large price-driven ecommerce sites offering broader choice of products.
The mechanism that India has chosen to manage the impact of ecommerce has been restrictions on Foreign
Direct Investment in ecommerce sites in India, built on a previous legacy of restricting FDI in traditional retail,
                                                                                                                          Size of ecommerce in India
partly lifted in 2012. The key rules can be extracted (from a morass of complexity) as:20                                 The overall size of retail ecommerce in India was estimated to be approximately USD $23bn in 2015 (Figure 11):
• F
   DI is not permitted in multi-branded B2C ecommerce websites (although it is permitted up to 100% in
  B2B sites)
                                                                                                                                                   Retail Sales and Penetration of eCommerce
• FDI is not permitted in single brand B2C ecommerce websites except that:                                                                45                                                                                                         1.6%
 »» FDI is permitted in single-brand B2C ecommerce websites associated with a brick-and-mortar store
                                                                                                                                           40                                                                                                         1.4%
     which sources at least 30% of its goods in India
                                                                                                                                           35

                                                                                                                                                                                                                                                              % Penetration of eCommerce
 »» In theory, single-brand cross-border ecommerce is subject to the same restriction: you can sell into                                                                                                                                             1.2%
     India from a non-Indian website provided 30% of what you sell is sourced in India. In actual practice,                                30
     this is rather difficult to enforce                                                                                                                                                                                                              1.0%

                                                                                                                            Sales US$ Bn
                                                                                                                                           25
• F
   DI is now – the rules changed again in March 2016 – permitted up to 100% in C2C Marketplaces;                                                                                                                                                     0.8%
                                                                                                                                           20
  in practice this simply regularised a situation that previously existed anyway21
                                                                                                                                                                                                                                                      0.6%
 »» Nevertheless, to be a seller on an Indian marketplace, you will need a registered legal entity in India,                              15
     or use the services of a third party who has such an entity and can use it to facilitate selling                                      10                                                                                                         0.4%

                                                                                                                                            5                                                                                                         0.2%
Key marketplace sites in India
                                                                                                                                           0                                                                                                          0
Given these restrictions, unsurprisingly retail ecommerce in India has been dominated by the marketplace model.                                 2013           2014              2015              2016E             2017F             2018F
The leading marketplaces, and associated approximate percentage of overall Indian ecommerce sales by GMV,
are Amazon.in (15%), Flipkart (44%), Snapdeal (32%) 22. In addition to its main site, Flipkart also operates additional
specialist marketplaces Myntra and Jabong in the fashion category, which may be preferred by brands because they                                                       Sales US$ Bn                            Penetration
are more respectful of the brand itself. At the time of writing, there appear to be questionmarks over the long-term
future of Snapdeal, and it is likely to see its market share reduce. General consensus appears to be that the future
lies in a straight fight: Amazon vs Flipkart + its subsidiaries.                                                          Figure 11- ecommerce retail sales and penetration in India26
                                                                                                                          Recent growth has been strong at over 20% p.a. (considerably ahead of growth most more developed markets),
                                                                                                                          and there are some spectacular forecasts for future growth – an estimate of a trillion dollars per year by 2030
                                                                                                                          was published by Amazon for example – but given the history of government intervention to inhibit some of
                                                                                                                          the drivers which have fuelled spectacular growth in markets such as China, then it is probably wise to take a
                                                                                                                          prudent view: growth is likely to be attractively solid but unlikely to be miraculous.

19   Amazon 10-K filing, 2015
20   Nishith Desai, Jul 2015                                                                                              23 Indeed some sources claim that Indian e-commerce failed to grow at all in 2016 e.g. Marketpulse, April 2017
21   Indian Department of Industrial Policy & Promotion, March 2016                                                       24 Interview with the author, June 2017
22   Forbes, 2016. These market share figures are fiercely disputed by the marketplaces!                                  25 Amazon India declined to be interviewed for this paper, but in doing so observed that they didn’t wish to do so because they were
                                                                                                                              working on announcements for 2018…
                                                                                                                          26 Sources: eMarketer, Forbes, and Goldman Sachs, 2016
 12                                                                                                                                                                                                                                                                                        13
Online retail category split                                                                                                                     INDIANS AS ONLINE SHOPPERS
Category level data for online retail is somewhat elusive for India, but high level estimates are for the
break-down are shown in (Figure 12):

                                                                                                                                                 Size of Prize
                                                                                       Top Online Retail                                         Average cart sizes
                                                                                       Categories in India                                       Average cart sizes for purchases online are generally lower than in western markets, as might be expected,
                                   11%                                                                                                           but in key categories such as clothing, not impossibly lower. It is always worth remembering that it is the
                                                                                                                                                 wealthiest 6-10% of consumers who represent the online purchasing consumer-base in India (Figure 13):
                        10%                                                                  Consumer electronics
                                                            34%
                                                                                             Apparel and accessories                                                                                      Average Cart Sizes by Category
                                                                                             Books                                                                Books & Media
                      15%
                                                                                             Beauty and personal care
                                                                                                                                                                         Toys & Gifts
                                                                                             Other
                                                                                                                                                            Personal Care/Beauty
                                         30%
                                                                                                                                                                               Software

                                                                                                                                                            General Merchandise

                                                                                                                                                           Clothing & accessories
Figure 12 - high level top online retail category split           27

                                                                                                                                                            Consumer electronics

                                                                                                                                                                                            0        10      20    30          40        50         60    70   80

                Summary
                                                                                                                                                                                                                             US$

             • I ndian retail is very fragmented. Over 90% is unorganised, although the                                                         Figure 13 - Average Online Cart Size by Category29
                organised sector is now growing almost twice as quickly
             • Local retailers often do not have very active ecommerce sites                                                                     Demographics
             • T
                he ecommerce space is dominated by Marketplaces, especially Flipkart, (and its                                                  Of those who use the internet to a significant extent and use it in English – a demographic inherently skewed
               fashion-focussed satellites Myntra and Jabong28 ), Amazon and Snapdeal                                                            towards the wealthiest and best educated – propensity to purchase by age group is shown in Figure 14.
                »» Changing regulations may mean these marketplaces become hungrier for retailers and
                    brands to participate as sellers                                                                                                                                            Internet users propensity to purchase online by age
                »» There are questionmarks over the sustainability of Snapdeal. The future may lie in a
                  straight battle between Amazon India and Flipkart + subsidiaries                                                                                               55+

             • T
                here are extensive – and changing – restrictions imposed by the Indian government
               to try to ensure a level playing field for small local unorganised retailers competing                                                                           45-54
               against potential internet giants. These include
                »» Restrictions on foreign ownership of B2C sites                                                                                                               35-44

                                                                                                                                                                   Age Group
                »» Restrictions on the use of promotions and discounts
             • R
                etail ecommerce in India was estimated to have sale of approximately USD $23bn                                                                                 25-34
               in 2016. The largest categories are consumer electronics and fashion/apparel
             • G
                rowth is attractively solid (20%+ YoY) but given the existing restrictions and history
As might be expected in a fairly conservative country, inclination to purchase online is skewed towards those          Barriers
demographics which have grown up with the internet. Online purchase propensity drops off significantly in the
silver-surfer segment.                                                                                                 Unsurprisingly, top barriers to online purchasing include returns (24%), payment methods (28%), concerns about
                                                                                                                       security especially of payments (20%), and finding delivery charges off-putting (10%).34 All of these show declines
Online purchase propensity shows little or no variation between genders, but this is in the context of internet        over the last three years as Indian shoppers’ comfort with online shopping increases.
usage by men being double that of women.
                                                                                                                       However they are all factors which are exacerbated by cross-border, and any cross-border proposition targeting
The fashion-oriented marketplace Myntra shared some demographic data for this report: 60%-40% male-female              India needs to take very clear steps to address these with potential purchasers.
split, trending rapidly towards a more female audience (with its sister company Jabong already more female), and
with 40% being in the 25-34 age group and a further 20% aged 20-24. 31
                                                                                                                       General purchase motivations
                                                                                                                       While not specific to online transactions, it is insightful to examine Indian shoppers’ general motivations for
                                                                                                                       purchasing, because these are often somewhat different to those in the west, especially the critical importance of
MOTIVATIONS                                                                                                            festivals and family events in the purchasing calendar.35
                                                                                                                       Firstly consumer electronics, which show rather little variation compared with what might be expected in your
                                                                                                                       home market (Figure 16):
Why do Indians buy online?
Indian shoppers claim, when surveyed, that factors like convenience are a key motivator for shopping online, and
rank price somewhat further down (Figure 15):

                                                                                                                                                     Drivers for purchase: consumer electronics
                                      Reasons to shop online
                                                                                                                                         As a gift
                         Necessity
                                                                                                                       Marriage event in family
                    Entertainment
                                                                                                                                      Good deal
                    Peer Behaviour

                                                                                                                           Home improvement
                             Price

                                                                                                                            Upgrading product
                      Wide Choice

                 Ratings & Reviews
                                                                                                                                   Replacement

             Easier than mail-order                                                                                          Lifestyle purchase

                      Convenience                                                                                                                    0              10               20                30               40               50               60

                                      0%     10%   20%   30%   40%   50%     60%     70%     80%     90%
                                                                                                                                          Small home appliances                           Mobiles                                    Computers
Figure 15 - motivations for choosing to shop online32
                                                                                                                                          Home entertainment                              Large home appliances
In practice this is not necessarily borne out by the operating models of Indian online retailers. Until the recent
changes in the laws to restrict the use of online discounts, the average investment by online retailers in discounts
was a whopping 30% of revenues, with a further 12% spent on marketing and promotions. Unsurprisingly they
traded at an average loss of 35% of turnover, hence the need for Foreign Direct Investment (see above) to sustain
them through their initial growth cash-burn phase.33                                                                   Figure 16 - reasons to make a consumer electronics purchase36

Nevertheless, for a brand or retailer considering targeting India with products which are not locally available
locally offline, the emphasis on choice and ratings, plus the demonstrable understanding Indians have that
ecommerce represents an alternative to traditional mail-order, are all encouraging signs.
Anecdotal guidance suggests that Indian consumers will tolerate price mark-ups of around +30-35% in order to
purchase locally (e.g. on marketplaces) compared to the perceived risk of buying from a non-Indian site.

                                                                                                                       34 S ource: Mastercard, 2015
                                                                                                                       35 Author’s note: I have once took on a consulting engagement to the (at that time) largest national Indian retailer of jewellery, planning
31 Source: Myntra, June 2017
                                                                                                                           their ecommerce. It remains the most culturally interesting engagement I have ever done in 11 years of ecommerce consulting, because
32 Source: Mastercard, 2015
                                                                                                                           almost every purchase was driven by a specific local/religious festival (or events such as a marriage), each with its own very specific
33 Goldman Sachs, India Internet, May 2015
                                                                                                                           traditions and specific sets articles bought e.g. ‘gold for younger sisters’ etc.
                                                                                                                       36 BCG, The Tiger Roars, 2012
 16                                                                                                                                                                                                                                                              17
By contrast, purchases of clothing and accessories, even amongst the wealthy educated professional demographic,
are extraordinarily strongly driven by family events and festivals (Figure 17):                                                             HOW TO REACH INDIAN ONLINE SHOPPERS
                 Motivations for clothing/accessories purchases                                                                             Channel choice
                                                                                                                                            Marketplace
   Replace old clothes
                                                                                                                                            As we saw in section 2, more than 90% of relevant           Amazon, meanwhile, remains Amazon. It will be
                   Sale                                                                                                                     ecommerce in India takes place on marketplaces,             interesting to see if they feel driven towards a more
                                                                                                                                            primarily Flipkart, Snapdeal and Amazon 38. Moreover,       TMall-like model in India, sacrificing some consumer-
            Feel like it
                                                                                                                                            as we saw in section 3, recent regulatory changes are       ownership and brand-visibility in exchange for sales
          New Season                                                                                                                        likely to make these players hungry for additional          growth. Given recent regulatory changes (see the FDI
                                                                                                                                            sellers who will add volume, not to mention credibility,    section), this seems a quite likely direction of travel.
            Weddings
                                                                                                                                            by selling well-known brands.
                                                                                                                                                                                                        Note that all sellers on Indian marketplaces are
Occasion e.g. Birthday                                                                                                                      Neither Snapdeal nor Flipkart’s main site currently         required to have a locally registered Indian entity.
                                                                                                                                            offer any of the brand-image-protecting features            You cannot become a marketplace seller without one;
             Festivals
                                                                                                                                            that are available on many other marketplaces. Both         it may therefore be necessary to seek the services of an
                           0     10      20       30       40        50       60       70       80        90      100                       remain essentially C2C sites in terms of presentation,      appropriately registered partner.40
                                                                                                                                            and the ownership of the relationship to the end-
                               Poor               Urban middle class               Top 6%                                                   consumer is skewed away from the seller and towards         Local site?
                                                                                                                                            the marketplace.
Figure 17 - clothing/accessory purchase motivations37                                                                                                                                                   Unlike for most countries, a local site may well not be
                                                                                                                                            However, Flipkart owns and operates two marketplaces        the best option, and may be technically illegal, unless
If you are targeting Indian consumers in all but the most utilitarian of categories, it is essential to build your                          – Jabong and Myntra – which specifically target             you already source a significant proportion of your
trading calendar around events such as festivals, and your marketing messaging around family-centric moments                                (generally younger and wealthier) fashion consumers.        range in India. In practice this tends to restrict to those
such as weddings and birthdays.                                                                                                             These are already seeing the potential in offering a more   fashion/footwear brands with manufacturing facilities
This is not the place to go into detail about the complexities of the festivals calendar in India; marketeers should                        brand-conscious, more B2C-like, experience. Brands are      in India.
bear in mind that India has multiple religions, and that even within these religions, festivals vary enormously                             reciprocating by starting to list their products on these
                                                                                                                                                                                                        Nike, for example, has a local Indian site.41 Spend a few
by region, especially North India versus South India. In short, do your homework and target very carefully and                              sites. Major British fashion brands already actively
                                                                                                                                                                                                        minutes browsing, and you’ll see that their hearts don’t
tactfully. If you do this well it could have surprisingly high ROI, do it badly and you could easily give offence.                          selling include New Look, Dorothy Perkins and Next
                                                                                                                                                                                                        really seem to be quite in it. Customer service is only
                                                                                                                                            on Myntra, while Missguided are active on Jabong
                                                                                                                                                                                                        open 5 days x 8 hours, for example, and shipping times
                                                                                                                                            (Figure 18).
                                                                                                                                                                                                        are based on a warehouse only picking Monday-Friday
                                                                                                                                            Other international brands, such as Mango, are already      with even the fastest express delivery option requiring
                                                                                                                                            actively using marketplaces as their primary route into     a further 2 days.
                                                                                                                                            India, and have seen spectacular growth. International
             Summary                                                                                                                        brand sales on the platform grew 145% between 2016-
                                                                                                                                            17, and are forecast to grow 80% in the next year. 39
             • A
                verage cart sizes are lower than in the west, but not impossibly lower in key categories                                   This growth is a further contributor to driving the
               such as fashion; it’s the wealthiest Indians who are buying online                                                           marketplaces to offer further brand-friendly features,
                                                                                                                                            including (in Myntra’s case) international-brand centric
             • S
                ilver surfers are a less relevant purchasing segment than in more developed                                                areas of the site planned for later this year.
               ecommerce countries
             • C
                hoice and convenience are what Indian shoppers say matters to them; practical
               experience suggests that the sense of getting a discount/bargain is much more important
             • B
                arriers to online purchasing are those that might be expected, and which are
               exacerbated by cross-border: delivery charges, confidence in returns, security of
               payment, availability of payment methods
             • M
                otivations for purchase in commodity categories such as consumer electronics are
               globally standard; marketing messages need little adjustment
             • P
                urchase in other categories, such as fashion, accessories or jewellery are very strongly
               motivated by family or festival events. The festival calendar in India is complex, varying
               by religion and region. Tailor your marketing messages very carefully.
                                                                                                                                            Figure 18 - Missguided using Jabong as a D2C sales channel

37 Ibid. Note that this second survey covers purchases over an extended period, and multiple responses were allowed, hence the data adds
                                                                                                                                            38   Forbes, 2016
   up to much more than 100%
                                                                                                                                            39   Sourse: Myntra, June 2017
 18                                                                                                                                         40    Such as the sponsor of this paper WeArePentagon                                                               19
                                                                                                                                            41   http://www.nike.com/in/en_gb/
Cross-border                                                                                                                                                                           Social media usage
Despite these obstacles, Indian consumers in addressable demographics (see section 1) still want to buy
international brands and products online. Given the challenges of getting them from local websites for the simple                Snapchat
reason that they often just aren’t listed there, it is unsurprising that Indian online shoppers make extensive use of                             Tumblr
cross-border purchasing (Figure 19):                                                                                               Pinterest

                                                                                                                                            WeChat
          % of internet shoppers who made a cross-border purchase                                                        Instagram

                                                                                                                                  LinkedIn

       Ireland                                                                                                                                    Twitter

                                                                                                                                           Google+
       Canada
                                                                                                                         Whatsapp
         India
                                                                                                                               Facebook
        China                                                                                                                                               0%           10%            20%               30%               40%      50%   60%

  Netherlands
                                                                                                                                                                                       % of internet users who are active on...
      Germany
                                                                                                                         Figure 20 - main social media activity applications in India
           US
                                                                                                                         The slightly surprising reach of Google+ is partly a legacy of the now defunct Orkut, once the dominant social
          UK
                                                                                                                         media application in India and owned by Google. Unlike most countries, Indian marketeers have been actively
                 0       10         20        30            40   50   60       70       80        90                     investing in developing their Google+ presence45.
Figure 19 - % of consumers who made a cross-border purchase, selected countries42                                        The other unfamiliar presence is that of the Chinese giant WeChat; loosely speaking WeChat combines every
Not quite at the startling levels of other markets very poorly served by local ecommerce, such as Canada or Ireland,     other possible social application you’ve ever used into a single super-convenient application, with better
but still higher than China, the UK or US, for example. Moreover, predicted growth in 2016 of cross-border, based        conversion rates for online purchasing. WeChat’s owners are pursuing aggressive expansion in many Asian
on consumer-survey data, was a very healthy 75%.43                                                                       countries, and see India as a prime opportunity.46

So for India, cross-border could be a first route to market to its consumers; it may well remain the best option, even   This interest from China should act as a broader call-to-action for those considering China as a cross-border target:
at scale. However as the marketplaces continue to develop their B2C propositions to be more brand-friendly, this         the Chinese are coming, spearheaded not only by Tencent’s WeChat, but by Alibaba’s Ali-Express.
could be expected to change                                                                                              Those considering using Social Media as their main, or only, online marketing channel in India should beware of
                                                                                                                         (or possibly exploit!) its extremely skewed demographics (Figure 21). Three-quarters of all active users are aged
                                                                                                                         under 30, and the majority are male.
Marketing to Indians
Indians may be keen to purchase overseas brands, but you still need to
keep reminding them to do so, and to choose you rather than a competitor.                                                                                        Demographics of Facebook Users in India
So even though a local transactional website may not be happening very
                                                                                                                                                       60%
soon, a local online marketing presence is still essential.
                                                                                                                                                       50%
Device

                                                                                                                         % of total active user base
Mobile: 87% of broadband subscriptions are through mobile44,                                                                                           40%
and non-broadband users don’t really shop online. End of discussion?
                                                                                                                                                                                                                                           Female
Well almost. Many of the remaining 13% are professionals using PCs in                                                                                  30%
their workplace, and such users are amongst those most likely to make                                                                                                                                                                      Male
cross-border purchases.
                                                                                                                                                       20%
So although your marketing should very definitely be mobile-first,
it hasn’t quite reached the mobile-exclusive stage yet.
                                                                                                                                                       10%

Social Media Channels                                                                                                                                   0%
                                                                                                                                                                 13-19         20-29          30-39          40-49           50-59   60+
The profile of social media usage in India is likely to be broadly familiar
(Figure 20). Facebook is up there as the top channel, as you might expect,                                                                                                                         Age Group
and given the prevalence of English language skills amongst likely target
consumers, your existing presence might well extend with very little effort.                                             Figure 21 - Demographics of Indian Facebook users47

42 Paypal, Global Snapshot, 2015
43 ibid                                                                                                                  45 EY, Social Media Marketing, India Trends, 2015
44 Telecom Regulatory Authority of India (TRAI), Oct 2015                                                                46 …to grow their 700M+ active users; Source: Tencent (who own WeChat), 2014
                                                                                                                         47 WeAreSocial, Aug 2015
 20                                                                                                                                                                                                                                                 21
Indians, and especially the younger fashion conscious consumers most likely to purchase online, are also highly                              Google India itself offers search in nine vernacular languages in addition to English (Figure 23): Hindi, Bengali,
responsive to influencer marketing48 , and the marketplaces in particular invest actively in this space.                                     Kannada, Marathi, Gujarati, Malayalam, Telugu, Punjabi and Tamil, i.e. approximately 85% coverage and including
                                                                                                                                             all major urban areas.

Other digital marketing channels: email and SMS
Indian companies themselves don’t see social as their most important channel (Figure 22). Remember that you
most likely won’t have a transactional website: however you probably still need a website presence, and so that
channel in fact ranks as top priority.

                       Preferred e-Marketing Channels in India

 Others

  Video

   SMS

   SEM

                                                                                                                                             Figure 23 - Google India in vernacular languages
  Social

  Email

Website

           0%         10%          20%          30%          40%          50%          60%           70%          80%
                                                                                                                                                         Summary
                                              % of survey respondents who used...
                                                                                                                                                       • There is a difficult channel choice to make when targeting Indians via ecommerce.
                                                                                                                                                         »» The dominant online marketplaces offer weak control of brand combined with strong
Figure 22 - preferred digital marketing channels in India49                                                                                                  disintermediation between seller and buyer; a less than ideal pairing. However recent
Go back a few years, and SMS would almost certainly have been the next option.50 Stricter regulation, combined                                               regulatory changes may lead to them developing features more sympathetic to brands
with evasive action taken by mobile users, has resulted in a return to email as the next preferred channel. A rather                                     »» Setting up an own website on an Indian domain is subject to difficult, and possibly
startling 29% of retailers send daily emails, according to one survey51. Unsurprisingly rising use of spam filters,                                        prohibitive, regulations
generally rather fluid personal email addresses, and lack of consumer consent are growing issues.
                                                                                                                                                         »» Cross-border may be a good option in the short term, but the as the marketplaces
                                                                                                                                                           increase in sophistication, they may prove a more sustainable long term bet
Search and Content                                                                                                                                     • C
                                                                                                                                                          ross-border ecommerce has been used by 36% of Indians who buy online. It was
                                                                                                                                                         forecast to grow 75% in 2016
The search engine situation in India is extremely simple: Google has a 96% market share. Your content should
primarily be in English; none of the top Indian ecommerce sites has a non-English option.                                                              • Marketing should be mobile first; 87% of relevant internet access is via mobile

There is a growing trend towards offering vernacular content (45% of content in 2013, forecast to rise to 60% by                                       • T
                                                                                                                                                          he social media landscape is generally familiar: Facebook tops the charts for
201852), but there are 22 officially recognised languages. In practice, generating content in Hindi (with 422 million                                    example
speakers) and possibly Marathi (another 73 million, and the language of the commercial capital Mumbai)53, might                                          »» Demographics of usage are biased towards the young, and very strongly skewed
be an interesting possibility if you really want to aggressively target Indian customers. The challenge is that                                            towards males
they will almost certainly still need to complete any online transaction in English. However given the particular
demographics of Indian internet usage and also education, if you are targeting certain customer-segments                                                 »» The Chinese giant WeChat is making successful inroads into India, backed by aggressive
especially women, you might contemplate vernacular marketing with the expectation that the final purchase will                                               marketing. It may be an interesting horse to back for the medium-term
be made by someone else with English language competence.                                                                                              • Search is totally dominated by Google: they have an 96% share of the market

48 The author can attest to personal experience of the demi-god status apparently enjoyed by Bollywood stars and cricketers, memorably 		             • G
                                                                                                                                                          oogle is driving efforts to make vernacular content accessible: they offer 9
   including a wet-shave abandoned midway through by a barber more anxious to get a glimpse of his hero than receive his fee                             languages in addition to English, covering around 85% of the population and all
49 Octane Research: The State of eMarketing in India, Nov 2015                                                                                           major urban areas of interest to retailers
50 Author’s note: during onsite consulting engagements in India in 2010 and 2011 my clients’ mobiles appeared
    to be rendered almost unusable by a never-ending stream of marketing-SMS messages                                                                    »» Around 45% of Indian internet content was published in vernacular languages in 2013,
51 Octane Research: The State of eMarketing in India, Nov 2015                                                                                               forecast to rise to 60% by 2018
52 BCG, India@Digital.Bharat, Jan 2015
53 Census of India, 2011
                                                                                                                                                         »» Investing in content in Hindi and Marathi might be a plausible starting point

 22                                                                                                                                                                                                                                                         23
PRACTICALITIES: LEGAL, PAYMENT, LOGISTICS                                                                                                         Payment
                                                                                                                                                  Given that it is rather unlikely that you will be creating a specifically Indian version of your website, than the
                                                                                                                                                  complexities of local payment infrastructure are less relevant than in most markets. However, making an existing
Legal issues                                                                                                                                      website intended for cross-border purchases by Indians more sympathetic to their preferred payment methods will
                                                                                                                                                  certainly drive sales.
Introduction                                                              Spam                                                                    Data on preferred payment methods stated by different sources are exceptionally contradictory, probably due to
                                                                                                                                                  the fairly rapid pace of change. The general thrust of the data is that cash-on-delivery is the preferred method,
The general consensus of the ecommerce community in                       There is presently no formal e-mail anti-spam
                                                                                                                                                  followed by card, with rapid growth in mobile payments (Figure 24):
India about the current state laws impacting ecommerce                    legislation, although it is a topic currently under active
is that they are rather fragmented, and in some places                    discussion. The very strict Canadian system appears to
terribly outdated (especially in the area of consumer                     be a likely preferred template.                                                                             Online Payment Methods in India
protection). The following summarises key areas that                      SMS (and nuisance call) spam, which had reached                                                                          1%
are likely to affect retailers/brands contemplating India                 plague levels, has resulted in a nationwide, regulated57
as a cross-border destination.                                            system of opt-out, generally known as DND – do not
General advice would be to watch this space. There is                     disturb.58 Its relative effectiveness, compared to many                                                                       12%

broad agreement that updating is needed, and some                         other countries, is reflected in the switch of preferred
update is in flight. In practice, however, such updates                   e-marketing channel from SMS back to email.59
are likely to be modelled on legislation already in place                                                                                                                                                        12%                   eWallets
in other countries, and are unlikely to be onerous if you
are already compliant at home.
                                                                          Distance selling, consumer protection
                                                                                                                                                                                                                                       Online Bank
                                                                          and returns
                                                                                                                                                                                                                                       Debit Card
                                                                          India has existing laws covering consumer protection.
Data protection, cookies, storing                                         They are generally considered outdated (they were                                                                                                            Credit Card
information                                                               promulgated in 1986 and the most recent update was in                                                 59%
                                                                                                                                                                                                                16%
                                                                                                                                                                                                                                       COD
India has a formal Data Protection Act in place,                          2002), and an updated framework is making its (slow)
although it was only fully established in respect of I.T.                 way towards becoming law.
systems in 201154. It covers what you would expect: if                    Although the law is outdated and evolving, a current
you (as a typical retailer/brand) are already compliant                   basic working assumption should be that the consumer
in your home country, you are probably compliant                          has a 7-day cooling off period during which no-fault
with Indian requirements. (As a general indication of                     returns are possible.                                                   Figure 24 - distribution of online payment methods in India60
the relative immaturity of the legal framework around
ecommerce in India, the EU doesn’t accept that the                        And, apart from totally standard provisions about not
Indian code is sufficiently strong.) Opt-in/opt-out is                    misrepresenting your goods and services – if you are
                                                                          compliant at home, you’ll definitely be compliant in                    Cards
required when storing personal data. The law is less
strict than in many countries. It does, however, restrict                 India – well, that’s about it.                                          Credit card penetration is low, with only around 20M in circulation. Debit card penetration is much higher and
sharing this data with 3rd parties, so you cannot, for                    Local practice is increasingly to make returns easy for                 growing quite quickly, by 9% in 2014 to reach 431M issued61, and these are often co-branded for Visa or Mastercard.
example, collect email addresses and then share them                      the consumer, but there’s no legal need to do so.                       In practice, such cards may not be fully enabled for cross-border purchases.
without explicit consent at the time of collection.55
There is no formal cookie law.56
                                                                                                                                                  Cash on delivery
                                                                                                                                                  Although extremely unfamiliar if you are operating ecommerce in most western countries, cash on delivery is
Disclaimer                                                                                                                                        still the preferred payment method in many places, and India is one such.
This document is provided for general information purposes only and does not constitute legal, investment or other professional advice on         Because it is so standard, it is typically offered by the larger parcel-delivery companies as a value-added service.
any individual matter. Whereas every effort has been made to ensure that the information given in this document is accurate, IMRG accepts         It isn’t cheap: in India it generally costs around 2-4% in merchant fees to the handling parcel-carrier. Moreover
no liability for any errors, omissions or misleading statements, and no warranty is given or responsibility accepted as to the standing of any
individual, firm, company or other organisation mentioned. Publication as well as commercial and non-commercial transmission to a third
                                                                                                                                                  there is still the considerable risk of expensively sending the goods, only for the buyer to decline to pay “on
party is prohibited unless prior permission is obtained from IMRG. The views expressed in this publication do not necessarily reflect the views   the doorstep”.
of IMRG.
                                                                                                                                                  Nevertheless if you decide to ship cross-border, it is worth exploring if your parcels partner can support this
                                                                                                                                                  option, and evaluating the associated costs and risks. Note that shipments of goods worth more than USD $2000
                                                                                                                                                  which are not paid for via a controlled payment gateway (i.e. are paid in cash) is not permitted.62

54   Section 43A of the IT Act titled “Reasonable practices and procedures and sensitive personal data or information Rules, 2011
55   Indian Centre for Internet & Society
56   ibid
57   By the Telecoms Regulator, TRAI
58   Telecom Commercial Communications Customer Preference (Thirteenth Amendment) Regulations, 2013
                                                                                                                                                  60 The Paypers, Online Payment Methods in 2016
59   Octane Research: The State of eMarketing in India, Nov 2015
                                                                                                                                                  61 Goldman Sachs, India Internet, 2015
                                                                                                                                                  62 Reserve Bank of India, 2015
 24                                                                                                                                                                                                                                                                  25
Wallets and Mobile Payents                                                                                              In practice, you therefore have three (or four) main options.

A Unified Payment Interface (UPI) system for making mobile payments online has been developed by 29 Indian              1.   Use a point-to-point shipper with an Indian presence, such as DHL or Fedex, which is expensive but reliable;
banks, and was launched in August 2016. It is expected to prove extremely popular, and also to render other                  it may not cover the whole of India, but in practice will probably cover 98% of likely sales. You may need to
eWallet solutions (such as Paypal) rather irrelevant in India.63                                                             modify your checkout to validate PIN-code coverage. Expensive but reliable.

At the time of writing, take-up data was not available, but offering compatibility with it is certainly likely to be    2. Use a specialist parcel forwarder with a partnership with a local Indian delivery company, such as wnDirect,
worth exploring, and will strongly signal to prospective Indian consumers your interest in selling to them.                P2P logistics, or Spring. Mid-price, mid-service.
                                                                                                                        3. Rely on accessing India Post, usually by using your local national postal service e.g. Royal Mail as local the
                                                                                                                           access point. Lowest price. Unfortunately also accompanied by far the highest chance of the parcel getting lost.
Pricing                                                                                                                    Again statistics are difficult to come by, but anecdotes are not. If your items are of high value, probably not the
                                                                                                                           best choice.
Informal guidance from the big marketplaces suggests that Indian shoppers generally expect to pay a little more
to access western brands than these brands would sell for in their home markets. A premium of up to 35% is              4. Don’t ship to India, but still target Indian customers and hope they’ll manage to get the stuff there by themselves.
considered tolerable; this is not inconsistent with likely additional shipping and customs/duty costs.                  The alternative, particularly if you are using marketplace channels, is of course to ship in bulk to India, and have a
                                                                                                                        local partner organise the delivery. A local partner will be mandatory if you are at any useful scale: more rules on
                                                                                                                        foreign ownership apply here, most especially a requirement to partner (or have) a local legal entity.
LOGISTICS                                                                                                               Offering free returns from India back to your home country is prohibitively expensive. Even Asos, normally major
                                                                                                                        enthusiasts of free or subsidised fully-managed returns don’t attempt them from India, instead directing the
                                                                                                                        customer to their nearest India Post Office64.

Shipping
Getting your goods to your prospective Indian customer is something of a challenge. In practice this is also            Using the marketplaces
the attitude taken by many Indian customers themselves. Although accurate data is, for obvious reasons,                 Both Flipkart - plus its subsidiaries Jabong and Myntra – and Snapdeal aim to own the relationship with
rather difficult to come by, it is believed that around 25% of Indian ecommerce sales are in practice shipped to        the end-consumer. Obviously there’s a possible downside to this: disintermediation from your customers.
addresses outside India (to friends or relatives) and then “informally imported”. This hidden potential in India        However there is a much larger corresponding upside: owning the relationship with the end consumer
consumers may make targeting them more attractive than is initially apparent.                                           means they also take ownership of last-mile delivery… and returns.
There are 25,000 postal code regions (known as PIN codes) in India. Only India Post covers most of them                 Flipkart/Jabong/Myntra especially offers a variety of models for getting your goods to the final purchaser,
(Figure 25). In practice this is less of a restriction than might at first appear, because most prospective customers   including:
will live in the major cities.
                                                                                                                        • Fully “stocked” model in India
                                                                                                                        • Consignment model, where you ship wholesale to India to their warehouse(s)
 PARCEL DELIVERY                                             PIN-CODE COVERAGE              PIN-CODE COVERAGE           • Parcel-by-parcel model managed by a third-party specialising in purchasing at wholesale prices in the UK,
                                OFFER
 COMPANY                                                     (standard pre-paid)            (with cash on delivery)       and selling on the marketplaces in India on your behalf65
 India Post                     Standard parcel (4-8 days    25000 i.e. all                 25000                       There are pros and cons to each, but in general, having someone else shepherd your items through importation,
                                after customs                                                                           customs, and last mile is worth serious consideration.
                                clearance)
 India Post                     Express parcel (2-4 days     50 top cities                  Same 50 top cities          Taxes & Duties
                                after customs clearance)
 Blue Dart (a subsidiary of     Fully managed parcel         3300                           4100                        There is no De Minimis for shipping into India, so customs duties will apply. There’s a lot of variation in rates, from
 DHL)                           delivery                                                                                0% to 150%, although in practice the overall results tends to be somewhere between 20% and 30% for most likely
                                                                                                                        categories of interest for cross-border ecommerce. Their structure is complex, and includes various additional
 DTDC                           ecommerce specialist         7100                           8000
                                                                                                                        levies, such as the disturbingly named CEX and CESS. Calculations are not straightforward.
 Fedex                          Fully managed parcel         2650                           5550
                                delivery                                                                                The Indian central board of excise and customs provides a website which allows you to calculate duties and tariffs,
                                                                                                                        although be warned that it’s fairly maddening to use66: www.icegate.gov.in/Webappl . You will need the standard
                                                                                                                        HS code for the product (which this website refers to as CTH, India’s flavour of HS, although for most purposes
Figure 25 - local parcel-carrier options in India                                                                       they are identical).
                                                                                                                        In practice, excluding VAT (e.g. British VAT at 20%) and then applying local taxes and duties, will tend to make your
                                                                                                                        items about 10-15% more expensive overall than they are to domestic customers. A few relevant examples follow67
                                                                                                                        (Figure 26)

                                                                                                                        64 See Asos.com India delivery and returns policies
                                                                                                                        65 Such as that offered by sponsor WeArePentagon, branded Arcade
                                                                                                                        66 Hint: amongst various UI challenges, the following is probably the key one: on the initial menu,
                                                                                                                            don’t enter the full 8 digit HS code; instead you need to enter the first 4 or 6 digits, get directed to
63 The Paypers, Online Payment Methods in 2016
                                                                                                                            another screen which presents a list of 8 digit codes, and click-thru on the applicable code from there.
                                                                                                                        67 Using the icegate.gov.in calculator. Figures have been rounded to 1 decimal point; the official calculations
 26                                                                                                                         generate strangely precise numbers such as 24.491%                                                             27
APPLICABLE CUSTOMS + DUTIES
                                    (as a % of ex-VAT sale price)

Cotton shirt                        24.5%
Leather-free trainers               29.4%
Silver jewellery                    35.5%
Ladies Jeans                        29.4%
Laptop                              17.4%

Figure 26 - Examples Customs + Duties for goods outbound from UK into India
Offering DDP (delivery and duty-paid in advance) shipping on your website is strongly recommended for India,
unless you want your parcels to become enmeshed in Indian bureaucracy not famed for its speed.

      Summary
      • T
         he legal framework covering ecommerce in India is rather weak. Broadly speaking,
        if you are compliant at home, you are compliant in India
      • T
         he exception is controls on SMS marketing, where India has a relatively effective system
        which has led marketers to prefer email as a communication channel
      • 7-day cooling off is required, but otherwise consumer protection in areas around returns is weak
      • There is no cookie law
      • Cash on delivery remains the preferred method of payment
      • C
         redit card penetration is very low, even amongst your likely affluent target customers.                   ABOUT PENTAGON
        Debit card penetration is higher, although its usability for cross-border transactions is variable
      • M
         obile payment are predicted to gain rapid traction in India, given the unified UPI scheme
        recently rolled out by India’s top 29 banks. It may be worth exploring how you could offer this             Pentagon is an end-to-end solution                       Why Pentagon?
                                                                                                                    provider that enables brands and retailers
      • Logistics is a major barrier to Indian ecommerce.                                                                                                                   • Unlike competitors, our success-based commercial
                                                                                                                    to accelerate their online growth through                  model aligns our business completely with our
          »» Many Indian customers work around this by having parcels delivered by websites to overseas
                                                                                                                    60+ global marketplaces worldwide.                         customers’ objectives.
              addresses of friends or relatives
          »» Returns to home-country are likely to be prohibitively expensive, and few are attempting it            Using a team of more than 150 ecommerce experts in       • Our technology is a purpose built online marketplace
                                                                                                                    seven countries worldwide, we optimise and localise        integrator, with the ability to open up more
      • F
         lipkark, Jabong, Myntra and Snapdeal all insist on taking care of last-mile delivery themselves; it may                                                              marketplaces across the globe than any other software
                                                                                                                    data, integrate to new ecommerce platforms, connect
        well be worth taking advantage of this, shipping wholesale to their warehouses, or going further and                                                                   provider.
                                                                                                                    stock management and order managements systems to
        working with them to collect from you in the UK
                                                                                                                    marketplaces, launch and manage online stores, drive     • We combine people plus technology to provide a
      • F
         edex and DHL have extensive coverage of India for premium parcel shipping; DHL has a controlling          ecommerce sales, handle international logistics and        fully managed, completely end-to-end retail solution
        stake in local player Blue Dart                                                                             returns, and provide multi-lingual customer service in     across multiple online marketplaces globally.
                                                                                                                    more than a dozen languages.
      • S
         olutions relying primarily on India Post enjoy a rather variable reputation,                                                                                       • Our wholesale solution takes away the complexities
        especially for higher value goods                                                                           Our tiered service offering provides retailers with a      of international ecommerce, as we sell your products
                                                                                                                    tailored solution to meet their unique requirements;       for you on one of our global marketplace stores.
      • Semi-managed solutions offer a good balance between value and reliability for shipping into India.
                                                                                                                    from a robust technical integration to just one
      • DDP (delivery and duty paid) shipping is strongly recommended into India                                    marketplace right through to fully managed online        • We work with a wide range of customers from across
                                                                                                                    stores across multiple international platforms.            the retail spectrum, focusing specifically on large
      • C
         ustoms duties levels are generally high enough to ensure your products will be 10-15% more expensive in                                                              brands and retailers. We are trusted by Next, Dyson,
        India than at home (once sales taxes are taken into account), but are not impossibly prohibitive            Get in touch to discover how we can accelerate your        Ann Summers, BMW, Halfords, Maplin, Lloyds
                                                                                                                    global online growth. #RetailWithoutBorders                Pharmacy, Euro Car Parts, Sports Direct, Co-op,
                                                                                                                                                                               Phillips Lighting, Pretty Little Thing and Suzuki.
                                                                                                                                                                             • Our vision is to deliver ‘retail without borders’ -
                                                                                                                    wearepentagon.com | @wearepentagon                         enabling retailers in any part of the world to sell to
                                                                                                                    hello@wearepentagon.com | +44 (0) 8940 5392                customers across the globe.
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