How Indian MSMEs can leverage from e-commerce sector?

USD 26 billion is the estimated potential of B2C ecommerce exports from India: Study
How Indian MSMEs can leverage from e-commerce sector?

The impact of e-commerce is briskly changing the mechanism of global business. Though the e-commerce phenomenon is more than 25 years old today, it has become significantly popular in the last five years. According to the Global B2C E-Commerce Report, 2016 by the E-Commerce Foundation, in 2015 China accounted for the largest volume of B2C e-commerce sales, followed by the United States of America (USA) and the United Kingdom (UK). Online retail has become a common practice in developed countries contributing towards 10 percent to 13 percent of the retail transactions. This brings an unequivocal opportunity for Indian MSMEs, both for existing as well as potential start up export units, to capture a portion of the rapidly expanding B2C e-commerce via marketplace giants such as eBay, Amazon and Alibaba.

Although, B2C e-commerce sales in India stood at USD 25.5 billion, putting it at the ninth position followed by Russia as the tenth-ranked country, yet the Indian online retail surprisingly constitutes less than one per cent of India’s total retail market. This is also reflected through poor Cross-Border Trade (CBT) via e-commerce (B2C) amongst Indian MSMEs, which are still in the embryonic2 stage.

The overall export potential arising out of MSME products amounts to USD 302 billion, contributed by 93 product categories and is exported to 159 countries. There are numerous clusters in India that hold promising potential for MSME products that can be exported to various countries in North America (USA), Europe (UK, Germany, Italy and France), Australia and South East Asian countries (Thailand, Singapore, Philippines and Malaysia).

Although products like petroleum, machinery, iron and steel, etc. cannot be addressed through B2C e-commerce exports, nevertheless the addressable retail export through B2C ecommerce is only worth USD 52 billion, contributed by only 20 product items like gems and jewellery, finished leather goods, handloom products, handicrafts, auto accessories etc.

Hence forth, it is visible that India is not yet grasping full evident advantages of the at-hand  e-commerce opportunities. Considering the rapid rise in the number of internet users, culminating in increased buying and selling of goods and services from Business to Consumers (B2C), the online international trade is flourishing. This is something that MSMEs can benefit from directly. Therefore, there is a dire need to understand the status, challenges and opportunities of e-commerce exports from India, which depends on the e-commerce readiness of the Indian MSMEs and the limiting factors within the retail CBT sector via e-commerce from India.

Appreciating the fact that this paradigm shift from offline to online exports would bring forth a challenge, not only for the Indian policy makers but also for the MSMEs, the study, therefore, lists recommendations for the Indian Government through modifications in the current Merchandise Exports from India Scheme (MEIS) policy under Foreign Trade Policy of India (FTP 15-20) on one hand and strategies to motivate Indian MSMEs to migrate towards an e-commerce platform, while ensuring high profitability on the other.

The strategy developed, is based on the understanding that Indian e-commerce success is dependent on twin factors - (i) internal discrepancies and (ii) conducive policy environment.

The primary survey brings forth internal discrepancies that pertain to ICT infrastructure; e-payment and logistic from the respondents across MSME sectors, like apparel, leather, handicraft, gems and jewellery. Other problems include - inadequate supply capacity to cater to the export orders, supply not of international quality standards, weak logistics, product unsuitability to international markets and poor 12 infrastructure. Respondents have also added poor Information and Communication Technology (ICT) low bandwidth, speed, and reliability of the network, and power failure in rural areas as factors that add to the obstacles. Perception issues of technical complexities, faster offline recovery, and so on, prevail, which motivate Indian MSMEs to stick to traditional modes of trade.

Also, lack of availability of skilled workforce, privacy and security concerns, and inaccessibility to finance are some of the roadblocks, preventing Indian MSMEs transition to e-commerce avenues. These discrepancies inhibit MSMEs from e-commerce CBT retail market who finally lose the means to reach foreign buyers, despite having the potential to do so. On the external front, while global platforms like eBay, Amazon and Alibaba are engaging with MSMEs to push their products in the global markets, by helping them list on their respective platforms, the discrepancies still pertain to various policy related issues required to provide a fillip to MSME exports through e-commerce. For instance, there is an urgent need for the government to recognize retail e-commerce exports as an industry and work towards removing regulatory barriers, including reviewing of the FTP policy in terms of its limitation to certain categories and of a limited amount (like in the case of gems and jewellery), simplifying customs duty procedures and allowing exporters to claim duty drawbacks.

The challenges, include customs duty levy on return of goods, absence of refund on value-added services (VAT) or Service Tax, lack of provisions for commercial shipment in the CN-22 form, absence of support for small-value single item shipment in the current courier shipping bill etc. needs to be addressed on immediate basis. This study, thus, is an initiative to promote the global reach of Indian MSMEs and enhance the export competitiveness of ‘Made in India’ products. Policy recommendations towards integrating “Make in India” and “Digital India”, through facilitating ease of selling Indian products online, will enable access to new geographies and market diversification for the Indian MSMEs, without spending on market research. This paradigm shift in policy focus creates a new business vision, since it is expected to increase CBT via e-commerce (B2C) revenue from existing USD 500 million to USD two billion by the year 2020, which will be almost 10 percent of the total addressable retail category potentially which can be exported from India.

Above mentioned is the excerpt from a joint report released by The Indian Institute of Foreign Trade (IIFT) and Federation of Indian Chambers of Commerce & Industry (FICCI). The report is supported by ebay.




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