Why is it important for E-tailing to grow in India?

The growth of e-tailing in India will positively have four broad impacts:

A. Generate employment

B. Facilitate growth of allied industries

C. Promote entrepreneurship

D. Reduce transaction costs

We shall discuss some of the above points in detail.

A. Employment Generation

E-tailing's employment potential, which is rarely discussed because of its current size and scale, entails two dimensions: the absolute volume of employment, and the attractiveness of e-tailing as a destination for high quality talent. As per

estimates, e-tailing has the potential to generate direct employment for nearly 1.45 million people by 2021 from a current figure of 23,500.

B. Facilitate growth of allied industries such as logistics and warehousing

Employment in logistics is presently generated by third party logistics (3PL) providers who are engaged in order deliveries, and, in some cases, with e-tailers who have in-house last mile delivery expertise. However, these are severely

limited in terms of capabilities and scale. With the growth of e-tailing to the projected size of USD 76 billion by 2021,the logistics industry will witness the emergence of players with scale. To tap this opportunity, some of the existing

players may grow in size, while other established logistics solution providers may tweak their business models. Many new players may also emerge. In either case, the spurt of e-tailing will call for delivery capabilities that will in turn 

require the deployment of a vast number of feet on the ground, creating a potential 0.8 million jobs by 2021.

Biggest beneficiaries of growth of e-tailing will be:

• Merchandise suppliers

• Infrastructure & service provider firms viz. logistics, warehousing, banking, technology, and marketing

• People employed in the e-tailing industry 

C. Promote Entrepreneurship

One of the most successful arguments in favor of e-tailing's business model is its ability to boost entrepreneurship. Many of today's leading e-tailing businesses were start-ups a few years ago. This trend continues as more and more

names join this list. However, it is a less talked about fact that the growth of e-tailing creates enabling conditions for entrepreneurship across the entire e-tailing value chain. E-tailing will positively impact the development of

entrepreneurship in India in two ways:

a. It will provide easy access to consumer markets (new and existing), which will enable the growth of merchandise vendors

b. It will open up opportunities for entrepreneurs to become service providers to the e-tailing business

Some of the services for E-tailing include:

1. Analytics

2. Marketing

3. Content development

4. Web design and development

5. Packaging

D. Reduce transaction costs

One of the biggest advantages of e-tailing's business model is its ingrained ability to reduce transaction costs. Transaction costs here refer to the costs incurred in making an economic exchange, which, in retailing, involve three elements:

• Cost of distribution of goods

• Use of leverage (credit) in the supply chain

• (Un)certainty of tax receipts

Retailing in India involves high transaction costs. Market structure and infrastructure inadequacies are the key reasons for this high cost. A normal retail transaction in India involves the movement of goods through a multi-layered

distribution system from the producer/manufacturer to the customer. These layers of the distribution system entail distributors, wholesalers, dealers, etc. who sit across geographies in a layered hierarchy. There are three challenges with

such a structure.

1. The first challenge is that each layer of distribution adds an extra cost in making the goods reach the final consumer.

2. The second challenge is the existence of credit in the system which strains the working capital of all stakeholders.

3. The third challenge is that most retail transactions at point of sale are in cash.

The projected growth of e-tailing in India will successfully address all the three challenges. The cost of distribution will reduce because the multi-layered distribution system will be replaced by an order fulfillment process arranged in a hub and spoke model. The layers of distributors will not be required here as this role will be fulfilled by warehousing and logistics operations which offer margin enhancement opportunities for manufacturers and better prices for consumers.

Thanks and Regards,

R Sreekanth

12DM-107

Section-B