MyCFO’s reaction on FDI in ecommerce

FDI in e-Commerce – Pros and Cons by MyCFO Co- Founder and Director Deepak Narayanan:

There has been huge expectations from all sides since the new Government  has been sworn in. In a bid to reignite the economic engine and make it chug along at a faster pace, the Government is trying to bring in legislations that it thinks will positively impact foreign investor confidence. The recent buzz/speculation around FDI in e-commerce industry is one of the most discussed topics.

Initial Reactions

While the brick and mortar traders have been and will continue to oppose the move, since they believe that it is likely to cannibalise their business, what has come as a surprise is the opposition this proposed change in policy is facing from the Indian giants in the e-commerce business.

Their contention? That the rules of the game have been changed and the players are caught unawares.  The foreign players in the Indian e- commerce landscape were  earlier only allowed to function as a marketplace for other products; which meant that the Indian players have also fashioned their business along the same lines. Now, with the rules changing the foreign players like Amazon, Ebay and the likes will be allowed to sell their in house labels, requiring domestic e-commerce companies to adapt to this changed scenario.

This apart, in general,  this seems to be a welcome move for the fledgling industry which is looking to the foriegn investors to put in the large amounts of funds that the backend of such businesses require. Opening up of the ecommerce sector will allow many small and mid sized businesses to raise the capital required for investments in technology and supply chain management.

What’s in it for the IT sector

This decision  will also impact the IT and ITES positively since the basis of  e-commerce is  a technology platform that is robust and allows the consumer  an easy and rewarding experience.  Other than that, technology will be required  in also bringing in operational efficiencies in the entire supply chain; whether  it be the effective management of the back end  delivery logistics on in ensuring greater reach to a marketplace, riddled with low internet penetration, through mobile applications or ensuring greater flexibility in online payment options for the credit card shy population, IT sector will play a key role in the success of any e commerce venture.

Verdict

The opening up of the e commerce sector to FDI will be advantegeous in the long run to the ecommerce sector as a whole. Sure, there will be threats  from foreign players with deeper pockets flexing their muscle but the overseas funds particularly Private Equity and FDI in general will be equally helpful in standing up to the Indian e -retailers. Lastly, one cannot deny that the biggest beneficiary is going to be the Indian consumer who will definietely be spoilt for choices.

“A cloud of dust on the horizon doesn’t always signal the arrival of enemy troops”