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Country Spotlight: Understanding Consumers and Cross-Border E-Commerce in India

Much like Black Friday in the West, the festival of Dussehra celebrated this week in India marks the beginning of India’s holiday shopping season. And, like everywhere else in the world, people are increasingly shunning the frenzy at the market in favor of shopping online. While still representing only a fraction of total retail sales, e-commerce is now an essential part of the foundation of the global digital economy.

Although e-commerce only accounts for 2% of transactions in India, when talking about the second most populous country in the world, 2% is more than enough to make waves on the global stage.  Two Indian start-ups, Flipkart and Snapdeal, are already valued at over $1 billion USD each and make up two of the three biggest e-commerce players in India. Amazon, the third big player, invested heavily in this market, an indication of India’s value to cross-border retailers.

As the fastest-growing e-commerce market in Asia Pacific, with a demand for consumer products growing at a much faster rate than the domestic supply, India is a ripe market for international business. In this article we’ll explain the unique makeup of Indian consumers as well as the drivers of, and barriers to, cross-border e-commerce. If you’re not sure whether it’s time for your business to start selling in India, then this post is for you.

Unless noted otherwise, we source stats in this article from:

Indian Consumers

  • Population: 1.3 billion
  • Internet users: 354 million
  • Online shoppers: 41 million
  • E-commerce sales: $17.5 billion USD
  • Mobile shoppers: 9 million
  • M-commerce sales: $800 million USD
  • E-commerce annual growth rate: 37.4%

As you can see, e-commerce penetration is relatively low compared to markets such as the US (84%) or France (81%), but because of the sheer size of the population, India’s internet user base is still the second-largest in the world, behind only China. The fact that an admittedly immature e-commerce market is already one of the most powerful in the world just goes to show the immense potential and room for growth for online retailers selling in India.

41 million online shoppers are nothing to scoff at, and that number is growing with an influx of young, middle-class, mobile-ready consumers. Hindi is the dominant language, but 20% of the population is fluent in English, predominating among younger demographics, the same demographics that are more likely to shop online; this signifies that English-language websites can still market effectively in India.

One of the challenges facing merchants expanding into India is that they’re competing in what is still primarily a cash-based economy. Since most Indian consumers do not own a credit card, credit cards represent only 24% of total value of online payments, behind bank transfers (29.3%), and cash-on-delivery, which leads with 37.5%.

Drivers and Barriers

Barrier: Low acceptance of online payments

The popularity of cash-on-delivery indicates a low trust level for online payments. The lack of credit card penetration and low market share of e-wallets (1.5%) pose a challenge for international sellers.

Driver: Growth of mobile payments

M-commerce may provide the solution. Already representing 4% of e-commerce payments, nearly triple those represented by e-wallets, 30% of total e-commerce traffic comes from mobile devices and 14% of all websites visited via mobile device were e-commerce sites. With 72% mobile penetration and e-commerce being driven by a younger, increasingly connected and increasingly mobile crowd, m-commerce will become the driving factor in the continued growth of e-commerce in India.

Barrier: Locally-sourced products

India requires that cross-border retailers source 30% of their products and services locally, which means that businesses shipping all their goods from a centralized location will face significant barriers when selling to India.

Driver: No sales tax, less duty

India does not levy a sales taxes on goods shipped into the country and certain product categories, including laptops and other consumer electronics, aren’t subject to duty. Depending on the type of goods you sell and where you source them, selling in India can keep your costs down.

Indian E-Commerce Facts

  • India is the fastest-growing e-commerce market in Asia Pacific worth $17.5 billion USD in 2015.
  • The US and China are the main countries for cross-border e-commerce sales to India.
  • The demand for international consumer products is growing more rapidly than domestic distributors can keep up with.
  • Consumer electronics, apparel and media products represent the vast majority of online retail spending.
  • 75% of internet users are below 35, the demographic most likely to participate in e-commerce.
  • Nearly the entire population has access to postal delivery to their door, making shipping and fulfillment quite straightforward for online retailers.

India is the second-largest internet market in the world and the fastest growing e-commerce market in Asia Pacific. With an untapped consumer base mostly made up of young, middle-class, English-speaking people desiring international consumer products, the growth potential in India is second to none.

Expanding into a new international market is a risky venture but a very rewarding one if done right. For the latest information about how you can build and maintain a strong e-commerce enterprise, subscribe to the Payza Blog and follow us on Facebook and Twitter for the latest industry news. We’ll provide tips on how to ensure your business is compatible with legislation and buying habits at home and abroad.