Info-tech

Proposal of FDI in e-commerce upsets market leaders

Priyanka Pani Mumbai | Updated on June 11, 2014 Published on June 10, 2014

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Flipkart, Snapdeal fear being knocked off their perch by Amazon

Ever since the Narendra Modi government said that Foreign Direct Investment is being considered in the e-commerce space, a few companies (online marketplaces) have become grouchy.

Flipkart has opposed the move saying that FDI would help only one company (Amazon). The Bangalore-based firm, which started as an e-retailer, changed its business model to become a “marketplace” last year following the entry of global giant Amazon. If FDI is allowed, Amazon will be able to sell its own products in the country thus impacting Flipkart’s new marketplace strategy.

Volte-face

However, in 2012, well before Amazon’s entry, Flipkart was far more welcoming of FDI in e-commerce.

Other leading marketplaces such as Snapdeal and eBay are also strongly against FDI. They feel that there should be a carefully calibrated approach to opening up FDI in ecommerce.

Experts feel Flipkart and Snapdeal, which are already $1 billion companies and command 80 per cent market-share, should not be opposing FDI as they themselves are backed by foreign private equity entities.

“I see no logic why they should oppose FDI. Instead they should be bothered about Reliance Retail, which is readying an e-commerce entry. This might be a threat in coming years,” said Arvind Singhal, Chairman at Technopak Advisory, a consultancy.

Citing examples from the aviation and telecom sector, Singhal said that the government has done more bad than good by not allowing 100 per cent FDI in these sectors. “It has created only a few rich players,” he said without naming any company in particular.

Meanwhile, over 20 e-commerce firms that Business Line spoke to said that allowing foreign entities to invest in this sunrise sector would create healthy competition, bring in global expertise in back-end technology and logistics, and give birth to a lot of small and medium enterprises.

It will also benefit the consumers in terms of pricing and range of products. “As against having only a marketplace model, allowing FDI in Indian ecommerce will enable large global brands such as Walmart, Macy’s, Tesco and Amazon to start selling in India. Currently, there are only a few big players, which if unchecked can lead to monopolies, which are not good for the consumer,” said    Rohan Bhargava, Co-Founder, Cashkaro.com

Scaling up opportunities

Manu Agarwal, Founder and CEO of Naaptol.com, said that FDI would not only help companies scale up fast but also identify and create more private label brands, thus helping them decrease their dependency on vendors.  

“It (FDI) will offset the funding problems of several local businesses that often perish because of cash flow drying up,” said Kumaraguru Seshadri, the founder of e-retailer Home Needs Online.

Currently, only a few companies have been able to attract investments.

Flipkart, since its inception in 2007, has received over ₹4,000 crore from various PE players, while Snapdeal has attracted over ₹2,400 crore in funding.

Published on June 10, 2014

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