100 percent FDI in E commerce – what it means to retail business?

The following article is based on my own interpretation of the said events. Any material borrowed from published and unpublished sources has been appropriately referenced. I will bear the sole responsibility for anything that is found to have been copied or misappropriated or misrepresented in the following post.

Prabhat Choudhary, MBA 2015-17, Vinod Gupta School of Management, IIT Kharagpur

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Electronic commerce, commonly referred as the E- commerce is the trading of goods and services or transmitting of funds and data through the electronic networking generally internet. These business transactions occur either business to business, business to consumer, consumer to consumer or consumer to business. E- Commerce saves the transaction time and ease of doing business. The e-commerce offers the consumer or enterprise various information they need, making information into total transparency, will force enterprise no longer is able to use the mode of space or advertisement to raise their competitive edge.

In 5th April 2016 the government of India allowed 100% FDI (foreign direct investment) in the E-commerce through the automatic route in the marketplace model of E-commerce retailing. The marketplace model of e-commerce has been defined as providing an “information technology platform by an e-commerce entity on a digital and electronic network to act as a facilitator between buyer and seller. “As per the guideline issued by the department of industrial policy and promotion (DIPP), at present FDI in E- commerce is permitted in business to business transactions only (B2B), it does not allowed the FDI in the inventory based model of E-commerce. DIPP said that the e-commerce marketplace may provide support services to sellers in warehousing and logistics. The main theme of allowing 100% FDI in E-commerce sector is to attract more foreign investments into the sector.

Traditional retailers welcomed the clarification, arguing that this would put an end to what they said was an unfairness inherent in the current system on the other hand FDI in ecommerce is nothing but a “backdoor entry to global retailers which will facilitate them to sidestep restrictions in multi brand retails since E-commerce has no geographical restrictions” said by The Confederation of All India Traders (CAIT).The traders across the country will strongly oppose this move because this is the big competitor for them. But for the buyer this is good move because he/she can obtain good information about the product and more freedom to choose the product. But this move resembles the dual nature of the government, one side government is saying 24 by 7 opining of local retail markets and giving loans to them on the other side giving more freedom to foreign investments.

The main problems for local retailers are E-commerce companies influence the price at which the goods have to be sold. But the press note issued by the government says “E-commerce entities providing marketplace will not directly or indirectly influence the sale price of goods and services and shall maintain level playing field.” This clause will impact the way e-commerce companies work, especially during times of flash sales when massive discounts are offered and underwritten by these companies. Some companies like amazon give discount in the normal course of business by reimbursing the loss to sellers as ‘promotional funding’.

These activities will now have to be curtailed. This move will be a big relief to the brick and mortar retailers who were the worst hit on account of predatory pricing. In short, the glory days of online shopping with deep discounts are behind us

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