Next Step in Trade: Cross Border E-Commerce

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There are currently over 51 mn MSME’s, employing 117 mn people, in India. These enterprises produce over 6,000 products and account for 45% of the total manufacturing output and 40% of total exports of the country. MSME’s in India are clearly the backbone of the country.

Domestic E-commerce

Over the past decade, e-commerce has rapidly grown within the country, which has had a significant impact on the MSME’s, it has opened up the entire country for the smaller retailers and manufacturers. Earlier a small leather apparel manufacturer in Dharavi was limited to the local intermediaries who would take a significant margin on the products being sold. Through online channels and e-commerce portals, the same manufacturer is now able to access a national market with higher margins. Additionally, MSME’s using e-commerce have reported up to 60% reduction in marketing and distribution costs along with a 27% higher revenue growth. Such development of enterprises through digital channels have encouraged more companies to be brought into the organised sector and boost the formal economy. Online shopping in India alone is projected to reach $ 100 bn by 2020, up from $ 40 bn today.

To understand the potential that exists in India, the below chart indicates the per capita spend on B2C e-commerce in the respective countries in 2016.

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Source: World Bank, FICCI

 

Cross-Border E-commerce

As India quickly begins to adopt e-commerce, MSME’s can now also look globally to grow their operations. Our focus should now be to take the next step and promote Cross Border E-commerce to expand the customer base of these enterprises.

By simply focusing on the products that can be traded through B2C e-commerce such as jewellery, leather goods, handloom and handicrafts there is an available $ 52 bn market opportunity. Indian handicrafts are sought world over which directly link the manufacturer to the customer that further enable higher profitability for the former. For this to occur, there is a need for policy and infrastructure change to facilitate such trade. This would also lead to the development of related industries such as digital payments, logistics, analytics and digital advertisement.

B2C cross-border e-commerce in India is estimated to reach $ 2 bn by 2020 from $ 500 mn in 2016.

Benefits

By engaging in cross border e-commerce, MSME will be able to access a larger pool of global consumers. Through traditional export, companies typically focus their efforts on few geographies; cross border e-commerce allows companies to attract customers from even remote locations, with whom there is not much trade with India. Thus, companies are able to export to 30-40 economies as opposed to simply 3-4. Additionally, where in traditional export, the sector is dominated by few export houses, whereas, there is typically no such situation in CBT e-commerce.

This type of trade will assist in reducing the cost of transactions, eliminate payments issues through electronic payments systems and contribute to creating a brand value and increased profit margins.

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By engaging in exports, companies are also able to gain valuable information such as global price sensitivity and improve operating procedures and efficiency. This impact can be witnessed with 60-80% of e-commerce exporters that able to survive the 1st year viz-a-viz the survival rate is 30-50% in case of traditional MSMEs.

Recommendations

While there is clearly an opportunity to capture, there is a lot that is needed to be done to develop cross-border e-commerce within the country

  • Increase limits on Courier Shipments: As per current regulations, there is a limit of $ 375.3 on shipments that can be transported through couriers which also involve foreign exchange. Increase in this limit would enable higher value products which are sought internationally such as lehengas etc. to be exported as well.
  • Infrastructure: Most of the customs procedures still takes place through a manual process. By switching over to the customs electronic data interchange (EDI) platform, it would enable the procedure to take place in a smoother and faster manner.
  • Developing Awareness: There is a need to educate the MSMEs in the country as to the opportunities that lie by expanding the scope of their operations abroad. Current issues include:

          o An absence of a known mechanism to reach out to foreign buyers
          o Need for improvement in quality of products that have high international demand and
          o Inadequate buyer and market-related information of countries around the globe

  • Paperless: One of the main factors in e-commerce is delivery time. By reducing the amount of paperwork that is involved and by enabling a risk-based inspection, shipments will be able to reach their destination in a timely manner
  • Return of Goods: In e-commerce, there are always instances of unhappy customers and return of products. A seamless procedure needs to be developed that would enable the return of the products, without the exporter having to incur import duties on the returned shipment.
  • Single Window Clearance: There is a need for a single window clearance for shipments of goods through a transparent and paperless process. Cross-border e-commerce can typically involve shipment of thousands of products on a daily basis; a single window clearance for bulk export of products to different locations would ease in the compliance requirements for the exporters.