Business Today

Spreading Tentacles

Chinese e-commerce companies are making inroads in India.
Sonal Khetarpal   New Delhi     Print Edition: May 6, 2018
Spreading Tentacles

Canadian stand-up comedian Russell Peters once famously remarked that Chinese and Indians simply can't do business together. "Indians can't live without a bargain and Chinese can't give a bargain," quipped Peters. But that was 2009. The boot appears to be on the other foot now with Indians pushing the order button at Chinese e-tail websites in large numbers.

Phenomenal variety at competitive prices is tempting several Indians to transcend their fears of uncertain product delivery from unknown Chinese sites and custom duty costs. Shashank Hedge, an electronic hobbyist, orders circuits, direct current motors, etc. every two-three weeks from AliExpress for making gadgets. According to him, Indian portals neither have the range of nor the latest tech products. Journalist Mala Bhargava orders from AliExpress things that are not available on Indian portals. Her last buy was the Double Tour Apple Watch Strap. Web editor Anam Naqvi swears by Club Factory for its affordable apparel collection and its "dirt cheap" fashion jewellery.

Forrester's Principal Forecast Analyst Michael OGrady believes that the key drivers for buying cross-border is price, choice and product authenticity. Currently, 7-8 per cent of Indian e-commerce is cross-border and that figure is likely to more than double in the next three years, he says. Indeed, India is emerging as one of the fastest-growing e-commerce markets - for domestic as well as cross-border transactions - globally. This has led several Chinese e-tailers, big and small, to look at India seriously. India-based logistics companies DTDC and Gati confirmed that their B2C deliveries from China have been growing significantly every year, given the small current base.

Diane Wang, CEO, DHgate

It is not just big companies like AliExpress, Banggood, LightInTheBox and DHgate but new e-commerce players, too - such as Club Factory and BFM International - are expanding in India. "With all the positive facts coming out about Indian e-commerce, it has been impossible not to notice that the market has huge potential," says Diane Wang, Founder and CEO of 14-year-old Beijing-based DHgate, an online marketplace for wholesale consumer products for bulk buying and individual consumers.

In fact, Chinese e-conglomerates are trying to have a share in the Indian e-commerce pie through investments in Indian companies. Alibaba's total investment in India is close to $1.7 billion - $877 million in PayTM, $150 million in Snapdeal and $300 million in BigBasket. According to Tracxn, Tencent has participated in the $1,400 million funding round in Flipkart, Meituan-Dianping led the funding of $100 million in Swiggy amongst other investments.

China is a developed e-commerce market and the players there are looking at new frontiers of growth in emerging economies such as India, Indonesia and Malaysia," says Swarnava Adhikary, Senior Economies & Consumers Research Analyst at Euromonitor International. Chinese companies have the technical and logistics expertise, which our players are gradually acquiring, he points out.

In fact, leading Chinese e-tailers - be it AliExpress, DHgate LightInTheBox or Banggood - are global players. AliExpress's General Manager Leo Shen has said in a press statement: "Globalisation is a priority for Alibaba Group and AliExpress is focussed on helping global buyers access quality products from China." (AliExpress is owned by the Alibaba Group). Their product catalogues are quite similar to US fashion portals and have a cosmopolitan look and feel, says Pinakiranjan Mishra, Partner and National leader, Consumer Products and Retail, EY.

Banggood is available in 13 languages, including English, Turkish, Deutsch, Portugese, French, Urdu, Korean, Thai, Japanese, Italian, Spanish, Russian and Arabic. DHgate's website is available in eight languages, including Spanish, Russian, Italian, French, Germany, Portuguese. "We believe localisation is an essential part of our business. That is why we have a Spanish website for Spain, a Russian website for Russia etc. We are customising and localising the site for new markets right now," says DHgate's Wang.

These companies are quietly making inroads in new markets. Guangzhou-based's Marketing Manager Aaron Chen says that while they don't have India operations, they are looking at having a warehouse in the country and are exploring options to provide cash-on-delivery to India in the future. "In October 2017, we launched a Facebook page for India to communicate directly with the Indian consumer," says Chen. Right now, he says, the focus is to shorten the delivery time. Packages sent by courier services such as Gati take about 8-16 days to arrive. But packages sent by Express Mail Service need more shipping days, somewhere between 1 -2 months. Several consumers said they got their orders in 5-6 weeks. "This year we will leverage Indian festivals for sales to promote our brand," he says. Their focus is to sell Chinese products internationally, the main markets being the US, Brazil, Russia, Japan and Korea.

DHgate plans on opening its physical stores, called Digital Trade Centres (DTC), in India. It will allow Indian retailers to physically inspect the products before they order in bulk online from the DHgate website. DTCs will also offer same-day shipping and after-sales services like returns, exchange and repairs. "For a company, building an offline presence where we will employ locals is a way to build trust in its new market," says Wang. Alibaba and Paytm refused to comment.

Established e-tailers in India, too, have upped their game. Amazon opened its Global Store in 2016 to enable Indians to buy international products from its website and pay in rupees.

E-commerce is about technology and logistics, but when it comes to cross-border regulations there is now another important dimension - an integrated Goods and Services Tax (includes both central GST and state GST) along with import duty. The duties have changed from the pre-GST era but not so much as to make a difference, says Samsuddha Majumder, Partner at law firm Trilegal. Before GST, basic customs duty was 10 per cent, additional excise duty was 12.5 per cent, value added tax was 4 per cent and education cess of 3 per cent - total effect was 28-29 per cent on a cross-border purchase. Now, most of the products such as accessories, fashion products and electronic accessories fall in the 18 per cent GST slab, while luxury goods (plus, even some consumer electronics at times) are in the 28 per cent bracket. In addition, the import duty is 10 per cent but in some consumer electronic items like mobiles it is kept higher at 20 per cent to promote domestic manufacturing. Though duties are higher now, what happens is, especially for goods sent through India Post - which doesn't have the bandwidth to manage this sudden increase in e-commerce consignments - several low cost products are sent without any import duty. This doesn't happen when packages are sent by couriers as these companies are liable to get all clearances done, says Majumder.

Suresh Bansal, Head, e-Fulfillment, Cross- Border e-Commerce, DTDC Express

To manage the clearances of products at customs and ensure a seamless customer experience, international sellers either set up a subsidiary or have a partner company in India as an Indian Importer on Record (IoR). The common method is to partner with an Indian logistics company that doubles up as the IoR who then takes care of payment of duties, taxes and compliance with customs and government agency regulations and finally the last-mile delivery. So, these international e-tailers display an approximate import duty on the product page itself, along with shipping costs that the customer pays while ordering the product. This import duty is then paid later at the customs upon import by IoR and the customer doesn't have to bother about the clearances and duties.

Gati, through its subsidiary GIETL, offers all these services to international players. Banggood has partnered with Gati who pick the order, bring it to India, get it cleared from customs and take care of the last-mile delivery. This is useful for companies who don't have a set-up in India but want to expand their sales and services in the country. Gati has tied up with 10 big Chinese e-tailers and 100 small ones, says Jai Sankar, International Business Head, Gati.

In the last six months, custom clearances have become electronic, making the process much faster, says Sankar of Gati. Also, with GST there is one nation one rule, so documentation and compliances are same irrespective of where the product is bought from, further easing the custom clearance process.

Cross-border e-commerce comes with its own set of challenges. It's difficult for customers to return the product if they are not satisfied - shipping back to China is more expensive than the product itself. Also, cash on delivery (COD) is not possible. "As per Indian regulations, collecting COD and then making a remittance to foreign seller is not permitted, so all orders need to be prepaid," says Suresh Bansal, Head of e-Fulfillment, Cross-Border e-Commerce and JVs, at DTDC Express.

Often officials increase the duty during the clearance process and the company or its IoR has to pay extra to get the products to customers, says Souvik Bhattacharya, General Manager, BFMe. He adds that almost 20 per cent of cross-border orders get stuck at customs.

Ruchi Lodha, an avid user of Club Factory, says that the e-tailer has often cancelled her order saying it got stuck at customs. So, there are chances you might not get what you ordered.

To overcome the obstacle, Bansal of DTDC says that a new B2B2C business model is the way to go. This means goods should be imported in the name of IOR, full duties and GST paid and then sold to customer as local supplies. "For a company to be serious, it has to have a presence in India, otherwise there will be problems with scalability." In January 2017, Hong Kong-based e-tailer BFM International inked a joint venture with DTDC Retail to build its Indian subsidiary, Gurgaon-based BFMe e-Commerce, which promotes international products and uses DTDC Retail as an IOR. "Through this mixed model we will have an India presence, there will be more credibility and customers will have a better experience due to faster delivery," he says.

BFMe's online portal currently has 165,000 registered users and they want to increase it to three lakh in the next few months, says Bhattacharya of BFMe. He claims that they get almost 250 orders a day and have 30,000 unique SKUs listed on their website.

Indians are mostly buying products from the Chinese e-tailers in the lower price band. Apparel, fashion products, accessories and electronic items, home accessories, decor, home and kitchen improvements and toys are the popular categories.

The average order value for Indian consumers is `500-1,500. For Banggood, the order value can go up to `5,000. However, Chen of Banggood says that while some users order expensive products, such as smartphones and tablets, the numbers are not high.The challenge, says Mishra of EY, for these companies will be to convince Indians to buy more premium products from them because with higher spends users expect better customer service, COD and provision of returning the product. BFMe's Bhattacharya says that they are trying to build trust by delivering the right products in the stipulated time. Right now they are not advertising but passing on that cost-benefit to the consumer by offering free delivery. "Customers can test our services first with low-cost products and if they have a good experience they will gradually make high-end purchases." Chen of Banggood says that buying online is all about the shopping experience on the site's interface and customer service.

"For the last 10 years, we have built the expertise and the technical know-how. But, building trust in a new market takes time. We will slowly and steadily build our brand in the country." Interestingly, these companies are not spending a single penny on television advertising and are making inroads through word of mouth or digital advertising, unlike India's Flipkart and Amazon.

Exciting times lie ahead as the Chinese gear up to capture a large chunk of the Indian e-tail pie.


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