Indian E-Commerce Poised for Growth

E-commerce in IndiaWhile an e-commerce boom in India has been thought to be on the horizon for a long time now, the industry is finally showing signs that it is heading in that direction despite having several false starts.

Why now?

  • Critical Mass: The Indian e-commerce industry is finally close to achieving the critical mass required for it to genuinely go through the boom that has been predicted to happen several tmes over the past decade. The number of unique visitors on retail sites doubled between 2011 and 2013, and more than 1.5 million more are visiting every month.
  • B2B is open: To develop the sub-sector without being politically unpopular, the Department of Industrial Policy and Promotion clarified its regulations on B2B e-commerce, allowing foreign firms to have 100% ownership in such ventures.
  • B2C is likely to open up very soon: The Prime Minister’s Office is in favor of opening up the fast-growing e-retail sector to FDI—a move that will allow global majors such as Amazon and eBay to invest in the country. Preparing for the upcoming change will help companies stay ahead of their competition.

Why should e-commerce matter to multinationals?

  • Large, Fast-growing Base: India’s fast-growing online population has now surpassed that of Russia, Brazil, and Japan to become the third-largest Internet population in the world. It also has one of the youngest populations of Internet users in the world, providing a large base of users who will more easily adapt to technological changes.
  • Strong Growth Expectations: With the introduction of faster Internet, an increase in urban disposable income, and the launch of global players with sophisticated platforms, some experts expect the e-commerce industry to be worth US$ 70 billion by 2025.

Key Consumer E-Commerce Trends:

  • Significant Non-Metro Following: Contrary to popular belief, e-commerce users are not purely from the top metropolitan areas of India; in 2011, cities with a population of less than one million accounted for almost 48% of total e-commerce users. Another study showed that more than 57% of the revenue from e-commerce products and 54% from the e-commerce services industry was derived from beyond the top eight metros.
  • Time spent on retail not high: A closer look at the division of time spent online by users reveals that most of it is browsing through social-networking websites and on services (see chart below). With only 3% of screen time spent on actual retail, companies need to be exploring marketing (advertising) opportunities for influencing consumers’ final purchases.PC Screen Time

Key Business E-Commerce Trends:

    • SMEs will continue to be early adopters: SMEs are the primary users of B2B e-commerce in India (see case study on slide 21), because they manage businesses with relatively lesser amounts of capital and operate on a low-cost basis. Embracing this cost-efficient technological tool has allowed SMEs to create a self-serving business model, where they can access channel partners and customers through a single platform.
    • MNC’s likely to test with small orders and SMEs: Some large firms and MNCs in India have begun testing their B2B e-commerce platforms but are keeping them on a small scale to assess the integrity of the system. Avenues for testing a B2B platform would include launching it to (a) very small orders that are otherwise left unattended, (b) small firms that have not traditionally been of interest due to scale, or (c) firms looking for samples to test the product.

Holistic Strategy: Companies need to develop a holistic e-commerce strategy with tactics to handle both the online and offline channels. Not all industries will benefit from using online platforms for conducting commerce. But with users spending increasingly large amounts of time online and becoming dependent on the Internet for gathering of crucial information, companies need to investigate and form a social media strategy to create an impact.

Shishir Sinha

Asia Pacific

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Be Aware of the Risk of Sudden Deceleration in China

FSG expects China’s GDP growth rate to be worse than the consensus forecast of 8.1% in 2013. Weaker-than-expected data in Q1 suggests the state of the Chinese economy is even weaker than the official number suggested, prompting concern of a sudden deceleration of the Chinese economy.  One of the red flags is local government debt (see chart below), a problem just started to manifest when some city governments, such as Dongguan’s, cut back on public spending. Free bus service in Dongguan was canceled in April.

Local Government debt has skyrocketed since 2009

Another red flag will be exports. China’s export numbers in the first four months of 2013 have come under scrutiny as concerns have been raised about their accuracy. China’s export growth to developed markets—the US, EU and Japan—remains lukewarm (see graph below).

Chinese exports to Hong Kong surged almost 100 percent in March, while exports to the US and EU declined.png


Export growth to developing markets in ASEAN and Africa are strong but start from a lower base. Questions have been raised in particular about the extraordinary growth of China’s export to Hong Kong, which stands at 69% in the first four months based on official numbers indicated in the graph here:

    Spike in export growth to Hong Kong was largely driven by Tax-Free Zone Day Trip activities

    We also believe slower growth at home will drive more Chinese investment overseas. Traditionally, Chinese outward FDI is state-led and resource driven. If we look at the geographical distribution of Chinese FDI overseas in last few years, they were focused on resource rich regions like Africa, Latin America, Oceania and some Asian countries like Indonesia.  But with the economy slowing, we see that trend changing. We expect more participation of private Chinese companies who are investing for pure business purposes rather than national strategic reasons. And these private companies have the potential to pose a real challenge to multinationals, starting in the Chinese market, but increasingly in markets outside of China as well.

    Chinese ODI has shifted focus across Oceania, Latin America, African, and Europe in the last few years

    Shailene Zhu


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    Truly Understanding ASEAN: Country-Level Analysis Not Enough

    Continuing the discussion from my previous post on ASEAN strategy, here are some additional points to consider:

    1. Country-Level Analysis Not Enough:

    a. As the region matures and companies increase their focus on it, executives need to conduct in-depth provincial analysis in order to understand where the specific demand-side opportunities lie and where there is the ideal supply-side support

    b. In a market where affordability is a key challenge faced by all MNCs, executives ought to conduct their opportunity analysis on a provincial basis, to focus their investments towards the top choices

    c. While provincial data is not available for many indicators, companies can begin with macroeconomic analysis by looking at gross domestic product, per capita wealth, population, and some expenditure patterns


    2. Keep Your Focus on the Hot Spots: 25% of the Provinces Hold 75% of the Wealth

    a. Wealth in Southeast Asia remains highly concentrated thus companies looking to expand in the region should focus their efforts on the top-tier provinces, which make-up for more than 75% of the GDP of the entire region

    b. Depending on the specific province, companies will have to adopt different tactics in order to access end customers, who are likely to have varying consumption patterns as a function of their location and source of wealth

    c. Companies could also conduct consumption pattern studies to get a better idea of their expenditure habits (use expenditure or food vs. non-food figures)

    Wealth in Southeast Asia

    *Source: Frontier Strategy Group Analysis; Individual Government Statistical Publications


    Shishir Sinha

    Asia Pacific

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    Letters from Africa: Doing Business On-the-Ground

    Currently on a research trip to South Africa and Angola meeting FSG clients and other international and local companies, I wanted to take a moment to share my latest insights:

    Today I spoke to a seasoned and very impressive South African executive running a 22.7 billion rand turnover FMCG company out of Johannesburg. He wants to remain anonymous but here is his advice to MNCs entering Sub-Saharan Africa:

    1. Build strong partnerships: Value business relationships and continuously invest in them. Personal relationships are a key component of business success in the region.
    2. Blend corporate culture with an entrepreneurial spirit: “Seize opportunity, if it presents itself. Even if the opportunity lies outside of a company’s core business competencies.” For example, acquiring a local business in a different space will enable a company to better understand the market to then move in with the core business at a later stage.
    3. Believe in the long-term opportunity: The opportunity in individual African markets might seem quite small but, “the size of the prize might be big over a longer period of time. If you are not in the game now, it will only get more difficult.”
    4. Find the right people to run your local operations: Make sure your managers fit in from a cultural perspective, and most crucially, make sure they and their families want to be in the market, “if the wife is not happy, it does not work.”

    This last point was echoed by another executive from a leading South African industrial company who shared with me this Roman analogy which reflects his company’s talent strategy:

    When in Rome…

    One reason why the Roman Empire grew so large and survived so long – a prodigious feat of management – is that there was no railway, car, airplane, radio, paper or telephone. Above all, no telephone. And therefore you could not maintain any illusion of direct control over a general or provincial governor. You could not feel at the back of your mind that you could ring him up, or that he could ring you, if a situation cropped up which was too much for him, or that he could fly over and sort things out if they started to get in a mess.

    You appointed him, you watched his chariot and baggage train disappear over the hill in a cloud of dust and that was that. There was, therefore no question of appointing a man who was not fully trained, or not quite up to the job; you knew that everything depended upon him being the best man for the job before he set off.

    And so you took great care in selecting him; but more than that you made sure that he knew all about Roman government and the Roman army before he went out.

    Stay tuned for more valuable insights as I meet more companies on the ground…


    Anna Rosenberg

    Anna Rosenberg

    Sub-Saharan Africa

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    Adopt a Regional Mindset with a Country-Level Focus for ASEAN Strategy

    The rise of the Southeast Asian (SEA) region is unquestionable, with the majority of the regional executives increasing their focus towards the region, not only due to the robust increase in demand but also its attractiveness as a potential manufacturing hub for all of APAC. However, discussions with corporate headquarters still remain highly country-focused, requiring regional executives to proactively “make the case” to move towards creating a medium-to long-term regional strategy for SEA.

    1. Regional Mindset With A Country Specific Focus

    a. Appreciate National Differences: Companies should not expect to have similar experiences across this region; each individual country will require in-depth analysis due to its varying economic maturity and wealth

    b. Adopt A Scalable Regional Strategy: Executives should adopt a regional mindset, developing a long-term expansion strategy that accounts for the country-level differences but simultaneously leverages upon synergies and creates scale

    Understanding country-level differences is paramount to forming a regional strategy when the same region has the world’s largest producer of rice, largest call-center outsourcing provider, largest producer of hard-drives, and largest coal exporter. See graph below to see the variations in the key economic contributors for the major ASEAN countries (as of 2011):

    Key Economic Contributors of Individual Countries (2011)

    2. Communicate Strengths of the Region Back to Corporate

    a. Region Provides for an Attractive Investment Climate – Many SEA countries are very MNC friendly and aggressively promote this feeling by providing long-term investment incentives to stimulate strategically important industries. Highly attractive investment incentives programs such as the Economic Transformation Program by Malaysia, MP3EI by Indonesia, Public-Private Partnership by the Philippines, and Zone-Based Investment Incentives by Thailand have become a popular tool to attract FDI dollars into the region

    b. Easier to Manage than India – In terms of demand, the ASEAN region and its member countries share similar characteristics with India. However, doing business in SEA is widely agreed to be easier than doing business in India, which features: unpredictable policy making, high levels of bureaucracy, increasing corruption, differing tax regulations, and an acute lack of infrastructure improvements

    c.  Profitability Game – Not Just a Top Line Growth Story – Companies have found SEA to not only have strong growth potential, but also the potential for higher margins compared to India and China.

    i.  SEA is still relatively less crowded in terms of competition, both from MNCs and local companies. Relative cost of inputs remains lower in the region, especially for medium-to low-end manufacturing facilities.

    ii.  The region’s strong consumption appetite, both from its growing middle class and the government, makes its growth somewhat resilient.

    iii.  The region offers dual advantages for MNCs; it functions not only as a source of domestic consumption demand, but also as a production hub for exporting to the immediate region and beyond.

    Executives needs to quickly adopt a regional-mindset, setting for themselves a clear vision for growth in the ASEAN region and planning for a future where the region not only functions as a leader for APAC but maybe for a scale which would allow for global leadership. Many large MNCs have already begun their quest for building businesses that have a common vision and strategy across the region.


    Shishir Sinha

    Asia Pacific

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    Emerging Market Currency Volatility…It’s Getting “Real”

    “Currencies should not be used as a tool of competitive devaluation. The world should not make the mistake that it has made in the past of using currencies as the tools of economic warfare.”
    - George Osborne, Britain’s Finance minister

    For emerging market finance ministers, the concept and impact of “currency wars” is very real. As loose monetary policies in developed economies encourage high capital inflows to emerging markets (often referred to as “hot money”), emerging countries struggle to control inflation and the upward pressure on their currencies. This often leads to a surge in competitive devaluations as governments feel compelled to intervene in order to protect fragile domestic economic recoveries, which has the resulting consequence of amplifying currency volatility. However, these competitive devaluations should not be considered as “economic warfare”, they are economic stabilization measures and a natural result of expansionary monetary policy. As many media outlets implicitly (or probably explicitly) understand, conflict is much more exciting than accord. By emphasizing the antagonistic aspects of these decisions, they are unfortunately misleading the public into thinking that these interventions are purely for competitive purposes.

    However, multinationals are impacted when emerging markets governments respond to capital inflows by more aggressively printing money to sell on the open market to buy hard currencies. The reality is that the selling of local currency to buy developed-market bonds creates a cycle that further depresses yields in developed markets, pushing more capital to emerging markets, restarting the cycle of currency volatility again. Unfortunately for international executives, currency volatility creates many problems, such as difficulties in:

    1. Pricing products
    2. Anticipating costs
    3. Uncertain business planning
    4. Greater reluctance to hire new employees
    5. Price instability in commodity markets

    For international executives that are increasingly focused on profitability, currency volatility is one of the most important trends to watch this year. For example, a 10% increase in profitability in a given market will be essentially wiped out by a 10% decrease in the value of the local currency when results are reported.

    Currency Volatility Chart


    Sam Osborn


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    PODCAST: Global Performance Drivers – Q1 2013

    This podcast discusses FSG’s Global Performance Drivers report designed to align management teams around global drivers impacting revenue targets and profitability mandates. Listen as FSG CEO Rich Leggett interviews Matt Lasov, Head of EMEA Research and Global Analytics, and Sam Osborn, Senior Research Analyst, about global drivers such as lower energy costs and increased currency volatility.

    To listen to or download the podcast, click on this link to access the iTunes store.

    Healthcare Executives Are Facing Increasing Pricing Pressures from Governments in Latin America

    This March in Miami, senior executives from leading healthcare multinational companies gathered for a debate and discussion session moderated by Frontier Strategy Group. The Miami Healthcare Breakfast Roundtable provided a unique opportunity for senior executives in the pharmaceutical and medical device industries to discuss shared challenges and solutions with each other. The executives were joined by FSG Expert Advisor and former senior executive for Merck-Serono, Philippe Crettex, for the discussion.  The morning consisted of interactive discussion and best practices exchange on the topics of regional reference pricing trends and upcoming reforms affecting the healthcare sector in Colombia. Among the key takeaways from the discussions were:

    • While pharmaceutical companies have faced the challenge of international reference pricing for years, the pricing pressures are starting to spread to the medical device industry. Simultaneously, pharmaceutical companies are dealing with governments using biosimilares as pricing references for their costly biotech products
    • Markets such as Brazil and Colombia are increasingly codifying their reference pricing requirements, while other markets implement reference pricing informally. However, healthcare officials are increasingly communicating prices across borders, creating new pricing pressures in less advanced markets
    • Senior executives believe that investing in effective government engagement efforts and improving distributor relationships are vital to attain improved results on pricing. Investing on health economics studies will also help multinationals build credibility and trust with government officials
    • Most senior executives remain optimistic about the future changes to the healthcare system in Colombia, with greater efficiency likely to come, even if the new system’s implementation increases uncertainty over the short term

    Frontier Strategy Group will continue to monitor regional reference pricing trends across Latin America, as well as the evolution of the Santos administration’s reform efforts over the coming months.


    Philippe CrettexPhilippe Crettex is a senior business leader in the pharmaceutical industry with 20 years of experience in Latin America.  Most recently, Mr.Crettex was Senior Vice President of Latin America for Merck-Serono and previously held country manager positions in major markets such as Brazil, Argentina, Venezuela, and Colombia for other leading global pharmaceutical companies.  Mr. Crettex has proven track record of managing change, delivering sustainable results, and developing successful management teams in Latin America.

    As an FSG Expert Advisor, Mr. Crettex is available to FSG clients for consultation on many business issues with key areas of expertise including distributor selection and management, marketing, and product portfolio management.  Please contact your account manager for further information or contact us at

    Antonio Martinez

    Latin America

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    Managing Indonesia’s Workforce Risks in 2013

    Starting now, companies will face increasing workforce risks in Indonesia. Wages will rise by 15-30% over the next 12 months, pushing companies towards a labor cost trap, and a new regulation slated for implementation later this year will restrict companies’ flexibility on staffing.

    It’s been a rough Q1 for many executives in Indonesia.  Double-digit minimum wage hikes, which came into effect at the beginning of the year, are driving up labor costs for companies across the board and putting significant pressure on their bottom lines.  This effect has been particularly acute in Greater Jakarta where mandated increases reached upwards of 40%.

    Adjusting to these wage hikes has been a painful process, and executives would undoubtedly welcome a reprieve from dramatic shifts in their labor costs.  Unfortunately, however, a reprieve is not in the cards.  Over the next 12 months, workforce risks for companies in Indonesia will only continue to increase.

    Mindful of upcoming elections and ongoing labor protests, Indonesia’s politicians will continue raising minimum wages, likely by another 15-30% over the next 12 months.  This will push companies towards a trap in which they must pay out hefty sums before reducing headcount and driving productivity among their remaining employees.

    Minimum wage increases (2012-2013) and firing costs


    If this weren’t difficult enough to deal with, Jakarta has also passed a regulation that will restrict companies from using temporary contracting for most positions. (In Indonesia, this practice is commonly referred to as “outsourcing” and remains a very sore point with labor leaders.)  When the regulation comes into effect in the middle of November, over 13 million workers currently employed under temporary contracts could start demanding full-time employment.

    These developments have the potential to create significant liabilities for multinationals operating in Indonesia.  With this in mind, executives should take steps now to mitigate rising labor costs and upcoming staffing limitations.  Companies that proactively manage these workforce risks should be able to offset some of their costs.  Those that don’t will look back 12 months from now and reminisce about how good they had it in Q1 of 2013.


    Adam Jarczyk


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    India’s Crucial New Budget: Congress Party to Overpromise and Under-Deliver Again?

    India’s budget does not propose any grand plans or major reforms, disappointing several groups that expected the finance minister to combat decade-low growth with a radical plan. However, multinationals have welcomed the realistic and well-balanced strategy

    FSG View:

    Relatively Neutral Budget:

    • Given the historical trend of overpromising and under-delivering, India’s newly appointed Finance Minister P. Chidambaram has set the budget for a relatively neutral course with no radical proposals, focused around increasing the planned spending, cutting down on subsidies, and encouraging investment

    Increase in Planned Spending:

    • Companies should be encouraged by the government’s plan to increase the size of their overall expenditure by 16.4%, the majority of which will come from an increase in planned outlay, while reducing non-planned spending, which entails interest payments, subsidies, and defense

    Decrease in Subsidies Bill Difficult:

    • Subsidy cuts during a pre-election year are going to be difficult, but the government expects cuts in its petroleum expenditure. Last year, the government’s subsidy target was 1.9% of GDP but the revised estimates are over 2.5%

    Historical Trend:

    Overpromising and Under-delivering:

    • The Congress Party Government has consistently set unrealistic targets in a bid to keep voter confidence high; a maneuver that was not given much importance during the days of high-growth, but one which could backfire given the current slowdown
    • With the general elections coming-up in 2014, the government’s actions and performance are likely to receive closer scrutiny from both voters and the private sector

    High-level Overview of Budget Proposal for Regional Executives



    Mapping Policy Movements: Impact on MNCs vs. Likelihood of Implementation

    Shishir Sinha

    Asia Pacific

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