Inorganic Growth only Route to Achieve Economies of Scale for Indian E-retailers
Indian e-retail market has come a long way since inception of leading player, Flipkart, in 2007. The market has tremendous opportunity to grow due to fact that the current penetration of e-retail in overall retail is significantly low and penetration of internet in India is also significantly low. Rising penetration of internet, coupled with increasing use of smartphone, computers will attract the consumers to the online channel. However, price differentiation from traditional retail, offered in the form of discounts by e-retailers will remain the key driver of the growth. Based on a survey it is found that majority of the people will switch back to traditional way of shopping as the look and feel of product is generally not available in online channel despite the benefits provided such as wider portfolio, easy delivery, easy return, convenience, etc. Consumers find discounts and offers as the primary reason for the change in consumer behaviour and shift of channel. On the other hand, the e-retail companies cannot afford to sell the products at heavy discounts as it leads to diseconomies of scale where companies incur heavy investment in logistics and technology and also offer discounts to generate volume. Amidst this, the in-organic style of growth will be an ideal strategy for companies to grow. Growth by mergers and acquisitions (including all forms like forward, backward, or parallel integration) will not only help the company diversify its product portfolio but will also give the companies an upper edge to save on customer acquisition cost, logistic lost, infrastructure development cost, and technology cost. Leading global players like Amazon Inc. adopted a similar strategy to grow in the international market. Amazon Inc. which is one of the leading players in the e-Commerce market acquired 57 companies since 1998 to clock revenue of around USD 89 billion in the year 2014 while its major rival eBay Inc. could reach USD 18 billion in 2014 with 3 acquisitions since 1998. This article covers if a similar paradigm will be seen in the Indian economy too, where the indigenous companies will re-look at their strategies in order to be profitable in the dynamically changing, fastest growing e-Commerce market of India. An early adoption of in-organic growth to scale up operations in the geographically diversified and huge economy like India will only help these players become profitable. Absence of right strategy mix will result in players bleeding and the bubble will eventually burst.
Niraj S and Nageswara Rao SVD