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7 reasons why the goal of reaching US$ 350 billion by 2030 exists for Indian MSMEs
February 25, 2023, 9:00 PM IST
Products sold on marketplace like Amazon.in are owned and listed for sale by sellers as these marketplaces cannot own or sell any products. Sellers have the sole and absolute discretion to decide the prices for their products and marketplace model does not allow any influence of prices or products. This principle of Government of India has worked as a filter that has enabled growth of e-commerce in India albeit with challenges at times. These challenges are more of teething problems as sellers test newer ways of doing business. The situation is akin to a decade ago when a sizeable number of unorganized sellers felt threatened by the invasion of organized sellers. Today, in a post pandemic world, when the Government of India is looking to bring more and more sellers into digital payments mode, marketplaces holds key to the secured livelihood.
According to IBEF, India’s D2C market is expected to reach US$ 60 billion by FY27. The overall e-commerce market is also expected to reach US$ 350 billion by 2030. This opportunity too big to let it pass for MSMEs in India. This also makes this space fiercely competitive with people creating skewed narratives against digitization which is a priority for the Indian government.
7 reason why e-commerce marketplaces are biggest ally to small sellers:
- Access to market: Sellers are no longer worried about serving limited customers who walk into their stores. The geographies and the reach are wider.
- Discoverability of products: The sellers have a better chance to have their products discovered because of their online presence. A lot of time, the economies of scale and the sellers’ trust increase sales.
- Brand building: e-commerce marketplaces allow the sellers to maintain their brand and not become a franchise of big organized retailer. This helps certain seller tap into the global market.
- Leveraging fixed costs: Sellers can now use the storage and fulfillment network of established marketplaces like Amazon or Flipkart and others to store and ship their products to the customers and pay per use. This enables the sellers to save on their fixed cost of warehouse, manpower, and other direct cost related to selling their products. Thereby sellers no longer have to worry about the fixed overheads which eat into their profits and or increase the cost of products.
- Economies of scale: Sellers are not looking to sell limited quantity and look to make absolute money but work on economies of scale and play on margins.
- Use of technology: The use of technology for inventory management, pricing, transparency in price points of other sellers and an unlimited virtual shelf space on the online marketplace dramatically increase efficiency and take informed decisions in an effective manner.
- Better inventory management and capital utilization: Online selling enables faster inventory turns rather than optimizing for per unit margins. If a seller decides to lower product prices, the sales volume could go up (as a seller can sell pan India or globally) which results in a lower per unit profit margin but a much larger total actual profit.
Let us look at the maths of it – for instance, a seller in the offline space may sell 1 unit at a margin of Rs 13 when its procurement cost is Rs 7 and end up selling 10 units to nearby consumers. However, on account of efficiencies in selling to a larger customer base online and potential increase in sales volume, the seller could sell at a margin of Rs 8 per unit and still earn a higher total profit on account of selling 30 units. Also, as the seller may procure larger volumes, it could get a volume discount from the brand/manufacturer, resulting in lower procurement costs increasing overall profitability.