Logistics key hurdle to cracking China, India e-commerce market

Overseas e-tailers planning to enter China and India's online retail market need to understand local needs and the infrastructure for goods to reach the hands of consumers.

Paul Jung, Visa's head of e-commerce solutions for Asia-Pacific, Central Europe, Middle East and Africa, said many foreign have "long recognized the potential China and India present, based on the size of the market and predicted growth in e-commerce".

However, the geographical spread of the target markets, socio-cultural diversity found within the countries and slower infrastructure developmentpose some challenges for these foreign players, he said.

Kumar Das, research manager of retail insights for Asia-Pacific at IDC Centre for Consultancy and Research, elaborated that both markets still lacked the technological and logistic infrastructure for high-volume e-commerce.

A majority of the population lack the technology to connect to the Internet, and even those who do so, avoid e-commerce because of a poor infrastructure that prevents reliable delivery and returns, he said.

Das noted that the vast diversity of population in both countries means that online strategies, product selection and pricing need to be tweaked according to specific geographic locations. Thus there needs to be flexibility to make changes to the online selling platform when required, he added.

Besides that, Das said that the limited use of "plastic money" in both countries is a major challenge. "A lot of the online shoppers use cash-on-delivery due to a number of reasons and want to pay at their door step after seeing the product," he said.

Gain local insights faster with partnerships
According to Jung, it is crucial for foreign e-tailers to have a thorough and in-depth understanding of the market and the behavior of local online shoppers.

"Establishing local partnerships can help brands gain deep consumer insights and access to the right decision makers," he said.

Das cited pointed out how American luxury retailer Neiman Marcus acquired partial ownership in a Chinese fashion Web site to test China's market, learn about Chinese consumers' likes and dislikes, and capitalize on the country's increasing appetite for luxury goods.

The same goes for Ebay, which is reportedly taking steps to head back into the Chinese marketthrough a partnership with a local luxury retailer. It had pulled out of China in 2006 after being outmaneuvered by Chinese competition.

Retailers have also begun to incorporate multi-channel approaches when expanding overseas, according to Das.

For example, U.K.-based Argos collaborated with Haierto create a new multi-channel operation in mainland China and to take advantage of the Chinese electronics manufacturer’s existing franchise network for buyers to collect products ordered online.

Jung added that key success factors for foreign players in China include making it easier for Chinese customers through local language support, logistics and competitive pricing.

In India where the online market is mostly dominated by home-grown players, he noted foreign companies still rely mostly on selling from overseas to local online customers.

Local players play down foreign competition
According to Ravi Vora, senior vice president of marketing at Indian online retailer FlipkartIndia needs "some serious players" in the e-commerce space due to the country's large untapped online shopping market.

He noted that about 150 million of Internet users in India are "e-commerce ready" but only about 10 million are shopping online. A Business Standard report in 2011said Flipkart owned 80 percent of India's online book retail market.

"Domestic or foreign, we welcome more players in this industry. Their entry will lead to greater investment and attention to the eco-system at large. This in turn will be beneficial for the overall growth of the industry," he said.

Being familiar with the customer base is most important, according to Alibaba which owns market leader Taobao.

An Alibaba spokesperson said: "The absolute critical factors for success in the Chinese e-commerce market are to focus on user experience and understand Chinese consumer behaviors and needs."