What is E-Commerce?

E-Commerce is defined as the buying and selling of goods and services including digital
products over digital and electronic networks. Electronic commerce (E-commerce) draws on
technologies such as mobile commerce, electronic funds transfer, supply chain management,
Internet marketing, online transaction processing, electronic data interchange (EDI), inventory
management systems, and automated data collection systems.

Who is an E-Commerce Entity

It means a company that is incorporated under the Companies Act,1956 or the Indian Companies
Act 2013 or a foreign company covered under the Companies Act 2013 or an office, branch or
agency in India as provided in FEMA 1999, owned or controlled by a person resident outside
India and conducting the e-commerce business.

Beginnings of E-commerce
E-commerce started in the 1970s, when some business houses started creating private networks
to share information with business partners and suppliers. This process, known as Edi, involving
transmitting standardizes data, saved a great deal of paper and reduce the burden on the work
force. EDI used the major components of E-commerce.

Let us study from the image below, the sectors that contribute the most to e-commerce :
Why e-commerce is in the news?

100% Foreign Direct Investment (FDI) is permitted through the automatic route in the market
place model of e-commerce.

The above development indicates that 100% FDI is not permitted in the inventory-based model.

This FDI is permitted only for B2B (Business-to-Business) model and not for B2C (Business-to-
Consumer).

E-Commerce in India

As in 2019, India has an internet user base of about 40% of the total Indian population,
especially with regard to e-commerce. E-commerce in India has been budding since 2009 and
many major e-commerce companies have grown their businesses in India.

There are typically two patterns in which e-commerce works in India:

1. Multi-product E-Commerce – The portals which sell multiple products on the same website or
application are Multi-product E-Commerce companies. This includes Amazon, Flipkart,
Snapdeal, where garments, furniture, books, stationery, etc. are all available at a single platform

2. Single Product E-Commerce – Under this, the companies which sell only a single type of
product online are called Single-Product E-commerce companies. This includes portals like
Makemytrip which enables all kinds of tourism-related services, similarly specific e-commerce
companies for eyewear, furniture, gadgets, automobiles, etc.

E-commerce Characteristics

1) Ubiquity

E-commerce is ubiquitous; it is always and everywhere accessible. Through an internet

connection, customers may purchase or sell goods whenever they want from the convenience of
their home or workplace.

2) Global Reach

Translations into many languages are now possible on e-commerce websites.

3) Universal Standards

In this instance, the term "Internet Standard" is used to refer to all standards. Worldwide, all
nations adhere to these norms. A key component of trade is branding and advertising. E-
commerce may offer music, video, animation, signs, billboards, and more. Television
technology, however, is abundant.

4) Wealth

A significant aspect of the business is branding and advertising. Video, music, animation,
billboards, signs, and other media can all be delivered via e-commerce. It is, nonetheless, rich in
television technology.

5) Interactivity

With e-commerce technology, the consumer and the retailer may converse in both directions.
You can phone or send an email to communicate.
6) Information Density

All market players now have access to information of a far higher calibre. The customer's
personal information, product information, and payment information are sent to the merchant
during the online purchasing process, and the consumer receives the product information.

7) Personalisation/Customization

Depending on a person's name, hobbies, and previous purchases, messages can be delivered to
certain people.

8) Social Media

Users exchange information on social networks, and businesses promote their goods there.

Types of E-Commerce Models

There are mainly four types of E-Commerce Models which are followed in India. Discussed
below are the same:

Business to Business (B2B) – The selling of products between the manufacturer, retailers and
wholesalers is called the B2B model of e-commerce. Here the customer is not involved in the
transfer of products or goods

Business to Consumer – This is the generally used online portals where the e-commerce
company sells directly to the consumer

Consumer to Consumer (C2C) – The best example of this is OLX, where consumer can upload
their old products and resale them directly to the buyer. There is no interference of the
manufacturers or retailers

Consumer to Business – When a person designs or creates something new, they can sell it to the
e-commerce company for further sales. This is called the Consumer to Business model

A manufacturer will be permitted to sell its manufactured products in India through E-Commerce
retail.
A single brand retail entity operating through brick and mortar store is permitted to undertake
retail trading through E-Commerce.

An Indian manufacturer is permitted to sell its own single brand products through E-Commerce
retail. Indian manufacturer would be the investee company, which is the owner of the Indian
brand and which manufactures in India, in terms of value, at least 70% of its products in house,
and sources, at most 30% from Indian manufacturers.

The conditions levied are as follows:

E-Commerce marketplace may provide support services to sellers in respect of warehousing,

logistics, order fulfilment, call centre, payment collection and other services.

The E-Commerce entity providing the marketplace will not exercise ownership over the
inventory i.e. goods purported to be sold. Such an ownership over the inventory will render the
business into an inventory-based model in which FDI is not permitted.

An e-commerce entity will not permit more than 25% of the sales affected through its
marketplace from one vendor or other group companies.

Post-sales, delivery of the goods, the satisfaction of the customer, warrantee/ guarantee of the
goods and services will be the responsibility of the seller.

In a market-based model, payment for sales may be facilitated by the e-commerce entity in
conformity with the guidelines of the Reserve Bank of India.

E-commerce entities providing marketplace will not directly or indirectly influence the sale price
of goods or services and shall maintain a level playing field.

The table below how the two models of e-commerce work:

(Source: DIPP)

Market-Based Model: Under this model, an e-commerce entity acts as a facilitator of goods and
services by providing an information technology platform to the buyers and sellers

Inventory Based Model: Under this model, the e-commerce entity owns an inventory of good
and services to be sold to the buyers directly

Implications of FDI in E-Commerce Good points:

The B2B business model in the market place has been officially recognized by the government
of India and hence ended much ambiguity in the policy.

The discount wars will end providing some relief to the brick and mortar retailers and provide a
level playing field.

It will allow the traditional brick and mortar sellers to come out of their geographical barriers.

It will help connect the long chain of demand in India with a long chain of supply.
Indian offline manufacturers can go online and attract foreign investment now.

Advantages of E-Commerce Industry in India

1. Selling Internationally

It is a platform where any trader or business may advertise their goods as much as possible
around the globe. Additionally, anybody can purchase the item for themselves from any location.

In this, communication between the client and the merchant is simple. E-commerce functions as
a worldwide business model as a result. The businessman may boost the worth of his product
brand by doing this.

2. Accessibility

Anything may now be purchased quite easily. On the e-commerce platform, products are
accessible around the clock. Compared to offline markets, it is considerably better.

3. Cheap

The client and the firm are linked directly through this business strategy. Because of this, any
business or group may offer their goods directly to consumers. The business could increase its
margin in this. The same client can purchase the good or service for less money online than in a
physical store.

4. Domestic Delivery

A customer's requested item is quickly delivered to his home via an e-commerce company.
Additionally, client complaints are addressed along with this. People prefer to purchase goods
online because of this.

5. Locating Basics

Finding the products you need in the offline market is really challenging. At the same time, we
may use a single click to browse an online e-commerce website and purchase the products we
need. Customers have far more convenience with this alternative than with an offline market.

Disadvantages of E-Commerce
If you believe that using E-Commerce or conducting your buying online is safe. Therefore, your
reasoning is wholly incorrect. Because it has benefits, there are some drawbacks as well, which
are listed below.

1. Safety

E-Commerce has a significant issue from online fraud. Hackers steal personal information,
financial information, and other data from websites. The issue of hacking persists because of any
negligence.

No website makes any assurances that your personal information won't be compromised, and
hacking has always been seen as a drawback of e-commerce. Therefore, create a secure password
for your online store.

2. Fear

When purchasing online, most of the shops lack a physical presence, and before completing
online payment, customers have reservations about this. People worry that they will lose their
money if the wrong goods are delivered and that it would be challenging to obtain their money
back if the website is unreliable.

3. Some things are difficult to purchase online

if you believe that you can buy everything and everything online. You are, therefore, completely
mistaken in your thinking. Some necessary items and valuables are challenging to purchase
online. People believe it is more appropriate to purchase items like jewelry from brick-and-
mortar stores rather than online.

4. Delivery Is Late

You are granted a specific amount of time while buying on an e-commerce website, after which
you will get your purchase. However, this seldom occurs, and for some reason, the merchandise
usually arrives to you sooner than promised.

5. Self-Awareness

Online shopping is impossible since we cannot physically inspect or test anything before making
a purchase. Occasionally, an item may appear appealing on the website, but in practice, it may be
considerably worse. The main drawback of e-commerce is this. People who are offline can touch
and see the object of their choice.

6. Risk of Privacy

Privacy Every individual is required to disclose their personal information, such as name,
address, phone number, etc., to the online retailer before completing a transaction. Some e-
commerce websites have such porous security that hackers may quickly access them. Personal
data about persons is also taken. The folks may incur high costs because of this catastrophe.
People are reluctant to purchase online because of this.

What are the Challenges of the Indian e-commerce industry?

High competition: There are different players in the same area of business leading to decrease in
profitability due to reasons such as aggressive pricing strategies, heavy discounts and offers, free
delivery, high commissions to affiliates and vendors during sale period to name a few. These
firms are losing billions to attracting customers.

Poor logistic & supply chains: E-commerce companies need to maintain the stock to get the
benefit of reach and the ability to stock more items than physical stores as these are their biggest
differentiators. With this benefit also comes the challenge of robust supply chains and logistics
networks, which are not comparable and developed to global standards in India.

Payments: While offering a wide variety of payment options, Cash on Delivery(CoD) option in
India is the most prevalent as customers fear to share information online and do not trust the
website for secure payments. Also, the return percentage of orders in CoD is much higher
compared to online payments.

Trust of the customer: Due to the constraints of quality, colour and texture recognition especially
in apparels and luxury products, the customers are not able to trust that what is shown will be
delivered.

How does e-commerce works?

The E-commerce companies create websites and applications where all the available products
and goods are uploaded. A consumer can scroll through the products, choose the ones they like,
add their delivery address and contact details and pay through online or COD mode for the
products.

The Scope of E-commerce

E-commerce encompasses a broad range of activities. The core component includes trading of
physical goods and services. The conventional activities include.

• Searching for product information

• Ordering product
• Paying for goods and services
• Customer service

E-commerce also includes the business activities:

• Pre-sales and post –sales support

• Internal electronic mail and massaging
• Online publishing of corporate documents and forms
• Managing corporate finance and personal systems
• Manufacturing logistic management
• Supply chain management for inventory
• Facilitation of contact between traders
• Tracking orders and shipments
• Advertising and promotion of products and services

E-commerce beneficiaries:

• Benefit to customers
• Access to more information
• Rapid response to needs
• Lower cost and prices
• Global choice
• Easier market research and comparison
• Benefit and opportunities to suppliers
• Shortened supply chain
• Substantial cost saving
• Mass customization
• Global presence
• Competition on specialty
• Improved competitiveness

Challenges Faced by E-Commerce In India

Some of the challenges faced by e-commerce in India are: 1. Infrastructural Problems, 2.

Absence of Cyber Laws, 3. Privacy and Security Concern, 4. Payment and Tax Related Issues, 5.
Digital Illiteracy and Consumer Psyche, 6. Virus Problem and 7. English Specific.

E-commerce in spite of opportunities, hoopla and hype, also bears the connotations of challenges
as well at the same time. We, therefore, enumerate the major challenges e-commerce in small
enterprises is facing and also submit the remedial measures to meet these challenges.

1. Infrastructural Problems:

Internet is the backbone of e-commerce. Unfortunately, internet penetration in India is so far

dismally low at 0.5 per cent of the population against 50 per cent in Singapore. Similarly,
penetration of personal computer (PC) in India is as low as 3.5 per thousand of population
compared to 6 per thousand in China and 500 per thousand in US. Internet is still accessible
through PCs with the help of telephone lines.

Given the penetration of telephone only 2.1 per cent of population, e-commerce remains far
away from the common man. It is difficult for e-commerce to reach to 1,000 million population
spread over 37 million households in 6, 04,374 odd villages and 5,000 towns and cities. Besides,
both cost of PCs and internet access in India are quite high.

2. Absence of Cyber Laws:

Other big challenge associated with e-commerce market is the near absence of cyber laws to
regulate transactions on the Net. WTO is expected to enact cyber laws soon. The India’s
Information Technology (IT) Bill passed by the Indian Parliament on May 17, 2000 intends to
tackle legislatively the growing areas in e-commerce.

The Bill also intends to facilitate e-commerce by removing legal uncertainties created by the new
technology. As it stand today, the Bill deals with only commercial and criminal areas of law.
However, it does not take care of issues such as individual property rights, content regulation to
privacy and data protection specific legislation.

3. Privacy and Security Concern:

As of to-day, quite vulnerable issues related to e-commerce are privacy and security. So far,
there is no protection offered either by Website or outside watchdogs against hazard created by
exploiting one’s privacy.

4. Payment and Tax Related Issues:

Issues related to payment and tax is yet another problem continuously hinting e-traders. The
electronic payment is made through credit card or plastic money which could, however, not
become popular so far in India mainly due to two reasons. First, the penetration of credit card in
India is very low (2 per cent of the population).

Second, the Indian customers are quite skeptical of paying by credit card with the increasing
threat of fraud played by hackers. Like elsewhere, credit card could not gain growth in India
mainly because of authentification and recognition problems of electronic signatures (Dahiya
and Singh 2000: 70).

Similarly, tax administration is yet another complex problem in this seamless worldwide e-
commerce. As establishing incidence of tax in case of e-commerce transactions becomes
difficult, this, thus, provides ample scope for tax evasion. How to get rid of this? Some suggest
total tax holiday till 2010 for e-commerce in the country.
There are others who support zero duty on e-commerce to flourish it in the country. It has
already been decided in US that there will be no tax on anything sold on the internet in digital
form. Should India not follow US, at least for the time being? We have to ponder over it.

5. Digital Illiteracy and Consumer Psyche:

At present, digital illiteracy is one of the formidable problems e-commerce is facing in India. On
the other hand, the continuous exodus of skilled computer engineers to other countries has
denuded India of software engineers. This has posed a real threat to the Indian IT industry.
Obviously, solution to this problem lies in curbing the computer brain – drain and uses the same
in the country.

The Indian consumer is also characterised by his unique psyche. Usually, the Indian consumer
does not go long distances for having any good of his choice when a neighbourhood store
provides him whatever he wants.

That is why the consumer does not browse the Net knowing the consequent hassles of
connectivity and other botherations. Added to this is that building trust on the electronic media
also takes long time more especially when the vendor is situated at a very far off place.

6. Virus Problem:

That computer virus is also a formidable problem in the execution of e-transactions is confirmed
by the computer virus originated in Manila. A computer virus lagged’ I Love You’ originated in
Manila, Philippines on May 5. 2000 rippling across world, inflected millions of computer files
causing colossal loss of US $7 billion to the governments and the businesses. The offenders
causing ‘virus’ must be awarded deterrent punishment, otherwise similar assaults in future can
cause lasting blows to the quite young e-commerce in India as well.

7. English Specific:

Last but not the least, the software so far in the country is English specific. But, in order to make
e-commerce reach to the small enterprises, it needs to be available in the languages (regional) of
the owners of the small enterprises to enable them to adapt e-commerce processes in their
operations. Sooner it is done, better will be it for small enterprises to adapt e-commerce.