Profitable biz model, a must for e-commerce firms: PwC Director
Posted on Aug 20 2014 | IANS
By Aparajita Gupta, New Delhi, Aug 20 : The blooming e-commerce companies in India need to focus more on a business model that will be profitable in the short to long term for better survival, a senior functionary of PricewaterhouseCoopers (PwC) has said.
"The Indian e-commerce companies should establish a business model that is profitable in the short to long run. That is very important for survival, PwC's director, operations, Saurabh Srivastava, told IANS in an interview.
"If the companies do not become profitable, the private investors will run out of patience and unless the companies are profitable, they cannot get listed," Srivastava added.
Srivastava, who had earlier worked with Flipkart and McKinsey, said at present none of the Indian e-commerce companies are profitable.
Flipkart, India's largest e-tailer, recently got USD 1 billion funding, which took its valuation to a whopping USD 7 billion and made global headlines. Soon after, the US-based Amazon said it was investing USD 2 billion in India's e-commerce space.
With 243 million Internet users, India's e-commerce industry is growing at 38 percent year-on-year. Analysts expect the market, which is now USD 15 billion, to touch USD 100 billion in the next five years.
Indian e-commerce industry is expected to spend an additional USD 500 to USD 1,000 million on infrastructure, logistics and warehousing, leading to a cumulative spend of USD 950 to USD 1,900 million till 2017-2020, a joint study by industry body Associated Chambers of Commerce and Industry of India (ASSOCHAM) and PwC said recently.
"It is also very important that the Indian e-commerce companies get right set of people in the technology team. The backend of these companies are traditionally not very talented. They need to have best of talent.
"And the most important thing is to get a robust and reliable supply chain. In India no reliable supply chain provider is available in e-commerce space as yet," Srivastava said.
Absence of a proper supply chain had always been a hurdle for e-commerce companies.
Srivastava said big e-commerce companies Flipkart and Jabong have started with their own supply chains, but what about the smaller players?
"They find it difficult to manage. The large supply chain players also do not find e-commerce companies very profitable," he said.
"As far as logistics is concerned, there is a tremendous need for a new company to come with really deep pockets as the bigger players in the supply chain sector do not find doing logistics for e-commerce as profitable," Srivastava added.
He said the industry stakeholders are working towards this one channel. "Hopefully a solution will emerge soon as the size of the e-commerce industry is expanding every day."
He, however, cautioned that the e-commerce companies should be careful about playing in the retail space and, more so, in the multi-brand retail business model. "They should properly pick and choose brands so that the business is profitable."
Speaking on the kind of help the government can extend to the industry, which has a huge potential in a vast country like India, Srivastava said: "One thing with which government can really help is by slashing and simplifying various taxes at the central and state levels.
"Stakeholders are in talks with the government on this matter. Also, if foreign direct investment is allowed in the business-to-consumer sector, that will help the industry a lot."
(Aparajita Gupta can be contacted at firstname.lastname@example.org)