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E-commerce investors sound alarm bells over impending slowdown

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Indian start-ups have sounded alarm bells over an impending slowdown in the e-commerce ecosystem due to the predatory pricing tactics of foreign players to capture market share, even as homegrown firms wither away because of their inability to compete on funds.

E-commerce investors sound alarm bells over impending slowdown
Recently, a number of industry leaders and investors in Indian Internet e-commerce raised the issue at various fora and writings, arguing that global Internet commerce firms are not only competing unfairly, they are more focussed on destroying homegrown Internet firms rather than expanding the market

Thus far, US $18 billion in Foreign Direct Investment (FDI) has gone into Indian Internet firms. Investors believe that the long-term figure will likely be under US $30 billion as against a potential of over US $80 billion. This difference of US $50 billion, they say, is what India will forgo in terms of FDI/FII if Indian Internet firms fail to combat the deep pockets of global firms.

“The sector is getting squeezed and thereby losing ground on competitiveness to their online counterparts who are funding losses through Venture capital (VC) funds,” Founder and Director, i-Lend, Shankar Vaddadyi told IANS.

These investors have projected that if the issue of predatory pricing is not immediately addressed, it would lead to US $50 billion of missed FDI/FII inflow in India’s Internet sector over the next three to four years.

Recently, a number of industry leaders and investors in Indian Internet e-commerce raised the issue at various fora and writings, arguing that global Internet commerce firms are not only competing unfairly, they are more focussed on destroying homegrown Internet firms rather than expanding the market.

At a conclave here last week, Executive Chairman of Flipkart, the country’s largest e-commerce company, said: “We need to create a fair playing field. If we are able to create that level playing field, Indian companies will have significant advantages.”

Managing Director of Matrix Partners, one of the early investors in Ola, Tarun Davda said in a recent article that he is not against global competition, and that Indian start-ups are not afraid of competing against them. It is the practice of predatory pricing and capital dumping that is the real issue, he said.

“None of the global giants want fair competition. They see India as a large market they want to own for decades and so are indulging in capital dumping with the hope that eventually local start-ups will run out of capital to compete and they can run a monopoly business in India,” Davda wrote.

This strategy is considered anti-competitive in many jurisdictions and is illegal under competition laws.

E-commerce companies and global investors believe that a completely unregulated market and a regulatory regime that does not recognise the peculiarities of the new Internet-based e-commerce sector would be disastrous for Indian enterprises.

Founder and Managing Director of Kalaari Capital, Vani Kola in a write-up said, “Unregulated markets can be anti-competitive, because it gives some players undue advantage. Take the case of Amazon, Uber and OLX. They have access to unlimited finance from their successful business for many years in other geographies and can use that to stifle competition in India by providing products and services that are economically unviable even to them in the long term”.

Most growing economies of the world view Internet as a strategically important sector and have taken steps to ensure the growth of local firms. The US had the Defense Advanced Research Projects Agency (DARPA) programme, China effectively banned Facebook, Google and Twitter, and would delay land allocation and licenses to global companies such as Amazon and Uber.

Vaddadyi said, however, that he did not visualise the Indian Government regulating in favour of domestic players exclusively in either retail, e-commerce or any other sector.

“The problem the Government faces is the numerous operating complexities businesses come up with, and it is always playing catch-up there. In a way, it is the absence of regulation that allows companies to innovate and re-invent businesses, having allowed the sector reach a certain scale it becomes imperative to establish operating guidelines,” Vaddadyi said.

However, CEO of employee privilege platform Vantage Circle, Partha Neog said: “While I agree that foreign powers have an advantage because of their unlimited finances, it does not mean unfair advantage. Naukri, for example, fought successfully with Monster in the last decade.”

“If they have money they will use it to their advantage and that is what these foreign companies are doing. On the other hand, it is the homegrown companies’ local knowledge and ingenuity that differentiates them,” he said.