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  1. India set to become a sourcing destination

India set to become a sourcing destination

The rapid rise of e-commerce has put the global market within the reach of many MSMEs that were previously isolated. Their increased participation in wider markets, via e-commerce, has also put much-needed funding within their reach

By: | Updated: August 10, 2018 3:32 AM
MSME, india as sourcing destintaion, Indian economy, Narendra Modi, india growth,  e-commerce sector, e-commerce market Micro, small, and medium enterprises (MSMEs) have, for quite some time, been the backbone of the Indian economy.

Jagdish Sheth

Global executives, when commenting on India, usually add the word ‘market’—referring to the vast number of consumers, the growing size of the middle-class and the volume potential. It is no surprise that these factors along with many others make India a very attractive destination for the world’s leading corporates. However, a new dimension is being added to this narrative. Companies are increasingly viewing India as an attractive sourcing destination for world markets. There is a clear direction that the government has laid out for achieving this and we must ensure that India’s status is elevated from mere consumer to consumer-plus-exporter of manufactured branded products.

Micro, small, and medium enterprises (MSMEs) have, for quite some time, been the backbone of the Indian economy. Prime Minister Narendra Modi has, on various forums, highlighted the importance of the sector for India’s growth potential. Today, when the world is seeking new sourcing destinations to avoid over-dependence on China, India has the opportunity to stand tall as an attractive, alternative source of high-quality manufactured goods by giving a fillip to online and offline retail platforms in the country and gaining a significant share of the global e-commerce market.

Back in US, I have followed the growth of the e-commerce sector in developed economies. India, to some extent, is new to the e-commerce market and has the opportunity to learn from international economies that have been part of the e-commerce market for over a decade.

Marketplace e-commerce is an excellent platform for Indian MSMEs to grow, as it allows them to expand and scale up their reach by getting access to world market and enjoying a level playing field. It opens up a global market for product categories such as diamonds, gems and jewelry, finished leather goods, granite and marble, handloom products, and handicrafts, and allows small-scale industries in India to reach an international consumer base that loves ‘Made in India’ products. Digitisation has ensured that many small industries, which were previously isolated, have now become a part of a larger economy.

The resultant increase in participation by MSMEs also has a positive effect on attracting private equity and venture capital investments. With the growing rate of internet penetration, MSMEs are also gradually changing their operations to avail the opportunities to trade through e-commerce. While that may be the case, India needs to invest a lot more in improving its infrastructure, which is inadequate when compared to countries like China. No retail company can thrive in the country unless sizeable investments are made in this direction. And it is important that foreign retailers enter the Indian market because they create a multiplier effect with their expertise and investment in building infrastructure and systems for efficient supply chain management.

Recent announcement by Amazon to invest more than $6 billion in infrastructure such as workhouses is a case in point.
Walmart’s entry into the e-commerce market in India, for instance, is a positive development. Suppliers who are already aligned with Flipkart will now be able to leverage Walmart’s presence in the US, Mexico, and other countries to access a much bigger, global market than they presently do. It will help Indian manufacturers become global marketers. The diamond industry is among those that will benefit greatly—a possibility corroborated by a recently observed trend, which reveals that more diamonds are sold by Big Box retailers in the U.S. than by jewelry chain stores.

It also provides an opportunity for lesser-known Indian products, which have a large domestic market, to develop a brand label and be exported. In the snack industry, brands like Haldiram’s and Bikanervala have demonstrated this.Snacks and food products like almonds and cashew nuts have great export potential. Luggage is one such product category; leather goods is another where India can use its resources and craftsmanship to capitalise on the diminishing market share of Italian and Brazilian products. There is good demand for traditional Indian health supplements among the large Indian diaspora around the world, which Amazon and other e-tailers are already cashing in on. Home-grown brands like Patanjali, which are doing extremely well in the domestic market, can leverage foreign retailers to take their business global.

Walmart’s acquisition of Flipkart seems to have stirred some opposition from the traders’ lobby in India, which claims that the company is making a “backdoor entry” into the country. However, this is good for the traders as Walmart is both a wholesaler and a retailer. As a wholesaler it will provide more products to traders with better margins. Also, it provides better access to finance than the current wholesalers and distributers. Therefore, contrary to expectations, Walmart as a wholesaler will enable the small retailers not only survive but also thrive from more efficient supply chains. It is in Walmart’s interests to ensure that small retailers especially in small towns and rural India grow and offer high quality products to their consumers. This has happened in the cell phone industry, where even the small panwaala shop today does good business on prepaid cell phone recharge.

The bottom line is that foreign manufacturers and retailers are good for the nation. They will transform the Indian consumer market for the better. They will make or market higher quality reputed brands and convert unbranded to branded products and transform unorganised retailing to organised retailing.

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