Wednesday, 5 August 2020

E-Commerce Unequal Competition

Updated: December 11, 2015 5:34 pm

Despite benefits of e-commerce, major cause of worry is that big e-commerce companies have been trying to multiply their business, using unethical practices, and pushing traditional shopkeepers and also small e-commerce firms out of competition. The strategy of these companies is that they lure consumers by offering hefty discounts, by incurring losses, to somehow capture the market

In the recent times, e-commerce has made life convenient for the people. When we make a transaction for purchase or sale of any commodity (visible) or service, through a web portal on internet, we call it e-commerce. Making a rail or air booking; or hotel booking, is only a few minutes’ task. We can purchase a mobile phone, electronic goods, or even groceries, by opening a website or a mobile app. Payment option are also very convenient. We can make payment by credit/debit card, net banking or even cash on delivery.

Due to convenience, e-commerce is in fashion these days. There are more than 10,000 web portals doing e-commerce, however a few portals, are doing enormous business. Filpkart, Myntra, Homeshop 18, Amazon, E-bay, Ola, Uber, Make My Trip etc. are some e-commerce portals in which business has been multiplying. Apart from this Railway booking web portal (IRCTC) and Airlines’ web portals are also doing good business. More than 70 per cent railway booking and almost 100 per cent airline bookings today are made online.

In the recent past, there has been a very fast growth of retail trade through e-commerce. Today e-commerce business is growing at the rate of 50 percent. So far e-commerce is only 2-3 per cent of GDP; however looking at the growth of e-commerce, this could reach 5 per cent of GDP in near future. Today 11 per cent of population is using internet and this number is increasing day-by-day, so is the number of people using e-commerce.

Unequal Competition

Despite benefits of e-commerce, major cause of worry is that big e-commerce companies have been trying to multiply their business, using unethical practices, and pushing traditional shopkeepers and also small e-commerce firms out of competition. The strategy of these companies is that they lure consumers by offering hefty discounts, by incurring losses, to somehow capture the market. Whereas traditional shopkeepers can give maximum discount of 10 to 20 percent, giant e-commerce companies offer discounts between 30 to 50 percent. It is notable that these higher discounts are not due to their efficiency, but their ability to incur losses with an objective to capture market.

These companies are not offering discounts due to their generosity, however, this is a well thought of strategy. Experts believe that these losses have reached several thousand crores of rupees and are bound to increase further in coming years.

Maximum loss is being incurred by big companies like Flipkart, Snapdeal etc. Given the fact that, last year total e-commerce sales was $6 billion which could cross $30 billion by 2020, and loses may increase proportionately.

19-12-2015

Arguments of E-commerce Giants

On the strategy of selling cheap by incurring losses, the argument of these companies is that in the long run they would be able to compensate these loses by making use of the data bank of present customers. They name this strategy as ‘acquisition tools’. E-commerce companies, who are searching new markets, this is like (selling cheap, by incurring losses) an investment.

Unethical Strategy

Apparently, it looks that customers are happy with e-commerce experience, as they are getting goods cheap conveniently. It is also argued sometimes that since these companies have low operational cost, customers would ultimately gain in their shopping through e-commerce. However, we must understand that the very strategy of selling below procurement cost in unethical and it kills competition; as it follows predatory pricing. By pushing traditional shop keepers, book sellers etc. Out of business, riding on financial muscles cannot be regarded as fair and therefore needs to be stopped. There are also complaints with regard to tax evasion by e-commerce companies.

What is the Solution?

Clearly, on the basis of their economic power companies are not only killing traditional business, but also pose a major obstacle in the way of new entrepreneurs in e-commerce. As new entrepreneurs have limited resources, they cannot withstand giant e-commerce companies, in terms of incurring losses. Large companies, with huge resources, have adopted the strategy of incurring losses initially in order to capture the market, and therefore are like death knell for ‘start-up’ enterprises. It is a matter of regret that the Competition Commission of India (CCI), a regulator to deal with unfair practices, is finding itself helpless to control unethical practice of these big e-tailors. Recently, when booksellers complained against these companies, saying that these companies are selling books, offering heavy discounts, even more than what is given to these companies by publishers, CCI expressed its inability to consider their request, because it could accept such complaints against errant e-commerce companies only from e-commerce business ventures.

The government has initiated the process of making rules for the functioning of e-commerce companies. However major concern in this regard is that by the time these rules would see light of the day, it would be too late. Though, foreign investment in business-to-consumer (B to C) e-commerce is prohibited, foreign e commerce companies continue to expand their business in the country. Their argument is that they themselves are not doing e-commerce, they are only providing e-commerce platform to domestic producers. Fact of the matter is that these foreign e trailers are takings advantage of this grey area in expanding their business; and are waiting for full fledged permission to FDI in e-commerce to change their business model. Today, traditional traders are under attack from big e-commerce retailers companies and are facing a danger of extinction. it is imperative to avoid uneven competition from these foreign e-commerce companies, to safeguard traditional shopkeepers, booksellers, chemist/medicine stops, and also to protect budding new Indian ‘start-ups’ in e-commerce and give them full opportunity to grow. FDI in e-commerce is not allowed in the country, maintaining the status-quo; a ban should be imposed on all foreign firms operating in e-commerce, in whatever form they are operating.

By Ashwani Mahajan               

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