30 March 2016

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Explained Effects of 100% FDI in E Commerce Companies

Explained Effects of 100% FDI in E Commerce Companies allowed by Government.

BJP government on Tuesday allowed 100% foreign direct investment (FDI) in online “marketplace” retailing, subject to some conditions

FDI has been permitted only in companies following the marketplace model and not the inventory based model.

The guideline says that no group company or seller on a marketplace can contribute more than 25% of the sales generated on the site.

The new guidelines clearly say that warranties and after-sales service will be provided by sellers and not the marketplace companies.

The guidelines clearly say that that the e-commerce companies should only be conduits and play the role of facilitators

The guidelines, new rules clearly say that “E-commerce entities providing marketplace will not directly or indirectly influence the sale price of goods and services and shall maintain level playing field."

What is the Marketplace Model?
Market place model means providing an IT platform and acting as a facilitator between buyer and seller
Marketplace model are for platforms that enable a large, fragmented base of buyers and sellers to discover price and transact with one another in an environment that is efficient, transparent and trusted. It’s like an open market with the website being a marketplace.

What is Inventory Based Model?
inventory-based model is one where the e-commerce company owns the goods and services, and sells to consumers directly.
an inventory based model is where the company owning the website holds inventory of the goods it sells. It has the power of determining the price at which it will be selling the product.

what will be effect of 100% FDI in Online Marketplace retailing.
These new guidelines, rules will affect the Ecommerce companies like amazon and flipkart, sellers and consumers

Now what will happen?

It will become difficult for the online companies to do open flash sales, to give huge discounts to customers, consumers.
Online companies give discount to consumers and reimburse the loss to sellers as ‘promotional funding’ now because of new guidelines such activities got limitations.
The new rules say that market place firms cannot offer discounts; only the sellers selling their goods on the e-commerce sites can offer discounts.

It seems that new rules will help the offline retail market businesses, shops.
No big discounts on online shopping means consumer may go to shopping malls and other shops who do not give discounts to consumers, they sell products on the MRP that is maximum retail price.

Because of the new guidelines now online companies will need to find other ideas to give discounts to consumers.
Example –
a-point system buy good worth Rs. 1000 and get the 200 points and automatically 200 points will become Rs. 200 which consumer will be able to use it for next shopping.

Offer competitions where consumers will be able to win costly mobile phones or holiday packages.

The guideline says that no group company or seller on a marketplace can contribute more than 25% of the sales generated on the site.
Because of this one seller who is capable to do business more than 25% will find it difficult to do business.
Because of this he may end up paying bribes to concern investigating officers or pay find the loopholes and open the many companies.
Unnecessary Burden on the company.

For few months the new guidelines will end the fun of online shopping.

The new guidelines will hurt the sells of Amazon and Flipkart.

Increase in the number of fake online sellers
Because of new guidelines consumers will get cheated and online ecommerce company will say that they cannot help, as law forbids them.
Not allowed to help the consumers.

Because of new guidelines now online companies will find it difficult to get themselves established in Indian market.

In past Amazon was worried that any day government of India will close their business.
But now they got relief.
Foreign investors can now own 100% in e-commerce firms, but only those having a market place model.

It’s good that government has legalized the online business with 100% FDI permission.
Online Buyers think they are buying from a Flipkart or Amazon or Snapdeal, but the actual transaction is between the product vendor and the buyer. This has now been legitimized by the government.

Now government of India needs to remove the 25% restriction placed on the seller.
One or another way who is a good seller is going to sell beyond 25% limit.

Why Indian software companies became large and profitable?
Reason is Indian politicians were uneducated, they did not realize how they worked, thus they didn’t bother and not made any laws controlling them.

Now here is Ecommerce business, government should stay away from them and should just do the job of watch dog and see that they do not cheat to Indian consumers.

Let online companies, Ecommerce companies do business legally as they want without any conditions, restrictions and without any Inspector Raj.

25% limit on seller is nothing but a one type of Inspector Raj.

Suggested Reading –

I wrote the below article on January 18th, 2015

Support 100% FDI for Online Retail Ecommerce companies

Reality views by sm –

Wednesday, March 30, 2016

Tags – FDI 100% Investment Retail Online Amazon Flipkart


rudraprayaga March 30, 2016  

It seems that it is more beneficial.

Destination Infinity March 30, 2016  

That 25% rule should be removed is what I too think.

But some regulation should be brought into the online e-commerce system, as offline retailers are suffering due to low-margin or lossy sales by online marketplaces. They do it because they have venture capital funding. This unfair practice will drive out many offline vendors if it is not checked soon.

Destination Infinity