Can Indian MSME Be Powerhouse of Retail E-Commerce Export?

  1. New Routes to Trade

A digital revolution is underway, and this transformation of manufacturing entities (enterprise processes) is very much visible at a global level. A necessary component for this rapid digital evolution to take place will be a swift transformation of current traditional supply chains toward a more connected and highly efficient supply chain ecosystems especially for Indian Micro Small and Medium Enterprises.

Global trends indicate e-Commerce transaction of USD 1.9 trillion, i.e., 8.7 percent of the total retail spending worldwide in the year 2016. Cross-border e-Commerce market value grew at a CAGR of over 63.3 percent in 2015, faster than the 48.8 percent CAGR growth in the aggregate online retail market during the same period. Mintel Research (2016) points out that e-Commerce market value is expected to achieve 18 percent CAGR from 2015 up to 2020 whereas the total retail sales are expected to grow at a rate of 6.3 percent CAGR approximately over the same period.

In the years leading up to 2020, the retail e-Commerce sales worldwide are expected to touch USD $4.058 trillion[1]. By 2021, the number of e-Commerce buyers worldwide is forecasted to swell to 2.14 billion – up from 1.66 billion, today. [2]

The two figures together indicate the scope inherent in the e-Commerce sector and the number of benefits that these retailers can amass by incorporating the digitalization as part of their business strategies at home and abroad.

2. Global Impetus

Today, Asia Pacific is the most robust B2C e-Commerce region in the world with a turnover of USD 1056.8 billion in the year 2015. Expanding middle classes, growing internet penetration, increasing mobile usage; logistics and infrastructure advancement are all fueling the e-Commerce expansion within in the region.

Within the Asia Pacific, China is leading the pack with a turnover of USD 766.5 billion; it ranks above the US (USD 595.1 billion) and the UK (USD 174.5 billion). Together, the three countries account for 68% of the gross global B2C e-Commerce turnover.[3] AT Kearney Global Retail E-Commerce Index, ranks top 30 countries based on their e-commerce performance which takes into account four factors namely online market size, consumer behaviour, growth potential, and infrastructure. Here, USA ranks number one followed by China and UK in the second and third position, respectively.

The global e-Commerce segment is rapidly expanding with broad consumer base and digitally enabled supply ecosystems. But what does this mean for Indian e-Commerce retail segment? Is it optimal for the Indian enterprises to continue trading via the traditional model of trade or e-Commerce may be a preferred means of trade, especially for those enterprises located in isolated regions with limited financial capacities?

Statistical findings indicate an abnormal proportion of e-Commerce sales and percentage of Indian online retail market share. India’s B2C e-Commerce sales stood at USD 25.5 billion in the year 2015, yet the Indian online retail share constitutes less than one percent of India’s total retail market. Thus indicating tremendous scope for Indian retail segment that is yet to capture the Global e-Commerce segment. As the poor presence of the Indian enterprise in the global market as a high concentration of India’s exports to only limited number of international markets. This is possibly due to its limited reach to foreign buyers attributed to concentration on offline sales.

So, what is the optimal route for the Indian retail e-Commerce segment?

India to some extent new to the e-Commerce market and much can be learned from international economies that have been part of the e-Commerce market for over a decade. By studying the developed economies, we can study the effect and outcome of rapid absorption of e-Commerce within the developed economy. In particular, how the smaller enterprises rapidly expand its market reach and further contributed towards the growth of such economies.

3. India and e-Commerce

According to a study “Exploring Potential of e-Commerce for Retail Exports of Indian MSMEs in Manufacturing Sector” by IIFT and FICCI, the total potential that India’s retail sector should gain from digital transformation (B2C e-Commerce retail exports) is estimated at approximately USD 26 billion, of which USD 2 billion in revenue from 16 product categories for MSMEs by 2020.

Integrated Supply Chain Ecosystem Vs Traditional Supply Chain Model

For any economy to truly immerse itself into digitization, there is a need to revolutionize the supply chain ecosystem towards a more Integrated Supply Chain Ecosystem.

The Indian manufacturing units operate on the Traditional Supply Chain Model, especially Micro Small and Medium Enterprises.

The Integrated Supply Chain Ecosystem also includes the same four components of traditional model – the supplier; the produces; the distributor and finally the consumer (Adopted by developed countries that pursue e-Commerce with enthusiasm such as China and the United States of America). But the two models differ in the point of a more responsive and reliable supply chain functions[4].

The Integrated Supply Chain Ecosystem is more transparent; with better communication linkages along the value chain; easy consumer changes adaptability and a real-time reaction to rapid changes in demand. On the other hand, Traditional Supply Chain Models are distorted one way or the other in all four segments.

To answer the question asked in the previous section “So what is the optimal route for the Indian retail e-Commerce segment? ”

The optimal choice for Indian retail segment especially for the Indian Micro Small and Medium Enterprises would be to move away from Traditional Means of Trade and towards Integrated Supply Chain Systems. It is essential here to point out that unlike Enterprises such as those of China, also known as micro-multinationals that are born digital; Indian Enterprises are still operating via Traditional Means of Trade. Furthermore, the Indian Enterprises lack the dexterity and face numerous e-Commerce Readiness challenges (Infrastructure; Logistic and Policy). An optimal path for the Indian Enterprises would be to trade via Marketplace giants that not only cater to the current e-Commerce Readiness challenges by eradicating them but also facilitate a global platform with a level playing field.

India’s overall export (merchandise) amounts to USD 302 billion, contributed by 93 product categories and is exported to 159 countries all over the globe. The e-Commerce segment is believed to be an essential component of the Indian internet market segment valued at USD 100 billion approximately by the year 2020. Mobilizing the Micro Small and Medium Enterprises towards appropriating e-Commerce as part of their business strategy given the abundant possibility and a supply capacity.

In India, there are approximately 6,000 Micro-clusters and 1,157 Industrial clusters. The share of the MSMEs manufacturing output in total manufacturing output is of 33.4 % (2014-15),[5] thereby underlining the enormous supply capacity of Enterprises.

With the supply capacity in place, the findings attribute to a visible e-Commerce potential present for India enterprises to capture the Global E-commerce market. This may be attributed to numerous reasons; starting with the Government of India initiatives like Digital India, Make in India, Skill India etc. Further; the aggressive marketing skills of the e-Commerce websites that are influencing the retailers to explore the option of selling online as to capture the ever reducing domestic as well as international market share and further enhance their sales figures.

Usage of sophisticated payment systems for e-Commerce transactions will ensure timely payment; this often seems to be a concern for Smaller Enterprises. Enterprises conducting B2C e-Commerce can diffuse their business risks by targeting more and more countries as compared to an exporter conducting trade via traditional means. The direct link between the buyers and sellers across global markets in B2C e-Commerce will further help the Enterprises to eliminate the cost incurred due to intermediaries and also improve their profit margins. Moreover, the Foreign Trade Policy 2015-20 have distinct schemes specially designed to cater to the international trade (including e-Commerce) – oriented needs of the exporters.

Indian Industrial Sector: Scope for e – Commerce

Given a wide range of industries that prevail within the country; Apparel, Gems and Jewelry, Handicrafts, Handloom; Auto-components, Food Processing are such industrial sectors that are experiencing rapid technological advancement in their supply chain processes. It is these sectors that are expected to lead the channel for domestic and Cross-Border trade.

Being the world’s second-largest producer of textile and garments, India’s Apparel Sector exports in the year 2016-17 under HS Code 61(Articles of Apparel and Clothing Accessories- knitted or crocheted) and 62 (Articles of Apparel and Clothing Accessories, not knitted or crocheted) were Rs. 55,43,985.49 lakhs and Rs. 61,76,252.75 lakhs, respectively[6]. These traditional export figures signify the untapped market for apparel exports via e-commerce.

As we are aware of the popularity of the Indian Gems and Jewelry Sector worldwide owing to its expert craftsmen, low costs and one of the largest diamond polishing and cutting center located in India. It is regarded as one of the most promising sectors regarding high growth rates in sales and net profits. The total exports under HS Code 71, i.e., Natural or cultured pearls, precious or semi-precious stones, clad with pre. metal and articles thereof; imitation jewelry and coins amounted to Rs. 2,93,39,747.11 lakhs. The maximal exporting item was Diamonds with its total export value for the year 2016-17 to be Rs. 16,382,890.19 lakhs. Hong Kong is the highest importing nation of Gems and jewelry worth Rs. 6,238,921.20 lakhs from India.

Indian Sports Goods Sector employs more than 5,00,000 people and holds a leading position in the Global sports goods market. It exports 60% of its domestic output produced. The exports under this product category, i.e., HS Code 9506 (articles and equipment for gymnastics, athletics and other sports including the outdoor games) have touched Rs. 93,360.50 lakhs in the year 2016-17, with the majority of its exports directed to countries like Australia (Rs. 14740.27 lakhs), USA (Rs. 13,896.56) and the UK (22810 lakhs).[7] These mounting figures exhibit an enormous supply capacity of the Enterprises in the Sports Good Sector.

The Auto Components Sector in India contributes approximately 7% to the country’s GDP and facilitates employment opportunities for over 19 million individuals. According to reports published by ICRA Ltd., the industry is forecasted to grow by 8-10% in the year 2017-18. The soaring export figures of Auto Components Industry at Rs.25,73,663.87 lakhs highlight the tremendous export potential within the industry. The percentage of export from the Auto Component Sector is somewhat limited to the traditional mode of exports. However, by foraying into the e-Commerce segment, the Auto Component Sector export percentage share may increase tremendously.

Leather is traded widely across the world given as it is in demand by the fashion industry, especially the footwear industry; furniture and automotive industry. Leather Sector holds a prominent position in the Indian economy due to its significant export earnings. India is the second largest producer of footwear (accounting for 9% of the global total footwear production in the world) and leather garments production in the world (12.93% of the global total leather production).

The Indian Handloom Sector is a representation of the Indian culture – its richness and diversity. Known for their unique designs, exceptional quality, the industry exports handloom products worth USD 360.02 million, with US being the principal importer (USD 106.13 Million), followed by UK and UAE at USD 22.42 million and USD 19.42 million respectively. With about 2.4 million looms of different designs, the handloom industry possesses a significant production capacity.

Presently, the Indian Handicraft Sector exports a wide range of products such as Art metalware, embroidered and crocheted goods, woodware, shawls, zari and zari goods, imitation jewelry, hand-printed textiles and scarves to countries like Netherlands, Australia, and Canada.

India’s Food-processing Sector ranks fifth in the production and exports of the processed food items. However, the nature of the product, its geographic location, and the location of the importing nation; make Southeast and Middle East Asia as the primary destinations of the Indian food-processing industry. The sales are currently limited to the B2B mode of trade.

Development of the Scientific Instruments Sector is especially imperative for the development of scientific education and research. In the years leading up to 2019, the global scientific instrumentation market revenue is estimated to exceed USD 35,850 million. By the same year, countries such as Singapore, South Korea, China, and India are expected to rise to be the most significant contributors to the growth of the scientific instrument industry in the APAC region.

4. e-Commerce Opportunities for Indian MSMEs

Opportunity at the Global Level – the World is a Market: As per reports from Accenture, the global B2C e-Commerce market is envisaged to balloon from USD 230 billion in 2014 to USD 1 trillion by the year 2020. Enterprise with the high internet and IT usage are likely to grow more than two times faster than the business that does not leverage technology, regardless of the industry.

Payment Made Easy: Cash flows are vital for any firms to operate. Exports via e-Commerce ensure timely payment of the goods exported. More sophisticated payment systems improve the efficiency of transfer of money.

Diversification of Risks: E-commerce firms on an average export to 30 to 40 different economies, in comparison with 3-4 economies for traditional exporters. This ten-fold increase in the number of markets targeted by e-Commerce firms diffuses their business risk by decreasing dependence on any one specific market.

Elimination of Middlemen: Research carried out by KPMG and Snapdeal on the “Impact of E-Commerce on SMEs in India” highlighted numerous potential benefits of Internet-enabled trade to the Indian MSMEs including up to 51 percent surge in revenue, 60-80 percent decline in marketing and distribution cost and improvement in profit margins to as high as 49 percent.

Externalities: Cross-border e-Commerce requires firms to operate in an efficient manner that results in up-gradation of infrastructure and internal operating procedures. Cross-border e-Commerce also pushes improvements in logistics and supply chain management, while e-Commerce can allow firms to source their critical inputs at a lower cost.

Increase in their Survival Rates: For India to become a global heavyweight and to exploit the potential present in the export sectors, it will need to move towards fostering, motivating and institutionalizing e-Commerce export trade system



[3] Global B2C E-commerce Report 2016, Ecommerce Foundation,



[6] Export Import Data Bank, Ministry of Commerce and Industry

[7] Export Import Data Bank, Ministry of Commerce and Industry