India’s online and home markets

Online B2B market, a breakthrough for Korean SME’s

TV home shopping and Internet in India

Venturing out into India’s barren home shopping market

:: India’s online and home shopping markets

Online B2B market, a breakthrough for Korean SME’s

SEOK Min-Seong Manager of Chennai KBC of KOTRA

hile I was working in Chennai, India, Indian buyers often called me, looking for Korean products. I would register their requests as overseas inquiries on BUYKOREA.org, W one of Korea’s most prominent e-trade portals, which is run by the Korea Trade-Investment Promotion Agency (KOTRA). A Korean export company would contact its Indian counterpart, and soon an export contract between the two parties would be successfully concluded. A variety of strategies for entering the Indian market have been introduced, but utilization of online B2B (Business to Business) e-commerce is a “low risk, high reward” strategy that is not inferior to any other.

○● B2B outperforms B2C in India The e-commerce market in India is worth USD 90 billion in total (including all electronic transaction markets), with an annual growth rate of 9%. Within the e-commerce market, the B2B market, worth USD 2.2

073 Summer 2011�POSRI Chindia Quarterly billion, is in its early stages of development, though it is showing a rapid annual growth rate of over 30%. In the North American and European e- commerce markets, the B2C (Business to Consumer) sector generally grows faster than the B2B sector due to many factors including highly-advanced logistics and infrastructure, active electronic transaction markets, customer preference for convenience, and busier life styles. By contrast, B2B outperforms B2C in India for three main reasons. First, only 8% of Indian households have internet access, and the penetration rates of electronic transaction systems and high speed internet

Global B2B company rankings

Company Ranking Allibaba.com (China) 1 Made in China (China) 2 ECPlaza (Korea) 3 EC 21 (Korea) 4 DIY TRADE 5 Global Sources 6 Busy Trade 7 IndiaMART.com (India) 8 Taiwan Commerce 9 Asian Products 10 ECVV 11 Tpage 12 Allproducts.com 13 Trade India (India) 14 Taiwan Trade 15 Allactiontrade.com 16 ECROBOT.com 17 Tradezone.com (India) 18 Itrademarket 19 Worldbid 20 Source: “International B2B Trade Portals” Report 2007

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are quite low. Second, Indians typically prefer Indian companies own 90% of to see products in person the online B2B market in India, before purchase, and do where even Chinese companies not feel easy about using that lead the global market are e-commerce for fear of performing poorly. personal information leakage. Finally, India has limited distribution systems. Opening the market completely for FDI has allowed global logistics companies to enter the Indian logistics market, leading to its rapid development, but infrastructure, such as roads, airports and warehouses, are far from sufficient to cover India’s vast land.

○● Home-grown brands dominating the market Growth in the global online B2B market is concentrated in the Asian- Pacific region. Chinese companies are leading the market, and when combined with Korean, Indian, Taiwanese, and Singaporean companies, they together have 90% market share of the global online B2B market. North American companies own the remaining 10%. Alibaba.com, a Chinese e-commerce company, is leading the global online B2B market with more than a 70% share. The company boasts 45 million small and medium-sized enterprises (SME’s) around the world as its paid members. Alibaba states that “SME’s are the major growth engine in the e-commerce market,” suggesting the importance of the online B2B market as an export strategy for SME’s. Generally speaking, home-grown companies in India hold a firm grip on the domestic market, because the Indian market is relatively conservative and there is strong local demand. The online market is no exception, and global B2B companies have low market share in India. Indian companies own 90% of the online B2B market in India, where even Chinese companies

075 Summer 2011�POSRI Chindia Quarterly that lead the global market are performing poorly. IndiaMART, one of the world’s top ten largest online B2B firms, with an annual turnover of more than USD 1 billion, controls a 60% share of the Indian market.

○● Strengths of an easy transaction system India is often dubbed an “IT powerhouse,” and one might expect Internet penetration rate and speed to be comparable to those in Korea. In reality, however, the Internet environment in India is inadequate. Due to low Internet penetration and slow data transmission rates, I myself have spent nearly an hour only installing security patches and programs in order to use a Korean online transaction service. An underdeveloped Internet environment is not a decisive factor that stands in the way of the development of the e-commerce market. Indian e- commerce companies offer simple and fast payment systems, taking low data transmission speed into consideration. They are also preparing for security incidences during online transactions by forming alliances with global online financial companies. In September 2010, First Data, a global leader in electronic commerce and payment services, and ICICI Bank, India's largest private sector bank, formed an alliance named IMS (ICICI Merchant Services), which provides secure online payment services through MasterCard. India has the fastest growing population of Internet users, which is one of the many reasons experts anticipate a bright future for India’s e- commerce market.

○● B2B as a stepping stone for Korean SME’s to enter the Indian market There are nearly 13 million Indian SME’s, accounting for 95% of all Indian companies. Of these, 3.6 million companies are using online B2B systems. Nowadays, many Indian entrepreneurs and buyers are becoming

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Market share of Indian online B2B companies

Company Market share Popularity ranking IndiaMART.com 60% 1 Tradeindia.com 25% 2 Allactiontrade.com Indianexporters.com Fibre2fashion.com Indiaplastics.com 5% (Indian firms) 3 Agriwatch.com AutomartIndia.com Sulekha.com Thomasregister.net Ec21.com (Korea) Business.com 10% (Foreign firms) 4 Allibaba.com Globalsource.com Source: Industry Sources and Estates India Calculations

accustomed to searching and shopping for products online rather than boarding an airplane. Korean companies may be at an advantage in using the online B2B market platform as a strategy for entering foreign markets since utilization of online media has become quite common in Korea, and wireless online markets have become so advanced as to allow smartphone access. KOTRA has recently opened the Korean Products Pavilion on IndiaMART, India’s largest online B2B site, and launched a marketing campaign for the site’s 500,000 registered buyers. This year, KOTRA is supporting 100 Korean companies. In addition to discovering demand through new inquiries, KOTRA plans to provide cyber consulting, support for overseas business trips, and buyer credit checks through local KOTRA centers. David Wei, CEO of Alibaba, the world’s largest online B2B company,

077 Summer 2011�POSRI Chindia Quarterly India’s internet-using population (Unit: 1 Mil. People)

60 51.75 million (2008) 50

40

30

20

10

0 1992 1994 1996 1998 2000 2002 2004 2006 2008

Source: World Bank, World Development Indicators (Mar. 8, 2011)

stated in an interview that Korean SME’s, like Japanese SME’s, are highly dependent on large companies, and few pioneer the market independently. He mentioned the small and medium-sized companies of China, and how China surpassed Germany to become the world’s largest exporting country last year. He added that Korean SME’s must make use of their strengths, such as creativity and technological prowess, to advance into the world market. Needless to say, Korean SME’s seeking independent entry into foreign markets should be assisted with policy support and cooperation from related parties. In order for an SME’s to increase its competitiveness without support, it must diversify its destinations outside of the US, China and Japan, where the focus has been. India has great potential to become a major destination. Many Koreans are still unfamiliar with the Indian market, and there are many stories of both successes and failures. No one is guaranteed success in today’s highly competitive business world, where complacency means lagging behind, but I suggest to whoever among you is willing to “knock” on the door of the Indian market, tap on your keyboard right now, and “the door will be opened to you.”

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TV home shopping and Internet online shopping in India

Ashok Pratap Arora Professor of the Management Development Institute, Gurgaon

V and Internet shopping in the India context offer a unique mosaic. To start with, India’s general retailing scene is quite fascinating. It not only has world’s largest number of T outlets (more than 150 millions) but also the world’s highest retail density (more than one outlet for every 100 people!). As a result, Indian customers are pampered by providing 70% of their consumption needs through retailers within 100 meters of their residence. Similarly, the number of Internet subscribers in India is third highest in the world, trailing China and the US. But the Internet density is quite low. Less than 8% of Indians have Internet subscriptions. TV shopping channels are only about three to four years old. Moreover, rural and small town TV viewership which may be a natural target for TV shopping, due to poorer physical distribution system in such areas, are greatly hampered by erratic electric supply. Overall, both TV home shopping and Internet shopping are quite promising but still in their early growth stages.

079 Summer 2011�POSRI Chindia Quarterly ○● What Indian shoppers want Indian customers are very certainly and predictably quite price sensitive. They want to collect price information for comparative products and their alternate sources. Then, they like to haggle. This, in their minds, helps them get the best bargains and understand the negotiation boundaries of the sellers. Besides, it also gives them the additional psychological satisfaction of coming out as a winner in the bargain. The methods of their value for money calculations are not always very objective. They are often based on subjective estimates or guided by cultural norms. Next to price, they seek trust, transparency, and honesty in what they buy. For this purpose, quite often they depend on known brands. Otherwise, they would prefer to feel, touch and observe the product before they buy. Opinions of friends and acquaintances are heavy and even shopkeeper’s opinion works as a good surrogate. Shopping through a local grocery store is quite routine for them, and strong two way relationships with their favorite store keepers are absolutely common. Shopping has a social value, as well. It is seen as providing a break from the monotony of life.

○● TV shopping scene in India Two full-time TV shopping channels are now three to four years old in India. They claim to be growing fast. For example, HomeShop18 is stated to have established touch points with two million identified customers. These customers spend about INR 4 billion annually. Trust for products and satisfactory deliveries to customers are major barriers against buying through TV shopping channels. Established brands which could reduce this important trust deficit are still not visible on TV shopping channels. The selection of products mounted on this channel is also not helping this nascent channel much. The current range of products includes consumer durables like cameras or artificial jewelries to health

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related and exercising products. But they also include pseudo-spiritual products (like quick methods for warding off evil spirits) and magical remedies. These questionable products are not building customers’ trust. In fact, they are damaging the perception of this growing channel itself. The prescriptions for this channel in India shall be to start with either known brands or quickly to build the brands associated with TV channel. One likely effort of an established retail distribution chain to leverage its store brand through TV shopping channel should, therefore, be very interesting to watch. Products which are of established utilities but require some added demonstration or persuasion would also well qualify for marketing through this channel. Creating the effect of bargaining on TV is very much possible. This is likely to replicate favorable buying experience for buyers. Gradual discount offers or additional sweeteners make the presentation not only entertaining but also quite tempting to Indian customers. India offers immense opportunities for products or offers related to festivals or other occasions. Customizing commercials to these contexts should swing Indian psyche favorably as they would easily relate these presentations to their conventional buying situations.

○● Internet shopping in India Internet shopping in India is taking a slow start. The access barrier due to low Internet penetration is the first constraint. With less than 8% of population subscribing to Internet, the bulk of population is still waiting for it. Country’s large population, however, has already made India the third largest Internet subscribers’ market in the world. The digital divide is further ensuring that highest purchasing power can browse for Internet shopping. But the trust deficit is again acting as a big bottleneck here. Internet is still seen as faceless, hence not so reliable entity for trusting with money matters. Internet-based buyers are also equally price sensitive. But their pricing

081 Summer 2011�POSRI Chindia Quarterly concerns are to some extent being addressed through wider searches and comparisons that are possible through customers themselves. Consequently, the market dynamics is pushing certain kinds of products more through Internet in the beginning. These are the products which are either already well accepted by customers or where the cost of shopping through alternate channels is perceived to be relatively high. For example, rail and air tickets are the most bought products by Indian customers on the Web. These products are very successfully marketed. Buying them through alternative means is seen as monetarily as well as logistically quite expensive. Medium-priced consumer durables are offered more for sale through Internet in India. But customers are not lapping them up, because they are generally not coming from reputed brands, resulting in over 20% returns from the customers at the time of delivery. The potential of India’s large and young IT savvy population being busy on the Internet has also not been fully realized. This population has reported that 80% of them intend to buy products through Internet. They are not just experimenting with it. They are serious buyers because about a quarter of this population expects to make more than one tenth of their total expenditure through this channel. Since this segment of customers is adept with the purchase modalities on the Internet, all that is required is to gain customer confidence in the offers and the reliability of Internet shopping. This population is quite often the opinion leaders for the use of this buying channel. Therefore, cultivating them at this stage is particularly crucial. In India, Internet is lately moving in more through mobile telephone platform than the desktop or laptop. Mobile telephone density has already crossed the saturation point in most of the urban areas and more than 60% for the entire country. Mobile ownership has already crossed the total TV ownership in the country. Even the mobile owning households exceed TV owning households. All these are good omens for Internet marketing in India as they are preparing important grounds for reaching to Indian people

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through the Internet connectivity. These Internet and TV offer great customers were never advantages of reaching to a easily addressable or large, geographically dispersed reachable, and they never and logistically difficult length of India’s markets. interacted directly with the mass marketers. Internet marketers in India also have to price and product preferences among their customers. Fortunately, they can utilize Internet-based features themselves for this purpose. The customers are and can be further encouraged to use Internet for price and feature comparisons while searching and evaluating alternative products. In fact, Internet marketers can facilitate their customers and provide them with the desired feeling of empowerment. The comparison of established brands can also be effective within acceptable legal limits. Online order placement shall be more attractive to customers. This will not only be more efficient but also take away many of the drudgeries associated with physical transactions. Once the customer has placed the order, Indian Internet customer should be allowed direct tracking of his order execution status. This will minimize customers’ fears related to their receipts of products in time, and condition and acceptable quality of such products. For Indian Internet-based shoppers, the products on offer can also follow a logically consistent pattern. Besides the obvious computer related hardware and software products they need not be confined to digitizable products. Currently, opportunities are galore among about to mature or just matured products—particularly among consumer durable ones. These products are in the process of setting loose out of their branding shackles, see a drop in prices, experience larger market size and require the costly

083 Summer 2011�POSRI Chindia Quarterly customer education of earlier phases. They provide the special fit to the advantages of Internet marketing and Indian Internet customer characteristics. For this purpose, the Internet marketers have to carefully monitor life cycles of recently introduced and still growing products. Surely, both these channels of Internet and TV offer great advantages of reaching to a large, geographically dispersed and logistically difficult length of India’s markets. Indian markets are attractive. The time is ripe to tap into them through these channels. But the challenges of Indian market realties can be equally fatal traps. Therefore, successful walk-through has to be delicate. This requires relevant information-based professional approach.

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Venturing out into India’s barren home shopping market

SHIN Woo-Kyun President & Chief Operating Officer of STAR CJ Network India Pvt., Ltd.

eople no longer need to ask whether the Indian market is really attractive. The Indian market has become a place where businesses should enter as soon as possible. According to a P simple calculation based on growth rate, India’s retail market is expected to reach around KRW 1 quadrillion, while its organized retail market will expand to about KRW 300 trillion (30% market share) in 2020. If the online market performs as well as the organized retail market, the online market will reach around KRW 14 trillion in the same year.

○● India, a growing market of 1.2 billion people India, with the world’s second largest population of 1.2 billion, is the only country which is expected to become comparable to China within the next twenty years. Then how big is the Indian retail market? While the number varies from source to source, the size of India’s retail market was

085 Summer 2011�POSRI Chindia Quarterly estimated to be KRW 400 trillion in 2011, twice as large In India, not only price but as that of Korea (KRW 210 also brand awareness is a trillion). decisive factor in purchasing India’s organized retail decisions. market, however, is around KRW 24 trillion (6% of the entire market), smaller than Korea’s discount store sales of KRW 31.3 trillion. Online sales accounts for only 8.3% (KRW 2 trillion) of the entire organized retail market. When airline and train tickets are excluded, the size of the online market in India stands at only KRW 1.1 trillion. Market size is not the only factor in determining whether we should pay attention to India. What is more important is how fast the market is growing. India’s economy is growing at an annual rate of 8%, and its retail market has been expanding at an average annual rate of 14% since 2007. The Korean retail market has been growing at an average annual rate of 5.4% since 2005. India’s organized retail market has been growing as fast as 30% annually on average.

○● Tapping into the Indian home shopping market Some of India’s major Internet shopping malls include e-bay, India Times Shopping, Rediff Shopping, and India Plaza. 24-hour TV home shopping channels, similar to those in Korea, include STAR CJ Alive (launched in 2009), a joint venture between CJ O Shopping, Asia’s leading home shopping company, and STAR TV, India’s leading television network; and HomeShop18 (launched in 2007), which is operated by India’s Network 18 Group. Other players in the market include online malls operated by India’s major retail companies and small and medium-sized infomercial

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Indian online shopping companies

Category Online retail firms Establishment year

STAR CJ 2009

24-hour TV home shopping HomeShop18 2007

Asian sky shop 1995

WWS 2002

Shop24Seven 2000 Informercial firms TVC sky shop 1999

Telebrands India 1992

Fabmall 2002

E-bay (Baazee) 2001 Internet shopping mall Indiatimes 2000

Rediff.com 1996

companies that run commercial programs on leased TV channels. Online shoppers in India are different from Korean consumers in two major ways. First of all, while women in Korea have relatively stronger purchasing power than men do, in India male customers account for 80-90% of all online shoppers. This is attributed to the fact that Indian men are more familiar than Indian women with the Internet, and that they usually decide what to buy. Given these circumstances, Indian online companies sell mainly communications or electronics products that cater to the interests of male customers. They rarely carry fashion, beauty/cosmetic products or miscellaneous goods, which constitute a large portion of the sales of online companies in Korea. Recently, however, demand for housewares, kitchen

087 Summer 2011�POSRI Chindia Quarterly wares, and health products is increasing online, and the product categories for women is expanding exponentially. Another characteristic of India’s online market is that TV home shopping channels outperform online shopping malls. TV home shopping channels have shown an average annual growth rate of over 100%. In early 2006, CJ found in a survey that the Indian home shopping market was hardly accepted by Indians. Infomercial companies were engaged in business under the name “teleshopping,” but the low quality of their products and services deterred repeat customers. Indians had very little trust in home shopping. Until September 2009, when STAR CJ aired its first program, Indian purchasing habits were the biggest barrier to the success of home shopping in India. Indians, who tend to be skeptical and like to bargain, want to touch and feel products before buying them. Such characteristics make it all the more difficult for companies to sell products to Indians online.

○● Setting the image of a high-end brand Before STAR CJ’s arrival in India, there were a few TV home shopping companies in the market. However, they did not sell products by major product category nor did they carry any branded products. They mainly sold religious products or over-packaged products imported cheaply. To build up customer trust was imperative. The executives of STAR CJ categorized about 200 companies they had come in contact with between 2006 and 2009, from which they selected products and brands that Indians would be able to trust enough to buy without touching and feeling. The executives of STAR CJ selected home appliances, kitchen wares, and casual clothing as its major product categories, and attracted global brands and companies with the highest market share in India. They also invited brands of famous Indian designers in the categories of traditional costumes and beauty/cosmetic products. STAR CJ focused on delivery,

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ordering process and customer service, which were prerequisites to overcoming the impersonal nature of the online industry and public distrust in the existing home shopping channels. As customers became more trustful of home shopping, products from global brands, including Nokia, Sony Ericsson, Dell and Blackberry, were added to the product list of Star CJ. Home shopping has worked as a bridge for Korean products to enter the Indian market. High-quality products of Korean SME’s, such as Lock & Lock containers, Kitchenart barbeque ovens, Happycall double-sided pans, and Homepower laundry racks, have become widely accepted by Indian people for their good quality and functionality. In India, not only price but also brand awareness is a decisive factor in purchasing decisions. This means that Korean SME’s should carefully select their distribution channels and the brands they cooperate with in order to develop brand positioning tailored to their products. Once a specific brand image is engraved in customers’ minds, it is difficult to change that image. STAR CJ, which leveraged on the high-end image of STAR TV, has secured strong customer trust and a reputation for having innovative products. For this reason, STAR CJ will be helpful to Korean SME’s advancing into the Indian market. In 2020, the greatest home shopping company will be in India, not in the US.

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