Trip to India (Part 1)

Recently, I took a trip to India from June 28 — July 20. Despite the scorching heat and exhausting humidity in Mumbai, it was an amazing trip. India is an amazing country as it’s the largest democracy in the world; a fast growing middle-class; and largely informal, unorganized markets that are shifting into the formal economy. There’s an extraordinary opportunity to enter the country with various types of businesses and build large enterprises. The opportunities I explored enough to report on are: Consumer Retail & Internet, Transportation, and Infrastructure.

Consumer Retail

Retail stores such as Body Shop have an interesting development. At this time, only 4% of the entire retail market in India exists in the formal economy. The other 96% is made up of kirana stores, largely open market shops, and Mom & Pop stores. Though the organized retail sector is growing at a rate of 25%/year or roughly increasing by 1%. Just 7–8 years ago, the total organized retail sector was less than 1%, but the advancement of malls and other formalized retail spaces has increased dramatically. Additionally, the growing middle class and emergence of dual-income nuclear families has increased the amount of disposable income. Finally, Indian consumers have an insatiable appetite for foreign goods especially from Europe & US. Many new Indian brands use a foreign moniker. However, due to the Foreign Direct Investment (FDI) rules in India the foreign brands that exist are through franchise models. This allows an Indian company to own the brand domestically.

Internet

The leading company is Flipkart based on their superior execution to the prior entrants. The major introduction Flipkart brought to the e-commerce industry is their superior backend logistics software and providing Cash-on-Delivery (COD) services. Essentially, once you order any product, Flipkart will send a person with the goods to your house and you pay the messenger cash or you can send it back. This allows many more consumers to use the service as e-payments usage is low. Additionally, in many parts of India people have no bank accounts. Though the adoption of bank accounts is increasing substantially. Many people predict that mobile payments will leapfrog credit card payments.

Since Flipkart has become so successful, many more players have jumped into the game. There’s many players just providing pieces of the infrastructure to allow level the playing field with Flipkart. For example, some people are providing COD collection services and better credit card processing services . Others have made improvements on the Flipkart model through various optimizations and are fiercely competing. Though Flipkart has acquired and has begun consolidating the industry to improve their services and reduce costs. Finally, there are niche players that focus on specific niches such as shoes. Though the interesting point is the total addressable market for e-commerce companies in 2012 is estimated to be 4 million users. Even Flipkart has about 2.08 million users in the past year.