Can New E-commerce FDI Norms Change the Consumer Electronics Landscape?

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Many China based smartphone brands have strong shares in online sales. In fact Realme’s 100 per cent revenue, till now, has come from online channels

The new norms for FDI in e-commerce (eCom) have raised a lot of questions in the smartphones, appliances and consumer electronics industry. Introduced in the country by the Department of Industrial Policy and Promotion (DIPP), these new norms will allow a vendor to sell only 25 per cent of its inventory on ecommerce platform, starting February 2019.

Further the policy has also restricted e-commerce marketplaces from mandating any seller to retail its products on only one platform. The clause read, “E-commerce marketplace entity cannot mandate any seller to sell any product exclusively on its platform only.”

New norms for FDI in e-commerce may have spelled trouble for a lot of companies operating in India as online heavy or online exclusive brands. Xiaomi, Realme, Asus, Lenovo, Huawei among others, are some of the major brands that operate primarily through online channels in India. As a matter of fact, Realme’s 100 per cent revenue till now, has come from online channels in India.

Experts take on new norms for FDI in e-commerce

Navkendar Singh, associate research director for India and South Asia at IDC, said, “Online heavy brands like Asus, Huawei/Honor, Lenovo, Realme will surely get impacted significantly in the short term. They have to start looking at efforts to mitigate this impact by spreading the portfolio and business across e-tailers and must seriously start the offline expansion to win the confidence of all the important offline channels.”

Interestingly, Xiaomi had recently announced opening of 500 Mi Stores across India. Current rumors also suggest that the brand will be splitting Mi and Redmi into two different entities. Realme, on the other hand, just shared its plans for opening 20,000 retail stores in the country. EFY had earlier reported that Realme plans to reach 50 Indian cities every quarter.

Xiaomi, in an initial public offering in Hong Kong, had filed documents saying, “We are No. 1 in terms of smartphone unit shipments online in both mainland China and India in the fourth quarter of 2017, according to IDC. We cooperate with third-party e-commerce platforms such as Justdial, Tmall, Flipkart, TVS Electronics and Amazon to leverage their localised sales and marketing expertise, logistics and payment infrastructure.”

Faisal Kawoosa, founder and lead anaylst at techARc consulting firm, said, “The recent tweak is not as alarming as we feel. Brands and e-commerce should be able to overcome it in 4-6 months. Yes, of course, the Republic Day sale period gets hampered.”

Effect of new FDI norms on India based smartphones and consumer electronic brands

It is a known fact that a lot of India based smartphone and consumer electronics brands have suffered low sales owing to the competition by China based counterparts in India. Chinese brands had accounted for more than half of the total smartphones sold in India during FY 2017. Honor, Xiaomi, Vivo, Oppo, Infinix, Lenovo-Motorola and One-Plus were the brands that had accumulated maximum sales.

Navkender said, “India based brands can potentially rediscover their mojo and leverage the offline brand salience they had built over the years. But they would need to play the game differently in terms of products, marketing and channel management now, since the marketing and sales aggression by China based brands has changed the channel landscape significantly in last 2 years.”

Faisal explained two dimensions for Indian brands. He said, “There are two dimensions to this. One is how acceptable some of these brands are amongst users, and the other is, whether these brands have the wherewithal to fill the void and grab the opportunity in the quickest possible time or not.”

Many of the China based brands generally opt for aggressive marketing and pricing strategies. They are also backed by their respective governments, which further makes business in foreign countries, easy for them. In fact, the amount spent on marketing and R&D is biggest by such firms.

Faisal continued, “The market has swung towards Chinese in the past couple of years.We saw this for smartphones market, and now in TVs, it has started too. Even if the brands now get leveled in terms of pricing, consumer preference might not still be in the favour of local brands, as users don’t have any complaints about the other flock of brands. As far as I see, they may not be able to react very quickly and make some gains.”

The story of online vs offline sales channels

The cold war between the online and offline consumer electronics sales channels is always a topic in discussion. While e-commerce marketplaces claimed to make records in online sales during last festive season, many offline retailers had spoken about how the festive sales were diminishing YoY.

Flipkart, during festive sales last year, had claimed that its customer base had doubled, while Amazon India had claimed that half of Indian online shoppers had transacted on its online platform. It was expected that Flipkart and Amazon will clock in around $2.5-3 billion each from the festive sales. However, none of the players revealed absolute sales figures.

Navkender explained, “Online players will get impacted on many fronts including curtailing the discounts and deals, prohibition of exclusivity deals with brands and more. They need to rethink the business model quickly.”

Discussing about large format players like Croma, he said,” Players like Vijay Sales, Reliance Digital and Croma can benefit in getting better assortment of products from brands now, price and deals parity with online and brands need to spread the portfolio across different channels. They will be in a better position at the table while striking the deals with brands now.”

Faisal, phasing out the possibility that online channel’s loss will be offline channel’s gain, said, “The primary hit would be on the induced demand segment. Users generally prefer prefer online channels for discounts and promotions. The smartphones, appliances and consumer electronics segment might not get attracted to the products unless there is a real need to buy them. Now, even if users explore these in the offline space, they might still not be able to purchase as there can be affordability issues. I don’t see it as a simple equation saying online’s loss equals offline’s gain.”

It is worth mentioning here that many online players are already thinking about opening brick and mortar stores in India. A few have even conducted pilots with players like Storeking. The new norms for FDI in e-commerce may even push them to open such stores quicker.

Like Faisal said, “My experience has been that industries keep on tweaking their operations to fit into the rule of the day. So, I am sure that players will tweak their operations aligned to the tweaking of e-commerce guidelines from government. Rather than government intervention, I would want online and offline retailers to sit across and collaborate.”

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