Why India’s e-commerce boom will look nothing like China’s

hina’s e-commerce growth trajectory is often compared to India’s, based on one single factor: Internet penetration.

As things stand, the current level of internet penetration in India is the same as China’s in 2007. And, in the next five years, the number of Indians with internet access is estimated to reach the level of China back in 2012.

But India’s e-commerce boom—with a market predicted to grow from$17 billion right now to $100 billion by 2019—will be nothing like what China witnessed.

It’s not all about the internet

India’s e-commerce trajectory will be affected not only by internet penetration, but also factors like last-mile delivery, infrastructure, strong competition from brick-and-mortar stores, and low credit and debit card penetration, according to a UBS report.The 10-member ASEAN (Association of Southeast Asian Nations) region also faces similar problems—and despite relatively higher internet penetration in these countries, online retail as a percentage of total retail has remained “fairly low,” UBS said. That’s a bit of an understatement: The percentage is actually no higher than 1% throughout ASEAN:

The SMAC effect

A decade ago, the report notes, China did not have the advantage of social, mobile, analytics and cloud (SMAC) computing when it was beginning its transition to e-commerce.

India, on the other hand, is tooled up now, allowing it to better understand online behaviour and connect more closely with consumers. That, in turn, should help Indian e-commerce companies make deeper inroads into the market.

India’s smartphone boom, which is already taking hold in the e-commerce ecosystem, could turn out to be particularly important factor. Between 2013 and 2014, the total value of transactions on mobile phones in India jumped by 383% to $5.8 billion (Rs36,000 crore). And Indian e-commerce analysts expect this momentum to continue.

Income distribution

There’s also the matter of income distribution across the two e-commerce hungry populations. “India’s population is comparable with China’s but only in total size, and not by income level segments,” the UBS report said. India has a much larger percentage of low-income consumers, and a much smaller middle class.

Many players

The e-commerce starting points for the two Asian economies were also very different.

While Alibaba in China had the first-mover advantage—and milked it successfully—India already has three major players in online retail: Two homegrown companies, Flipkart and Snapdeal, and US-based Amazon.

“Having several companies at an early development stage can fuel higher growth, if easy access to funding continues,” the report noted, though “if the current high growth rates are driven more by discounting, then there is a risk of extrapolating this growth onto the future.”

Online grocer

Lastly, grocery shopping is a priority for Indian consumers.

Compared to China, food is expected to be much bigger part in Indian online retail, according to the report. In fact, the penetration levels of online grocery shopping in India are already higher than that of China in 2008.

Earlier this week, digital payment company Paytm, which is backed by China’s e-commerce giant Alibaba, announced its entry into the online grocery market. Flipkart, too, is planning to enter the grocery business; even as Amazon and Snapdeal partner with gourmet food retailer Godrej Nature’s Basket.