E- Commerce
marketplace provides a huge discount on the products such as Amazon and
Flipkart etc. Consumers may no longer enjoy the deep discounts offered by
retailers that have a close association with marketplace entities.
Traders running traditional brick-and-mortar
stores find it difficult to compete with the large e-commerce retailers with
deep pockets. Small vendors also find it difficult to participate in online
business as they are not able to provide the deep discount.
How an online product is sold?
There are
two types of selling models are adopted by online giants- Marketplace model and
the inventory based model.
Ø Market
Place Model
According to the FDI policy
guideline, “Marketplace model of e-commerce means providing of an information
technology platform by an e-commerce entity on a digital and electronic network
to act as a facilitator between buyer and seller.”
Marketplaces
are platforms that enable a large, fragmented base of buyers and sellers to
discover price and transact with one another in an environment that is efficient,
transparent and trusted.
The
working of the Marketplace Model is-
1. The
e-commerce firms like flip kart, Snapdeal, Amazon etc. provide a platform for
customers to interact with a selected number of sellers.
2. When a
customer purchases a product from Flipkart, the customer actually buys from the
registered seller in Flipkart.
3. Marketplace
provider websites like- Flipkart do not directly sell to the customer. Here, flip
kart is just a website platform where a consumer meets a seller.
4. Inventory,
stock management, logistics etc are not supposed to be actively done by the
ecommerce firm.
Ø Inventory
model:
According
to the FDI policy, “Inventory model of ecommerce means an ecommerce activity
where inventory of goods and services is owned by e-commerce entity and is sold
to the consumers directly.”
The
working of the Inventory Model
1.
The customer buys the product from the ecommerce firm.
2.
The firm manages an inventory (stock of products), interfaces with
customers, runs logistics and involves in every aspects of the business.
3.
Alibaba of China is following the inventory model.
The Desired outcome
Small
vendors should get enough chances to participate in the online business. The absence
of large retailers will, however, bring relief to small retailers selling on
these platforms. Many small and medium enterprises have been of late selling
through e-commerce portals fatalistically in the realization that if you cannot
beat them, join them.
But they
lose out to competitors supported by the e-commerce portal both by way of
equity stakes and otherwise.
What are the new rules, and what do they mean for companies,
vendors and customers?
From February
1, 2019, e-commerce companies running marketplace platforms such as Amazon and
Flipkart cannot sell products through companies, and of companies, in which
they hold equity stake.
While
foreign direct investment is not permitted in the inventory-based model of
e-commerce, the clarification put a cap of 25% on the inventory that a
marketplace entity or its group companies can buy from a vendor.
Inventory
of a vendor will be deemed to be controlled by e-commerce marketplace entity if
more than 25% of purchases of such vendor are from the marketplace entity or
its group companies.
The new
FDI policy regulation in the ecommerce sector has allowed 100% FDI in marketplace
model of e-commerce under automatic route. Correspondingly, no FDI is allowed
in the inventory model.
The
government has said that e-commerce entities will have to maintain a level
playing field, and ensure that they do not directly or indirectly influence the
sale price of goods and services.
The
policy mandates that no seller can sell its products exclusively on any
marketplace platform, and that all vendors on the e-commerce platform should be
provided services in a “fair and non-discriminatory manner”.
Services
include fulfilment, logistics, warehousing, advertisement, payments, and
financing among others.
Marketplaces
are meant for genuine, independent sellers, many of whom are MSMEs (Micro,
Small & Medium Enterprises). These changes will enable a level playing field
for all sellers, helping them leverage the reach of e-commerce.
The
government announced new e-commerce rules:
- Restricting players from selling the products of companies in which they have a stake.
- Capping the percentage of inventory that a vendor can sell through a marketplace entity (IT platform of an e-commerce entity) or its group companies.
To curb
the practice of deep discounts, the government said they cannot directly or
indirectly influence the price of goods and services, and also brought in a new
set of rules that bar the sale of products exclusively in one marketplace.
In order
to keep a track of such compliance, a new compliance has now been introduced
wherein an e-commerce portal is now required to furnish a certificate along
with a report of statutory auditor to the Reserve Bank of India (RBI),
confirming compliance of above guidelines, by 30 September of every year for
the preceding financial year.
This will
ensure that the RBI is completely aware of the extent of compliance by the major
e-commerce players swearing by the marketplace model.
The
e-commerce reforms comes hot on the heels of better and improved consumer
protection ushered through a fresh Consumer Protection Bill 2018 passed by the
Lok Sabha that also seeks to discipline online sales.
