The Online Shopping is going to be costlier - Seeker's Thoughts

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Monday, 14 January 2019

The Online Shopping is going to be costlier

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.