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5 reasons no Indian company can be an Alibaba

India does not have the enabling ecosystem needed to achieve success in e-commerce

Shishir Asthana  |  Mumbai 

This article has been modified. Please see the clarification at the end.

Most Indians would likely have not heard of Alibaba till the company hit the IPO market with the largest ever issue. The $22-billion IPO made an even more spectacular debut on Wall Street, making Jack Ma, a former English teacher in China, the richest man in the country.

But can an Indian achieve the same success like Jack Ma? That seems unlikely, at least for now. Read the five reasons why no Indian company can aspire to be another Alibaba.

1) India does not have the enabling ecosystem needed to achieve success in e-commerce. As Business Standard reported Tuesday, India’s mobile broadband penetration in 2013 was a mere 3.2% of total mobile users. This is much lower than the global average of 26.7%, placing India in 113th place among 138 countries. An entrepreneur in Nepal, Bhutan or Sri Lanka has a better chance because of higher penetration.

2) But to be fair to Indian entrepreneurs, Alibaba had first-mover advantage when it started in 1999. The company started at a time when the internet was still a new phenomenon. Global giants like eBay and Amazon were busy building their business in their home country, while China was untested territory for foreign players. Because of its early positioning, the company created an entry barrier that became almost impossible to get past. An IPO note by Analysis International says that until two years ago, Alibaba was very successful because it had no competition. eBay tried to enter the market by acquiring a local company but within a few years had to leave the country on account of Alibaba’s aggressive marketing.

3) For any Indian company, even established ones, reaching Alibaba’s level will be difficult because the domestic market is already crowded. Though there is enough room for growth, global giants with deep pockets are competing with Indian players. Amazon CEO Jeff Bezos, at the time of announcing a $2 billion dollar investment in India -- which was in response to Flipkart's $1 billion fundraising -- said that “At current scale and growth rates, India is on track to be our fastest country ever to a billion dollars in gross sales."

4) No Indian company is thinking along the lines of an Alibaba, with each one of them is competing to get a pie of the local market. Alibaba, on the other hand, attempted to compete with global players in the international arena right from the start. Though 90 per cent of business taking place on Alibaba is from China, suppliers from across the globe sell their portfolio using the company's platform. Alibaba's prospectus says it has done business transactions in more than 190 countries. through its business to business platform. Indian however, are still busy increasing their footprint by adding new Indian cities in their market reach.The fact that Indian have a lot to catch up can be seen from the fact that the entire Indian market for e-commerce is only $21.3 billion with 25 million users. Compare this with 231 million users generating sales of $248 billion on Alibaba alone. Out of the $21.3 billion of e-commerce trade, nearly 71 per cent is on account of travel bookings, according to Internet and Mobile Association of India.

5) There is a trust deficit between both Indian consumers and suppliers. While many Indian consumers are still shying away from using the payment gateway to purchase a product on account of comfort of transferring money over the internet or apprehension over the quality of product that will be delivered. Suppliers on the otherhand are reluctant to extend the pay on delivery facility to ‘C’ and ‘D’ grade cities. Domestic e-tailers, as well as logistics firms, are still building a network to reach these cities.

This article had wrongly mentioned Jeff Skilling as Amazon CEO, which has been corrected to Jeff Bezos We regret the error.

First Published: Tue, September 23 2014. 18:59 IST