With an Internet penetration rate of 12.6%, investors looking to diversify their portfolio are currently appraising India’s e-commerce market for opportunities with exponential dividends. According to the technology research firm Gartner, India’s e-commerce industry is poised to grow 70% at the end of this year, with revenues crossing $6 billion. This will make it one of the fastest developing segments in Asia alone. Ranging from laptops to mobile phones to tablets, it is the pervasive use multi-platform technology for online retail that has catalyzed this boom.  Current estimates predict that within the next five years, the sector will quadruple in size to $43 billion. But how can sustainable, organic growth be cultivated in an ever-changing digital marketplace?

As companies scale up their businesses dramatically, they are being forced to look overseas for employees, suppliers, and customers due to cost restraints and pricing pressures. Private Equity/Venture Capital merger and acquisitions (M&A) deals within India’s e-commerce industry rose by 187% in 2013. However, M&A activity is widely considered as inorganic growth because it is so competitive that people have fewer business-to-consumer portal options. Under this methodology, revenue expectations spike then plateau while variable costs increase drastically within a time horizon of three years. Sustainable growth can be achieved through internal investment such as redesigning infrastructure, redeploying assets, and generating value with cross-functional, strategic partnerships.

The most notable example of a sector with accelerating competitive intensity is apparel and textiles. Round-the-clock discounting is a common tactic utilized by large digital commerce sites that have expanded into India to move inventory rapidly enough to make room for new merchandise. However impressive the order size, profit margins are still comparatively modest in heavily discounted stores. The trade-off of having a low-cost competitive advantage is mostly felt by the workers. Next to agriculture, India’s textile industry elicits maximum employment. It will be the small-scale weavers distributing to wholesale buyers that will be affected after e-commerce portals remove the need for a middleman and his role as a price negotiator.

Given the explosive investment potential in India’s e-commerce sector, how do you see the long-term vision of business-to-consumer changing? And be sure keep up with the latest globalEDGE blog series!

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