E-commerce lessons for India from Alibaba

To become great, India must ensure that all players remain profitable

On December 24, 2020, authorities in China announced that they were investigating the Ant group, which owns and manages Alibaba, co-founded by Jack Ma. Earlier, on November 3, regulators of the Shanghai Stock Exchange and Hong Kong’s bourse abruptly suspended its share offering.

That IPO was expected to raise an estimated $37 billion and boost Ant’s market value in excess of $300 billion.

That move was stunning. Especially because China is the global hub for e-commerce. Says The Economist, “it is in China, not the West, where the future of e-commerce is being staked out. . . to become the online-shopping emporia for 850m digital consumers.”

Clearly, for China, the money was not as important as the way it wanted e-commerce to get regulated. Instead of owning e-commerce, China opted to remain the regulator. Not the player.

True, it owns telecom companies (telcos) like China Telecom, China Unicorn and China Mobile. But, like most developed countries, it does not allow telcos to dabble (or own equity) in ecommerce. It knows that though telcos can make more money through e-commerce, but the consequence is that the e-commerce ecosystem would lose terribly. Telcos would only promote the players they like.

It would be the same if Google were owned by a telecom company. None of the other telecom service providers would have allowed their networks to access Google search engines, and that would have stunted Google’s growth.

Regulation

When Ant first went public in 2004, it accounted for an 85 per cent share of market capitalisation. But China allowed several other players to emerge -- Meituan and Pinduoduo in particular. Ant’s share is around 55 per cent today. The Ant group grew, but without smothering competition.

Today, Pinduoduo has captured over 14 per cent of the Chinese market. Then you have JD.com and Meituan, there is Bytedance which owns TikTok (banned in India), and short video player Douyin.

As a result, employment and wealth generation in both online, as well as offline services, have soared. Ownership by telcos would have prevented this growth.

Google’s games

Two of the biggest ebusiness players are Google and Amazon. Amazon is on the Reserve Bank of India (RBI) list of e-commerce players dated January 5, 2021. But Google is missing.

So, how is Google Pay allowed to operate in India? Is it an unregulated entity? (In the second week of January 2021, Google withdrew loan apps not having RBI clearance from Google store). Or is this a slip on the RBI’s part?

And this is happening when India’s e-commerce market is still exceedingly small. But it is growing fast. It has grown from an estimated $24 billion in 2017, to $84 billion in 2021 and is expected to touch $200 billion by 2025. India could even trounce China as its middle class grows (China’s e-commerce market is worth $2 trillion today). But for that it has to first spell out sensible regulations and its vision.

If regulations are not put in place quickly, they will become a migraine later.

Regulatory areas are bound to get blurred, as global social media networks introduce ecurrency. China has already introduced its own ecurrency recently. Obviously, the boundaries of ecurrency and the jurisdiction of central banks could become regulatory minefields. Money could be deposited from anywhere and spent anywhere as well. With Bitcoin, even the owner is invisible. All this could disrupt conventional banking. Big banks could end up becoming mere distribution centres. Is India prepared?

Sclerotic India

India’s myopia about China could be self-defeating. It refuses to talk to China. It has banned WeChat, even though there is so much Indian entrepreneurs could learn from it.

India has almost banned investments from China – that will slow down India’s pace of innovation and wealth generation.

Even India’s New Education Policy is myopic. It does not permit schools to teach Chinese – even though learning Chinese is pragmatic. The largest job market will be for people who know both Indian languages and Chinese. Both sides will need such people as interpreters, facilitators, and market growers.

In sharp contrast, Walmart recently hosted its first live shopping event within TikTok – despite President Trump’s threats. France has a service called Vova linked to Pinduoduo’s founder. Microsoft has several joint development centres with China.

What is needed is not bans but sensible regulation. For example, both the EU and the US are working on ways to curb the dominance of Facebook and Google, and maybe others as well.

If India wants to be a global player, it must draw lessons from what China does to promote e-commerce and remain a global leader.

To become great, India must ensure that all players remain profitable; that rules of business are not tweaked unilaterally, just to make one player profit.

But that will happen only if India truly wants to become big and a global leader.