E-commerce company or Software Company ? To be or Not to be
Kishor Biyani’s salvo in the High Court against 100% FDI for E commerce companies has put the cat among the pigeons .Wonder where he was ,when they were busy building their nests .Now Kunal Bahl Co-founder is making press statements .
Snapdeal is not an online retail company but a software firm that merely enables other retailers and small & medium enterprises to sell products through its platform.
However this is what the Snapdeal Meta-description says Snapdeal: Online Shopping in India for Men, Women & Kids. Shop online for Mobiles, Laptops, Appliances, Clothing, Footwear, Home Furnishing & more. Free Shipping, Cash on Delivery & EMI* options available in India. Legal Speak and User Speak . Idea is not to spotlight anyone .Snapdeal ,Amazon and Flipkart are all part of this play.
Why do E Commerce companies want to posture as software firms ?
You don’t have to look too far .100 per cent Foreign Direct Investment (FDI) is allowed only in business-to-business (B2B) e-commerce and not in retail segment or B to C Commerce. The problem starts when a B2C e-commerce company operates through the marketplace model but uses their other FDIfunded ventures in the B2B space for retail sales. The huge discounts given by these firms for retail sales have spurred FEMA investigations and at least Flipkart was under the enforcement directorate lens for an alleged violation of rs 1400 Crores . The potential liability could be three times this level
Kishore Biyani describes this best and I reproduce from his Economic Times article
India bars foreign direct investment (FDI) in any e-commerce venture that sells products directly to consumers but allows 100% foreign capital in the marketplace model, which involves online retailers setting themselves up as platforms for other retailers to sell products. In effect, this means that these companies are selling to consumers and this doesn’t count as wholesale trading Biyani said.
“By legal definition, wholesale trading or B2B (business to business) involves selling only to those who own businesses or have sales tax or service tax registration. The websites do not have any B2B or wholesale business,”he said.
Heavyweight Alignments E-tail Majors and Physical Retail Majors .Consolidation Likely post September ,2015 Judgement on FDI in E-commerce
- Amazon and Future Group
- Croma and Snapdeal
These alignments took place in October ,2014 ,indicating some kind of truce .But it looks like Croma and Future are hedging their bets. They are attacking through RAI ( 900 Retailer strong association) and cutting deals with the competition.If the ruling in September 2015 goes in favor of RAI it will trigger a wave of Physical and E-tail consolidation and realignment.With the ability to raise FDI capital themselves ,the RAI retailers will be able to cut deals and en cash some of the inflated valuations of the e-tailing sector in India.