Need for growth capital puts e-commerce portals in a fix

Indian e-commerce sector encounters a tough phase due to the cluttered structure and requirement for long-term business capital

e4m by Saloni Surti
Updated: May 17, 2013 6:38 PM
Need for growth capital puts e-commerce portals in a fix

With prominent e-commerce portals such as Flipkart, Jabong and Zovi laying off employees and mergers and takeovers of various niche portals such as Babyoye, Hoopos, Urbantouch, Inkfruit and Buytheprice has put the Indian e-commerce sector under close speculation.
As reported by the Wall Street Journal, in the last three years, 700 million dollars were invested in 50 Indian e-commerce websites, thus giving a boost to the sector. However, in the process of adding services such as payment on arrival and fast shipment, the operational cost of websites is now expected to be over the limit.

With the promise of a golden future, most e-commerce portals managed to get investment capital, but they are stuck now with lack of investors in growth capital. “Constraint in funds is a major problem,” said Manmohan Agarwal, Co-Founder and CEO, Yebhi. “A certain amount of capital is required. While portals managed to gain investment capital in the initial stage, they now need growth capital, which holds more risk and is very difficult to acquire.”

Recently OCP Asia invested USD 30 million as growth capital in Homeshop18, thus giving the website a phenomenal support. However, major problems are faced by smaller portals that are yet to be the leaders of their niche.

Adding to the woes of the e-commerce players is the intense clutter witnessed in the sector. “It is actually a good idea to merge portals of the same genre,” said Sandip Maiti, Founder and CEO, Experience Commerce. “Every sector can have one or two leading players. Mergers will reduce the clutter and bring discipline.”

Maiti explained that mergers will help websites get over their problem of low operational costs. Portals can also better their services and pose as a stronger threat to the market leaders.
In spite of all the current problems, experts say that this is a phase that shall pass. Agarwal pointed out that in 2011, the industry witnessed over exuberance, which is not good in early stages. This is the period where the exuberance is going down to keep up with the tight operational cost.

Experts state that the Indian e-commerce sector is still work in progress and will get past this phase to move to the next level. There is still a lot of space in the domain, which can be filled successfully if portals manage to provide differentiated products and services.

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