Although India's booming e-commerce industry has been making leaps and bounds recently, the startup companies driving a significant portion of that growth are paying a lot of money to logistics. Tech In Asia reported data from Technopak that showed most of India's e-commerce startups spend up to 30 percent of their income on logistical expenditures. This is more than other similar companies in the world.
Tech In Asia reported that Amazon spends around 11.7 percent on similar logistic costs. Alibaba's costs are nonexistent because the merchant and customer pay all expenses connected to logistics. India's two larges e-commerce marketplaces, Flipkart and Snapdeal, spend such a high amount on logistics that the next few years won't be profitable.
Why are India's companies spending so much?
In short, logistics costs for India's startups are so expensive because they choose to outsource that part of the business. T.A. Krishnan, founder of Ecom Express, told Tech In Asia planning and executing logistics is such a big challenge that it's usually better to outsource to a company that focuses on providing e-commerce logistical solutions.
"Outsourcing your strategy to a logistics company means you can focus on your product," Krishnan told Tech In Asia. "Things like regulatory frameworks, airports, road networks, highways are all hindrances to growth in India."
According to Tech in Asia, the logistics industry in India has experienced a major boost recently. This is no doubt due to the rise in number of e-commerce payments made every day. The industry is expected to swell to $300 billion by 2020, which will be 14 percent of India's gross domestic product.
Despite huge growth, some Indian e-commerce businesses have cut jobs
The logistics issue in India isn't the only thing affecting startups. According to Forbes, investors are pushing businesses to rethink their business structures and reduce the amount of people they employ. Thousands workers have been laid off from a number of e-commerce startups in different Indian cities. TinyOwl, a food ordering service based in Mumbai, India, reduced the number of employees it had by 100 people. Zomato, a similar company based in Gurgaon, India, recently laid off 3,000 people – a tenth of the company's employees.
Executives from the companies have said that the restructuring occurring in their businesses is necessary for future growth. TinyOwl's CEO wrote a blog post about how the new structure for the company won't be easy but it will increase efficiency and productivity.
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