Why e-commerce is not successful in india?

When I ordered my first book (the book I have been searching for so long) online from flipkart in 2007/08, I thought wow what an awesome idea. Instantaneously another thought came to my mind. Why is he not charging me for delivery? Why am I getting a 35% flat discount? The answer seemed obvious that he wanted me to be his loyal customer even if it means selling the book at a loss. For last decade I have order more than 100 books online but the discount still persists. So what went wrong with them let’s find out...

E-commerce/home shopping was considered the thing of developed market because of higher per capita income, better literacy, better internet coverage and busy life schedule. No one had ever imagined that a middle class Indian will one day buy stuff online. The internet came really late in India but the speed at which it has gripped the nation is phenomenal. Thanks to our internet providers and their so called market capturing strategy India has one of the cheapest internet usage rates in the world. From 250 rs/100 Mb to 17Rs/GB the Indian data market have revolutionized a lot. Another contribution in this is from cheap multimedia/smart phone sets Indian market has been flooded with. Now every person irrespective of its age and stature is having a smart phone in its pocket. I always thought the e-commerce company should share their profits with Indian telecom and smart phone companies (Pun intended).

Coming back to the topic, the first major e-commerce website that found liking in india was flipkart. They really cracked the code of Indian market with their revolutionized idea “cash on delivery”. At that time it was a major misconception that Indians are averse of using online payment gate way for transactions. The truth was we didn’t know how to do it. The credit/debit cards were not popular. ATMs were a rare commodity. Net banking was either not available or not well publicized by the banks. No one taught us how to do the online transactions and it seems a rocket science at that time. The “cash on delivery” in a single step brought a radical change to the e-commerce industry. First, I am perfectly happy to pay for something if it is in front of my eyes. Second, COD is easier than credit/debit cards which are having high default rate.

cont...

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swine flu

Swine Influenza has been in news in the month of December 2014 and January 2015. The national capital Delhi has so far witnessed 1241 cases of swine flu with 74 deaths. The experts are of the opinion that the virus is weak this time and it is a seasonal flu.

The sudden increase in number of positive cases has been due to the presence of fog and will wash away when it gets warmer. In this let’s see what, why and how of Swine influenza.

What is Swine Influenza?

Swine Influenza is an infection which is caused by various type of swine influenza virus. Swine influenza virus, which is endemic in pigs, is any strain of influenza family of virus.

In 2009 it was found out that the Swine Influenza Virus strains contains influenza A and influenza C, which are two of the six viruses known. Out of the three viruses which cause human influenza (attack of virus of influenza family on humans) two are common with the viruses which attack pigs. Influenza A is very common in pigs while Influenza C being rare. Sub groups of Influenza A have been found in strains of swine influenza virus, which are H1N1, H1N2 and H2N3 to mention some.

How it is transferred?

Swine Influenza is easily transferred amongst pigs but rarely to human beings. People in regular exposure with the pigs are at high risk of infection. Influenza is quite common in pigs, with about half of breeding pigs having been exposed to the virus in the US. People who work with poultry and swine are at increased risk of zoonotic infection, and constitute a population of human hosts in which zoonosis can co-occur.

Zoonosis is infectious diseases of animals which are transferred to humans. Ebola, Swine Influenza is examples of zoonosis.

The 2009 H1N1 virus was not zoonotic swine flu, as it was not transmitted from pigs to humans, but from a human to human. Vaccination of these workers against influenza and surveillance for new influenza strains among this population may therefore be an important public health measure.

Direct transfer of influenza from pigs to humans is rare because since 1958 only 50 such cases have been reported. The transmission from swine to humans occurs mainly in swine farms, where farmers are in close contact with pigs.

Influenza spreads between humans through coughing or sneezing, which results in fellow humans coming in contact with the virus. The virus is not transmitted through food.

Recent global incidences of Swine influenza

The United States was attacked by the influenza in 1976. The outbreak is remembered for its mass immunization process that resulted in only one death. 
In 2009, India along with US and Mexico faced swine flu pandemic due to the outbreak of H1N1 virus. Over 1800 deaths were reported due to the flu. In 2010, World Health Organisation (WHO) declared that swine influenza pandemic was over.

How it can be prevented?

Prevention techniques usually recommended to prevent spread of the virus among humans include using standard infection control, which includes frequent washing of hands, especially after being out in public.

Experts agree hand-washing can help prevent viral infections, including ordinary and the swine flu infections. Public health and other responsible authorities have action plans which may request or require social distancing actions, depending on the severity of the outbreak.

Farmers and veterinarians are encouraged to use face masks when dealing with infected animals. The use of vaccines on swine to prevent their infection is a major method of limiting swine-to-human transmission.

Vaccines to treat Swine Influenza

Vaccines are available for different kinds of swine flu. The U.S. Centers for Disease Control and Prevention recommends the use of oseltamivir (Tamiflu) or zanamivir (Relenza) for the treatment and/or prevention of infection with swine influenza viruses.

However, the majority of people infected with the virus make a full recovery without requiring medical attention or antiviral drugs

Adapted: from the article.

STORY OF CRUDE OIL

Crude is the unexpurgated story of oil, from the circumstances of its birth millions of years ago to the spectacle of its rise as the indispensable ingredient of modern life. In addition to fuelling our SUVs and illuminating our cities, crude oil and its by-products fertilize our produce; pave our roads, and make plastic possible. Newborn babies slide from their mothers into petro-plastic-gloved hands, are swaddled in petro-polyester blankets, and are hurried off to be warmed by oil-burning heaters.” The modern world is drenched in oil.

Due to the same reason it has been the most important component of modern international politics. Many battles have been fought for its supremacy and control and many would follow.

Oil played a role in the prelude to World War II. The debate in Japan over whether to go to war with the United States centered on the longer-term availability of oil for the Japanese military, which the United States was trying to cut off in response to Japan’s invasion of China. Like Imperial Japan, Nazi Germany sought to conquer oil lands rather than purchase petroleum on the open market. Securing oil supplies became a top wartime goal of all countries involved in the conflict—again, often to the neglect of other vital raw materials.

In 1945, President Roosevelt reached an agreement with King Abdul Aziz of Saudi Arabia of lasting significance: the kingdom would give the United States access to oil in exchange for military assistance. Shapers of postwar U.S. foreign policy argued that the United States should import more foreign oil rather than use domestic supplies that would be relied upon if war broke out again. The Soviets’ delay in leaving Iran in 1946 added to cold-war tensions and gave a sense of urgency to the military protection of foreign oil supplies.

Since the World War-II, crude oil has become the integral part of countries politics. The countries being blessed with it has become the centre of attraction since then. The oil importing countries have used their influence to make them their allies at any cost. US, being the largest importer of crude oil have gone on the extent of making them their second home. The countries who are sitting on this liquid gold have formed a group OPEC (Organization of the Petroleum Exporting Countries). Its member is: Saudi Arabia, Iraq, Kuwait, Nigeria, Iran, Venezuela etc.

They controlled around 80% of overall proven reserves in the world and hence the Oil prices have always remains to their mercy for last 50 years. Crude Oil Price is used as a main weapon by them to subvert the countries to their wimps and fancies.

In October 1973, OPEC declared an oil embargo in response to the United States' and Western Europe's support of Israel in the Yom Kippur War of 1973. The result was a rise in oil prices from $3 per barrel to $12. One of the most lasting effects of the 1973 oil embargo was a global economic recession. Unemployment rose to the highest percentage on record while inflation also spiked. Consumer interest in large gas guzzling vehicles fell and production dropped. Although the embargo only lasted a year, during that time oil prices had quadrupled and OPEC nations discovered that their oil could be used as both a political and economic weapon against other nations.

In 1979 and 1980, events in Iran and Iraq led to another round of crude oil price increases. The Iranian revolution resulted in the loss of 2.0-2.5 million barrels per day of oil production between November 1978 and June 1979.  At one point production almost halted. In September 1980, Iran already weakened by the revolution was invaded by Iraq.  By November, the combined production of both countries was only a million barrels per day. It was down 6.5 million barrels per day from a year before. The loss of production from the combined effects of the Iranian revolution and the Iraq-Iran War caused crude oil prices to more than double.  The nominal price went from $14 in 1978 to $35 per barrel in 1981. Similar scenario happened in 1991 when Iraq invaded Kuwait and US intervened and that resulted in a 1^st gulf war. This war was solely fought for the purpose of supremacy over oil production. After the gulf war, The United States economy was strong and the Asian Pacific region was booming. From 1991 to 1997, world oil consumption increased 6.2 million barrels per day. Asian consumption accounted for all but 300,000 barrels per day of that gain and contributed to a price recovery that extended into 1997. Declining Russian production contributed to the price recovery. Between 1991 and 1996 Russian production declined more than five million barrels per day. Apart from minor glitches the oil prices remained steady afterwards in the region of 70-85$ but in early 2007 it again started to move upwards most on speculation and peaked in mid 2008 with a record high of 147$ on Nymax. Leman brother later found guilty of trading in crude oil with public money for which they suffered heavily and later filed for solvency. With the start of biggest US recession since the great recession in early 1930’s the crude oil suddenly dropped from the highs of 140$ to a low of 40$ in no times.

But it followed with a spectacular recovery from levels of 40$ to 85$ in early 2009 which made us believe that the real value of crude is in the range of 85-100$. Prices remain more or less  in a range from 2010 to 2014.

But in mid of 2014 suddenly oil prices started to show some weakness. Many analysts initially thought it to be a temporary phenomenon and predicted it to be over sooner or later. But as soon as oil prices dropped below 85$ globally many people started to believe that it is just a tip of ice berg and price may fall below 40$. The main reason for the above it the expanding exploration activity in the shale reason of US. The production of Shale reason touched an all time high and it has caused a great oil surplus in the market. Suddenly OPEC was under a tremendous pressure to reduce its production to realize better prices for their inventories. Many power hungry countries(including India) looked towards the recent development with the greedy eyes and soon got their wishes fulfilled when OPEC decided to keep its production unchanged which led to a huge fall in crude oil prices and they crash landed to a multi-year low of 65$.

OPEC in past have altered their production to keep the price steady but this time they have realised that if they decrease the production they would simply lose the market share to the US shale production and this in turn would challenge their supremacy in the market. In spite huge pressure from the poor OPEC countries they decided to wipe out entire shale production in a single go by bringing the crude price below their production cost. This led to a price war between US and OPEC and brought down crude to a level of 55$ in no time. Incidentally 55$ was supposed to be the production cost of the shale region. But soon it was realised that the actual production cost of shale region is in the range of 35-45$ which started the second leg of drop with prices dropping below 45$ levels in jan-2015.

Many countries like Russia, Venezuela and Nigeria is paying a heavy price for this sudden and huge drop in crude oil. According to one estimate Russia is losing approximately 2$ Billion for every one dollar drop in oil prices. Russian currency (rouble) has recently seen a blood bath when it has depreciated by 17% on a single day causing a wide spread panic in Russia. Imagine everything in the supermarket suddenly costing 33% extra (twice the depreciation of rouble) people will panic. It remind us with the great Zimbabwean currency crisis when Zimbabwe dollar suddenly started losing its value and in no time it become junk. On a similar line rouble has lost have its value since 2014 and S&P has reduced its rating to ‘BB+’ which comes in the category of junk this means Russia will face a huge problem in raising money from the international market.

Similarly countries like Venezuela and Nigeria is facing a lot of problems, the government has started defaulting on payments many welfare schemes have been shut-down. There is a lot of unrest in the local public due to expenditure cut in the government spending. People have resort to violence at many places and there is a risk of riots in the countries. Saudi Arabia has posted a fiscal deficit for the first time in their history, but they are sitting on the mountain of cash surplus so they will not face any problem in the near future.

On the other side countries like India and China are in the celebration mood as crude oil constitutes more than 50% of their import bills. India has for the first time in her history has seen a 10 straight oil price cuts. The petrol which has seen a high of 82 Rs. has suddenly dropped to 56 Rs. has brought smiles on made faces. Everything seems to be going in a right path but there is trap, in India, we are not accustomed of seeing deflation because baring 2-3 years since independence we have seen that the prices of normal household products have increased by some amount from the previous year’s sometime they have increased out of propositions causing the wide unrest in the public.

But consider a scenario in which country has slipped into. In the IS/LM model (INVESTMENT and Saving equilibrium/ Liquidity Preference and Money Supply equilibrium model), deflation is caused by a shift in the supply and demand curve for goods and services, particularly a fall in the aggregate level of demand. That is, there is a fall in how much the whole economy is willing to buy and the going price for goods. Because the price of goods is falling, consumers have an incentive to delay purchases and consumption until prices fall further, which in turn reduces overall economic activity. Since this idles the productive capacity, investments also falls, leading to further reductions in aggregate demand. In a deflationary economy, wages as well as prices often have to fall – and it’s a fact of life that it’s very hard to cut nominal wages — there’s downward nominal wage rigidity. What this means is that in general economies don’t manage to have falling wages unless they also have mass unemployment, so that workers are desperate enough to accept those wage declines.

Hence too much reduction in oil prices is also not good for India as it will take away the main advantage of cheap labor from our market and would force many countries to shift their manufacturing hub from India to their parent countries. The best case scenario for India is that if crude remain in the range of 60-65$ for next 4-5 years it will help in managing our fiscal deficits and boast our production by further minimizing our overall cost. 

TRUTH OF CHEAP CHINESE PRODUCT

Every time we see a tag “made in china” the first thing that comes to our mind is that it is a sub-standard product and should be extremely cheap. Has anyone ever thought why it is so? Why we think every product made in china is a junk?

First let me tell you something. We all must have seen the famous Voltas Ad. “India ka AC” but do you know it’s every part is designed, manufactured and assembled in China then how TATA can say that it is INDIA’s AC. This Diwali I did some research in the market and tried to know the origin of many products which we buy for one of our famous and most celebrated festival.

I.        Decoration lighting: Nearly 90% of total decorative lightings comes from the china starting from Rs.11.25 (for 3m lighting)

II.        Crackers: Which we are so used to see made in “shivakashi” are actually Chinese made which are repacked in shivakashi under different brand names.

III.        Earthen pot/diva: they are mass produced in china with price as low as 10p/pic

IV.        Even Indian Gods/Goddess which we are so sacred for us are made in China.

V.        All artificial decorative items are made in china

The main reason for the above is the cheapness of the product, the Indian made products are almost twice as expensive as Chinese made (including transportation). Then why is so that everything that has been manufactured in bulk is not from china?

It all started in late 90’s and early 2000 are when our market started flooding with Chinese made product starting from batteries to toys. They believed in the philosophy that if we start dumping the material in the foreign market at a very cheap rate, the local manufacturing will get stalled which will give them the dominating share in the market. The Chinese government somehow liked the idea and gave all kind of subsidies and tax holidays to impose Chinese dominance in the foreign market. It started with a bang as people realized that the same products were available at almost 1/3 of the original cost and they took it hand in hand. But as governments all over the world realized the ramification of the same they started retaliating with the introduction of anti-dumping duty, imposing extra custom duty etc.

But Korea, India and some other countries started another very clever campaign they realized that a great defect with the mass produced products is that they are cheap because they are mass produced and if the regulations are changed on certain parts they become worthless so they started making the regulations more stringent on these product to make them un-usable. They also started campaign on the inferior quality of the products and also their unreliability, slowly and steadily people started believing in it and so called “made in china” become a taboo in many markets. Most start believing that as the product doesn't come with a warranty it is most likely to fail, but let me tell you something that I have learned while taking the reliability course during my college.

A warranty is a contract or an agreement under which the manufacturer of a product or service must agree to repair, replace or provide service when the product fails or the service does not meet the customer’s requirement before a specified time (warranty length).

There are three commonly-used warranty policies: the ordinary free replacement warranty, the unlimited free replacement warranty and the pro-rata warranty.

Ordinary Free Replacement Warranty: Under this warranty, if a product fails before the end of the warranty period because of quality or reliability issues, it will be replaced or repaired at no cost to the customer. The repaired product is then covered by an ordinary free replacement warranty. The length of the warranty for the repaired product is equal to the remaining length of the original warranty. The ordinary free warranty is used by many vehicle and home appliance companies.

Unlimited Free Replacement Warranty: Under this warranty, if a product fails before the end of the warranty period, it will be replaced or repaired at no cost to the customer. The repaired product is then covered by a new unlimited free replacement warranty. The length of the new warranty is equal to the length of the original one. The unlimited free replacement warranty is used for small electronic appliances that have high early failure rates. The length of the unlimited free replacement warranty usually is short.

Pro-rata Warranty: Under this warranty, if an item fails before the end of the warranty period, it is replaced at a cost that depends on the age of the item at the time of failure. The replacement item is then covered by an identical new warranty. This type of warranty sometimes is also called partial warranty, since only a part of the initial cost is covered. It is usually used for non-repairable items such as tires and batteries (amazon 18+18 month battery warranty is a very good example).

Once the warranty policy has been decided, the amount of capital that must be allocated to cover the future warranty cost. An example to illustrate how to predict the warranty cost for the pro-rata warranty policy.

Example (taken from a book):
A pro-rata warranty is applied to a product. Assume that the unit price before adding the warranty cost is $50 and the warranty length is five years or 1825 days. It is also known that the failure time distribution is a Weibull distribution with a shape parameter of 1.2 and a scale parameter of 5,600 days. What should be the unit price in order to cover the warranty cost?

For the sake of understanding following variables are defined:

·         c': unit price before adding the warranty cost

·         r: expected warranty cost per unit

·         c: unit price after adding the warranty cost, c = c’ + r

·         N(t): number of failure at time t

·         L: product lot size for warranty cost determination

·         w: duration of the warranty period

·         C(t): pro-rata customer cost at time t, C(t)=c[1-(t/w)]

·         T_c: total warranty cost of a lot of size L

Warranty Length (Year)	Unit Price
2.00	51.99
2.50	52.64
3.00	53.27
3.50	53.94
4.00	54.65
4.50	55.37
5.00	56.12
5.50	56.89
6.00	57.67
6.50	58.48
7.00	59.30
7.50	60.15
8.00	61.01
8.50	61.89
9.00	62.78
9.50	63.69
10.00	64.62

This is also shown in the following figure.

Figure 1: Unit Price for Different Warranty Lengths

So basically warranty is nothing but a component of total cost you have paid for the assurance of service which you expect to get from the manufacturer. But if the motive of the manufacturer is to produce the cheapest product in the market he will you cannot provide any warranty because otherwise he will have to book its cost in his selling price which will defeat his motive. Hence the products which doesn't come with a warranty are necessarily not bad products, it is just that they are not insured for their bad performance.

Hence the misconception about these Chinese products is somewhat unfortunate and with the changing dynamics of our world economics especially in the manufacturing industry they might provide a valid solution and make create a benchmark for the future business prospect.