E-commerce is booming in India and is an excellent way to reach customers disbursed across such a vast country. Foreign companies are increasingly showing interest to sell online in India in order to increase market penetration and tap the huge opportunity of online sales. However, there are some legal restrictions for foreign companies to sell online in India. There are two models for selling online within Indian law;
- Market Place Model:Market places like AMAZON or FLIPKART work as facilitators of e‐commerce providing a platform for business transactions between buyers and sellers. The “Market Place” itself can be owned by a foreign company (100% FDI), but any foreign “Market Place” owner can only make money from brokerage/service fees and not from margins earned while buying and selling products. Foreign companies are not allowed to directly sell products on that Market Place.
- Inventory Based Model:This is the term used when companies sell their products directly online – either through their own web-portal or by utilizing other web-portals. Companies with a majority foreign shareholding (+50% FDI) are not permitted to sell in India using an inventory model – Irrespective of whether business transactions are Business to Business (B2B) or Business to Consumer (B2C).
So what this means is the law requires that foreign products can not sell online in India directly but foreign company products can only be sold in partnership with an Indian company. Whichever of the above options is best for you it is still necessary for you to have a local partner to sell online in India for you. Partners vary in their skills and capacities, and also in the level of transparency and control you will have so choose carefully!
M+V can act as your local partner keeping you in control of your sales strategy while we take care of the orders and shipping and compliance. Click here for more detail.