Nano Enterprises and E-Commerce: Some Perspective

Let us start by clarifying what a nano-enterprise is. There is no official definition or criterion like one that exists for micro enterprises. But as one can guess, a nano-enterprise is one which is of smaller size than a micro enterprise. Though we should have a definition and meaningful justification for such separate classification, for this article, we would think of nano-enterprise as one which typically has annual turnover not more than 20-25 lakhs. A somewhat qualitative way to think of nano-enterprise will be to think of food brands largely limited to certain urban regions, fashion businesses ubiquitous on Instagram, and some new ventures of your relatives or acquaintances that you come to know through WhatsApp business messages. 

Now let us shift to e-commerce. E-commerce platforms, aided by well-crafted advertisements to further the subtle messaging, have been seen as a channel that allows nano-enterprise to access nationwide markets and thus grow their business. The narrative is simple and intuitive. Market access is a critical need of businesses and e-commerce allows you to reach consumers across the nation. Hence, being on an e-commerce platform is a sure remedy for market access problems. 

Indeed, market access is an ever-present need of an enterprise, more so for nano-enterprise. And isn’t e-commerce easy? As a consumer, indeed it is. Download the app, have an account, link to the bank, and buy! But not for the seller. In fact, as one tries to understand the interaction between nano-entrepreneur and e-commerce platforms, one understands that there is more to the story than simple euphoria about everything digital. 

The small size is a first barrier a nano-entrepreneur faces while trying to list herself on the e-commerce platforms. The nano size allows her an exemption from Good and Services Tax (GST). But to be onboarded on e-commerce platforms, GST is often a requirement. There are exemptions based on type of goods and services, but for the cases that we mentioned at the start, it is generally the case that GST is mandatory. The prospective seller, our nano-entrepreneur, then needs to answer the question: are gains from being on e-commerce platforms more than costs of compliance of GST? GST compliance is not the only cost. E-commerce requires catalogues and regular updating of the same. Nano-entrepreneur often hires a digital marketing consultant for the same by incurring costs on recurring basis.    

The trade happens when both buyer and the seller reach out to each other. There is no doubt that e-commerce can allow the seller to reach many more buyers than what is possible through physical channels. But will our nano-entrepreneur be discovered on an e-commerce platform, among so many competitors, who sell more or less the same, at more or less the same prices? It also matters how quickly her product is discovered in the initial phase. If her product is discovered by more consumers soon enough and they provide her rave reviews, she will have the right start for the growth journey. 

Platforms understand the critical role of ‘being discovered’ for the new enterprise. And they use this to differentiate the platform service. If you pay a premium, platform algorithms or code can increase your odds of being discovered. This is the same as the first right of entry given to passengers who have bought expensive tickets by the airline. The price discrimination, a popular and legitimate way to sell products, heaps an additional cost, explicit or implicit, on our nano-entrepreneur. 

E-commerce platforms also have systems of disincentives for the failure to satisfy the order once it is placed. Typically, businesses will have to maintain adequate stocks to satisfy the orders that can arise. The nano size again proves as a hindrance in maintaining the large stocks. The unpredictable nature of e-commerce, especially in the early phase, can lead to situations where nano businesses find it difficult to deliver as per the requirements of the platform, which will subsequently affect their future business. Also, e-commerce platforms are asymmetric in behaviour when it comes to delivery and returns. Pick-up of goods to be delivered is prioritized over return of the returned goods to the business. This asymmetry leads to losses, both in terms of stock which is not sold and not yet returned and tax compliances where one must pay GST and then claim it back. 

It is possible that despite these costs, e-commerce is worth it for the nano-entrepreneur if the increase in sales is more than these costs. Do gains from listed e-commerce outweigh the costs of doing so? Seeing thousands of sellers listed on e-commerce for a sustained period, one should answer it affirmatively. But then we do not see thousands who are not listed. What is it that differentiates those for whom e-commerce works than those for whom it doesn’t? We do not have a well-substantiated answer to this question. But we can sketch broad contours for this answer. The type of the product, the degree of difference over competition, and the per unit cost of production seem to play the key role.

If this makes you think that nano-entrepreneurs are devoid of digital access to the market, then you are wrong. Nano-entrepreneurs, especially those who sell gift products or food products use WhatsApp, a popular app that is now treated as a synonym for messenger apps, very effectively. Entrepreneurs broadcast the product information to consumers and get orders through the app, with payments through payment apps and delivery by delivery apps or couriers. It is impossible that a proactive person like an entrepreneur will not realise the potential of the digital channels.  

Nano businesses will often find themselves stuck at the cusp of intriguing existential problem: should they bet, through loans typically, by increasing the capacity and lowering the per unit costs and accessing wider market which they don’t know yet or should they continue gradual path of serving the market they know and hold well? The risk preferences of the entrepreneur are another and perhaps most important piece that we would need to know to answer how e-commerce will work for nano-enterprises. 

Related articles