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Hotel booking remains a fragmented industry in India giving Rakuten the opportunity to compete in a profitable sector in a quickly growing market.
Japanese online retailer Rakuten Inc. may enter India in the next six to eight months, and is seeking a strategic alliance to tap rapid growth in the country’s Rs.62,000 crore e-commerce market, said three persons familiar with the company’s plan.
Rakuten is exploring the possibility of starting a travel and hospitality portal in India, said one of the three persons, an executive with a large consulting company.
The Tokyo-based company is also actively exploring getting into back-end solutions such as logistics, through an acquisition, said the other two persons. All three spoke on condition of anonymity.
Rakuten is seeking to grab a share of an e-commerce industry that has been growing at an average annual rate of 34% since 2009, and had been estimated to touch $13 billion by end 2013, according to a 2013 report by the Internet and Mobile Association of India (IAMAI) and audit firm KPMG. According to the report, travel operators (rail and air tickets and the like) were expected to account for 71% of this, with sales of other goods accounting for the rest.
Rakuten has various businesses such as e-retail, travel and financial services (payment solutions). Its 100% subsidiary Rakuten Travel operates an online hotel reservation website with over 1.8 million room nights booked per month. The firm has access to more than 20,000 domestic and 15,000 international hotels and has a presence in South Korea and China.
“Hotels is currently a fragmented space in India, just like Brazil, where we have a lot of unorganized inventory. There is definitely a need for someone to solve that problem in the country,” said Mukul Singhal, principal at Saif Partners, a private equity firms. Indian hospitality and travel portals such as MakeMyTrip, Yatra, Cleartrip, Goibibo and US-based Expedia mostly focus on ticket booking.
According to Singhal, the business of hotel bookings is far more profitable than air ticketing. “The outlook for this segment is very high. Every company in the travel space is looking to invest in hotel bookings and packages because airline ticketing does not make much money,” Singhal said, explaining the rationale for Rakuten’s interest in India.
Founded by Hiroshi Mikitani in 1997, Rakuten runs a multi-category shopping portal Rakuten Global Market and host of other portals such as Rakuten Coupons and TicketStar, among others. In the face of a stagnating Japanese economy and weak consumer sentiment, the Japanese firm has been aggressively eyeing global growth markets.
On a shopping spreee, Rakuten recently acquired Cyprus-based call and messaging app provider Viber Media Ltd for $900 million from Israeli entrepreneur Talmon Marco. In the last two years, it has bought US-based e-commerce portal Buy.com for $250 million and rebranded it “Rakuten.com Shopping,” e-reading platform Kobo, Spanish video streaming service Wuaki.tv and global video streaming platform Viki.
For the past few months, teams from Rakuten have been consulting investors, companies and industry experts as it explored the Indian market.
In an emailed response to Mint on its plans for India, company spokesperson Minori Nakayama said: “We can’t comment on inquiries in markets in which we don’t have direct operations.” If Rakuten enters the travel category, it will have to focus on an India solution, said Dhruv Shringi, co-founder and chief executive at Yatra.com.
“Running a business in India isn’t simple. The market can only absorb a maximum of three players,” he said. He adds that the prospects of the online travel market had improved and “growth is back in the sector”.
Experts say that since Rakuten’s strength lies in its online shopping business, it would make sense for the company to eventually enter that segment. The current foreign direct investment policy does not allow foreign capital in single- or multi-brand online retailing.
(c)2014 the Mint (New Delhi). Distributed by MCT Information Services.