HONG KONG, China — Hong Kong's supply chain and retail magnates Victor and William Fung have poured $35 million into Indian e-commerce platform ShopX via their investment arm, Fung Strategic Holdings Limited.

ShopX connects small shopkeepers across India to a wider network of consumers beyond their respective localities.

Currently hosting 50,000 retailers from around India, ShopX founders Amit Sharma and Apoorva Jois have previously said they are aiming to digitalise the businesses of the 12 million small merchants, known locally as kiraana stores, which make up an important, but traditionally disconnected, part of India’s consumer economy.

With a population of 1.3 billion and online population of 500 million, India’s e-commerce sector lags behind only China and Indonesia in terms of growth rate. Data from eMarketer predicts 31 percent growth this year, reaching sales of $32.7 billion.

This has attracted a crowded market of online retailers to compete for these growing slices of pie, with market leader Flipkart earlier this year acquired by Walmart for $16 billion in May, putting them head-to-head with Amazon — currently India’s second-largest online retailer by market share — which has sunk $5 billion into the Indian market since entering in 2013.

Offerings with a more niche approach, like ShopX, have thus far managed to grow while staying beneath the mainstream online retail fray. ShopX generates revenue by taking a cut of products sold on the marketplace. Though they don’t break out financial results, Amit Sharma has previously boasted the profitability of their model is 60 to 80 percent better than that of a traditional e-commerce platform.

This is one of a series of investments the Fung Group has made focused on new technologies and e-commerce. This investment focus is a response to the struggles facing Fung Group and Li & Fung in particular, which have continued to rely on their century-old role of sourcing middle man, even as an internet revolution and the rise of e-commerce remade the industry.

Since 2011, with profits falling and market cap plummeting, Li & Fung have been forced to innovate or die, belatedly embracing technology. The company embarked on a new three-year plan in 2017, including divesting three product verticals, which saw operating profit up 13.3 percent to $356 million for the full-year and turnover decrease 4.6 percent to $13.5 million.

In February, Fung Retailing inked a deal with China’s second-largest B2C e-commerce website, JD.com, to develop artificial intelligence-driven retail solutions and build an AI retail centre. Fung Retailing operates 3,000 stores globally.

According to Victor Fung, chairman of Fung Group, their focus is on “disruptive technologies” impacting the supply chain and retail spheres. ShopX is the first of the Fung Strategic Holdings’ investments in India, although by the sounds of things, perhaps not the last.

“Given the country's sheer population size and rising consumer spending power, not only do we see tremendous opportunity in India, but also the successful application of this model to other parts of the region,” Fung says.

Fung Group posits that Indonesia and the Philippines, two countries with a similar set up of small retailers spread out across their respective archipelagos, could be future beneficiaries of the ShopX model.

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