The rapid expansion of ecommerce is transforming many emerging economies, bringing an array of benefits for consumers and entrepreneurs. While there are clear opportunities for multinational giants, local businesses could hold unique advantages.
Ecommerce has slashed the costs and logistical challenges associated with starting a business, negating the need for bricks and mortar stores. In emerging countries, this has empowered cash-strapped local businesses that would otherwise have been locked out of the market, says Raj Rajgopal, president of digital business strategy at IT services company Virtusa.
“In turn, this spurred the creation of new businesses to fill the gaps in existing capabilities, such as last mile logistics, insurance, and even digital banking, all of which strengthens an emerging market’s hand in attracting new products and other retailers,” adds Mr Rajgopal.
The rise of ecommerce brings many benefits to consumers in these nations, particularly for residents of rural areas and smaller population centres. Research from the Boston Consulting Group found that a major contributor to the strong ecommerce sales in smaller cities is the ability to buy from brands that don’t have a local store. For example, BCG found that almost 50 per cent of premium skin care products sold on Alibaba’s Tmall online marketplace are bought by shoppers in Chinese cities where these brands have no physical presence.
Even for large, multinational corporations, the costs of opening bricks and mortar stores in a foreign market can be substantial. The need to establish a physical presence in a new region to pursue meaningful growth created barriers for companies that didn’t want to commit to such costly expansion plans.
That’s not to say it’s easy to build an ecommerce business in emerging economies. There are well-known challenges around weak delivery infrastructure and payment security, while online shoppers in some emerging markets can be sensitive to unexpected costs and barriers when checking-out. There can be onerous security checks from the payment processor, while payments can be declined without explanation.
For international entrants, any attempt to treat emerging economies as a homogenous whole is destined for failure.
“China is one of the largest and most innovative retail e-commerce markets in the world, with technological Goliaths such as Alibaba and JD.com at the forefront,” explains Wayne Snyder, vice president – industry retail strategy at supply chain software provider JDA Software. “The Indian e-commerce market is forecast to increase fivefold over the next eight years and in a recent JDA consumer survey India had the strongest demand for new technological shopping innovations from anywhere in the globe.”
International companies need to tailor their ecommerce platforms to each region’s unique cultural expectations, even at the most basic level of ensuring that prices appear in the local currency. For example, many Brazilian online shoppers are accustomed to paying in instalments, sometimes through a variety of different means: few online stores can accommodate this request
Local e-tailers are often at an advantage thanks to their detailed knowledge and experience of their markets. This enables them to offer a user experience that eases the transition from offline to online retail. Some are leveraging their physical store network to encourage hesitant consumers to try online shopping. Omnichannel solutions – which combine various types of shopping – are in use throughout the developing world, with some 85 per cent of China’s shoppers consuming in this way, according to Jeongmin Seong, a Shanghai-based McKinsey Global Institute senior fellow.
“Customers search, evaluate and order for delivery using their mobile phones even when they are at offline stores. About 60 to 70 per cent of shoppers surveyed [in McKinsey research] said that they were excited about omnichannel services such as O2O [online to offline] product pickup, QR code-scan payments, product-return services, and VR [virtual reality] experiences at offline stores,” says Mr Seong.
The explosion of ecommerce in these nations isn’t happening in a vacuum, with advances in online shopping stimulating the formation of new businesses that are working to find solutions to challenges around logistical issues and patchy payment systems. The combination of these factors is helping emerging markets to attract innovative products and new retailers, in addition to improving efficiency in developing countries. In China, for example, the leading five retailers only control between two per cent and 20 per cent of the market, whereas in the United States the ecommerce sector is far less fragmented, with the top five firms accounting for between 30-70 per cent of sales in most categories. The rise of ecommerce will see the consolidation of a number of industries, allowing for economies of scale to be achieved.
“Whilst this digital revolution has led to growth in certain areas and significantly expanded the consumer choice, many of these countries are also seeing some of the same growing pains that Western countries experienced – namely increased costs, cannibalisation of store sales, and organisational challenges,” says Mr Synder. “However, as the Western market becomes more saturated and challenging, it is the emerging countries that will provide new growth opportunities for retailers.”
Finbarr Toesland is a freelance journalist specialising in technology, business and economic issues.