E-Commerce Takes Off in Developing Countries

E-commerce is expanding at lightning speed. Consumers around the world are expected to spend around U.S. $1.672 trillion online this year—about 7.3% of the overall global sales—and much of that growth is coming from developing economies. We examine the benefits and obstacles to e-commerce in Southeast Asia, South America, and Africa.

Why Developing Economies are Clicking “Buy”

More like tapping ‘buy’. Smartphone use in countries like India and Kenya is growing rapidly as companies like Xiaomi offer more affordable models aimed at users in developing countries. Smartphone users in India doubled from 2013-2014, from 51 million to 104 million. In Indonesia, the number of web users jumped from 55 million in 2012 to 125 million in 2015.

In addition to access, there’s more money to spend. Rapidly expanding middle classes means more disposable income—which gets spent online.

Why Now is a Good Time to Invest

The market is there.

In 2011, Nigerian startup Mall for Africa, which ships American brands to Nigerian consumers, took in $17 million in 2014. Another e-commerce platform, Konga, saw revenues grow 450 percent in 2014. Investors and research groups are optimistic about countries like Nigeria and Kenya, whose burgeoning middle classes have the capital to spend on foreign-made goods. According to McKinsey’s Global Institute, consumer spending in Africa is expected to exceed $1 trillion annually by 2020.

Asia has the fastest growing ecommerce market. Even though just 10 percent of the population in India uses the internet, that number is expected to grow rapidly in coming years. According to recent studies, its e-commerce sector is expected to reach around US $80 billion by the year 2020. Indonesia is also expected to become a major player in the e-commerce market. It promises a growth rate of 3x or more from its current online purchases.

Funding isn’t hard to come by.

Mara Group, a new startup focusing on African e-commerce, expects to raise $100 million in funding for their venture—not unlikely, seeing as over $300 million worth of VC funding was pumped into African e-commerce platforms in recent years.

In Indonesia, TokoBagus and Lazada are two of the leading e-commerce providers. TokoBagu receives funds from the MIH Group while Lazada is being funded by Rocket Internet, Summit Partners, and JP Morgan. Tokopedia, another e-commerce giant, was granted around US $100 million venture capital from Japanese SoftBank Corp. and Sequoia Capital.

It’s wise to secure a market before it becomes oversaturated.

Internet usage across developing countries is growing fast, and startups are jumping to get a head start to corner some market share. Already, newer startups like Mara are competing against several trusted brands, including large corporations like Amazon—the race is on to be the most innovative and efficient platform out there. A lot of that comes down to supply chain and logistics management.

But Challenges Persist.

E-commerce is obviously becoming a booming market worldwide—but there are several obstacles that are preventing more rapid growth.

Sourcing from multiple countries can present a headache.

Domestic and overseas sourcing are two of the options that each potential e-commerce business need to choose from. Many e-commerce consumers in developing countries are seeking luxury goods produced in both Asia and North America, and gathering those products to ship to a number of countries is a unique challenge.

Last-mile logistics get chaotic.

The biggest obstacles to the expansion of e-commerce? Infrastructure. Platforms usually hire companies that will handle their logistics and product delivery, but they risk losing control over their inventory. As well as shipments being subject to international import regulations, tariffs, and taxes, some customers are located in hard-to-reach cities and towns, meaning that last-mile deliveries are costly, and timely transportation is not always certain.

Consumer trust isn't easy to gain.

Consumer trust is a key factor in the success of e-commerce. It encourages consumers to purchase a product from an unknown seller, sustain long-term purchasing relationship with the online sellers, reduce worries of disclosing private information such as credit card numbers, addresses, and a lot more. Many new internet users are reluctant to give out their credit card information, especially in countries plagued with scammers. E-commerce platforms must work to secure trust in their users, building lasting relationships—just like any new business must do.

Ultimately, the growth of e-commerce in developing economies will be bogged down by the rate of development in that country’s infrastructure and middle class. However, companies who are investing in developing e-commerce are seeing healthy growth—it’s not slowing down any time soon.



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