As e-commerce giants such as Amazon dominate the headlines in the COVID-19 economy, the news can be misleading. In much of the world, giants have only a limited impact on daily life.
Amazon, for example, operates online stores and warehouses in just 16 countries. If you live elsewhere, buying from Amazon is likely to involve expensive and inconvenient international shipping, a last resort when products cannot be found in the domestic market.
For e-commerce giants, a targeted geographic footprint makes sense. International expansion is costly, in monetary terms, but also in terms of limited managerial attention. Faced with uncertain returns, the giants are therefore focusing on the largest markets. This is where investments have the most potential. Although Amazon only has fulfillment centers in 9% of countries, those countries account for 74% of global GDP.
But what about the other 91 percent of countries? Representing $ 22 trillion of global GDP, these markets have a combined economic size comparable to that of the United States, 1.5 times China, or 7.7 times India.
Electronic commerce as an opportunity for economic development
Online markets are still shallow in many parts of the world. Yet electronic commerce can be a key opportunity for economic development. Online sales allow businesses to reach more customers, both at home and abroad. New jobs are also being created in supporting sectors, such as technology companies, payment service providers and logistics companies.
The COVID-19 pandemic has dramatically swelled the ranks of online shoppers around the world. But this is only the beginning. The latent demand for e-commerce in emerging markets remains high. International data suggests that online markets can take off quickly, as revenues increase (Figure 1). The convenience of online shopping and 24-hour door-to-door delivery, combined with a much greater product choice, is likely to become increasingly valuable to customers around the world.
Local entrepreneurs play a key role in unlocking the potential of e-commerce
Local entrepreneurs are uniquely positioned to take advantage of the digital commerce opportunity. A still shallow national online marketplace may be of limited appeal to e-commerce giants. But it can nevertheless leave a large room for the growth of local low-cost startups.
While these young companies may start with less established brands and a smaller product line than the giants, they can compete by offering a service better suited to their home market conditions. In India, for example, 83% of consumers prefer cash on delivery – standard e-commerce business models that rely entirely on electronic payments are limited in scope. In Africa, e-commerce companies have built personalized, last-mile delivery networks to overcome weak mailing address systems. Offering fast local delivery, accepting payments in local currency and an online store in a local language, all of this can be a key competitive advantage, enabling the emergence of e-entrepreneurship even in small national markets as well as in Western Balkans.
As a first step, local e-entrepreneurs can learn more advanced markets and adapt established business models to their home country. However, over time, local ecosystems can also serve as a petri dish for real innovation. Chinese e-commerce companies such as Alibaba have already become giants in their own right, sparking new e-commerce trends, such as tighter integration of online stores with social media, which are now influencing the rest of the world. .
Don’t expect international e-commerce giants to sleep
Over time, international e-commerce giants are likely to face increasing pressure to expand their geographic footprint, as advanced markets mature and giants seek new sources of growth. With increasing incomes in developing countries, entering the market will become more and more attractive.
In many cases, fierce competition between local and international players can be expected. However, that is probably only part of the story. Out-of-the-box international e-commerce solutions like shopify.com are already powering local online stores in many parts of the world. International technology platforms, such as Facebook, have become essential online marketplaces connecting local online buyers and sellers, even in markets as difficult as Afghanistan. In India, Amazon is partnering with existing physical store networks to offer more localized services such as in-store pickup. Expect the emergence of new, symbiotic business partnerships between international and local e-commerce companies.
Governments must take action
To unleash the full potential of electronic commerce, governments must play their part and create an enabling and solid environment for private sector initiatives.
It starts with ensuring wide access to the Internet. But it also requires nurturing critical fundamental economic sectors, including online payments, logistics and IT. A transparent regulatory, tax and customs framework, tailored to the needs of the digital economy, can create the stable business environment necessary to attract investment. A strong consumer protection framework can establish the basic level of trust that encourages adoption of online shopping. To galvanize reforms in all these areas, an action plan for electronic commerce, as adopted for example by pioneers such as Egypt, Serbia and Vietnam, can be a key first step.
In the e-commerce revolution of emerging markets, governments, local entrepreneurs and international e-commerce giants all need to play their part. If done right, online marketplaces should create new jobs and benefit customers. By unleashing innovation and strengthening competition in the marketplace, e-commerce may be what it takes to unlock the next phase of growth in the emerging world.