Making e-commerce work for all

The rise of affordable and accessible technology has transformed consumer behaviour in recent years. Engaging in online transactions is today commonplace across the world. From checking your bank account balance to paying bills and ordering groceries, e-commerce has transformed the way consumers and businesses engage with each other. For the citizens of developed countries e-commerce is becoming business as usual. Online retail is estimated by the Centre for Retail Research to account for 13% of consumer spending in the United States of America, around 10% in Europe and much more in some countries. Business-to-business sales are estimated to be as much as fifteen times as large.

By any measure e-commerce is big business. For example, by 2018 Africa’s e-commerce market is projected to soar to US$ 50 billion from US$ 8 billion in 2013. It also represents a major change in the way trade is conducted and offers great potential to contribute to the Sustainable Development Goals. However, developing countries are not yet taking full advantage of this opportunity. For instance, best estimates put the current share of African enterprises in international e-commerce below 2%, a share which could and should be much higher.

E-COMMERCE MISPERCEPTIONS

Contrary to the perception that all e-commerce markets are open, African small and medium-sized enterprises (SMEs) are often simply barred from listing products or signing up to payment solutions on international platforms. Many therefore take ill-advised shortcuts. Some attempt to bypass foreign ownership or payment restrictions by relying on banking arrangements of family or friends. Novice firms often ship their products with no regard to fiscal or legal requirements in the target market.

These shortcuts result in disappointingly short-lived trade as public authorities and platforms move to shut down the business and customers reject goods delivered with unanticipated taxes and duties, destroying any profitability and reputation the small firm may have had.

These apparently simple barriers are compounded by a lack of affordable technologies, services and affordable international transportation, resulting in the low levels of presence of African firms in international e-commerce.

A recent publication by the International Trade Centre (ITC), International e-Commerce in Africa: The Way Forward, provides additional references on the common concerns faced by African SMEs as well as key recommendations on actions by both the public and private sectors to help overcome some of these barriers.

STRONGER TOGETHER

Working individually, small enterprises are at a cost disadvantage. By bringing them together it is possible to eliminate or alleviate a number of barriers. We have seen instances where this has been used very effectively to open up new possibilities for vendors in Africa: ITC is supporting the establishment of collectively owned and managed structures as a foundation of our work to promote greater participation of SMEs from developing countries in crossborder e-commerce.

First, transportation costs must be addressed. Many of the African goods that could find a natural market among consumers in Europe, such as handicrafts, decorative and fashion items, and health and cosmetic products, typically have unit sales prices which do not justify the costs of direct international transportation. International express transportation is under-developed and costly and postal services remain relatively expensive and are perceived as unreliable.

Working together, enterprises can share international transportation costs by consolidating outbound shipments and gaining leverage for negotiating more attractive transportation rates. In addition, a greater volume of goods opens other possibilities in the target market, such as the potential to use fulfilment services, which can offer the consumer next-day delivery and handle issues such as returns.

Customer service – and especially the ability to handle requests in foreign languages – can be a particular problem. It is an easily overlooked requirement that consumers on the internet expect a merchant to handle requests in their native language and to react quickly and positively. This may not be easy for an African vendor with limited resources and experience of conducting trade with international consumers.

One solution is to pool resources between enterprises – and to implement outsourced customer service handling – as a shared cost. This is entirely possible in the age of offshore cloud-based solutions: outsourcing is not the unique preserve of multinationals and in this instance can be at the service of SMEs from developing and least developed countries.

Equally, by working together enterprises can share the costs of registering and managing foreign business entities, enabling transparent and efficient repatriation of earnings while opening up the possibility to list their products on new marketplaces.

Techniques developed to support the globalization of large firms are increasingly within the reach of small enterprises in developing countries thanks to advances in digital tools and increased affordability of related services.

E-SOLUTIONS

To address these needs, ITC has developed and piloted a series of modules in the form of training and specific technologies as well as shared services delivered by partners that can address most of the barriers. Taken together, these modules provide e-solutions to the challenges of conducting international trade through digital channels.

The full suite of services was deployed in Morocco in 2015. In January, a group of Moroccan SMEs using e-commerce to sell products domestically got together and formed an export cooperative called Made in Morocco. The firms, whose wares ranged from olive oil and cosmetics to books and music, asked ITC for help boost access to – and competitiveness in – foreign markets.

A multi-pronged approach was taken. On the payments side, a formal commercial presence was established in Europe, the United States of America and the United Arab Emirates to enable the cooperative to correctly handle import duties and domestic taxes. On logistics, ITC worked with global provider DHL to work out the most cost effective method of international transportation.

Following this intervention, several members of the cooperative have sold goods in Europe for the first time. The collective is growing and now includes more than 400 SMEs. Made in Morocco has sharply increased export sales and has tripled its transformation rate – the share of website visitors who purchase goods.

With the initial promising results achieved by the Made in Morocco model, current discussions are underway to replicate this model in other African countries including Rwanda, Senegal and Ethiopia.

THE WAY AHEAD

There is a growing consensus among development actors that a greater level of coordination and support is urgently required for SMEs to benefit from the opportunities of e-commerce.

Further, UNCTAD, ITC and a number of other international agencies and private-sector partners have worked together to produce a call for action on ‘Aid for eTrade’, which aims to unite efforts in a mission to facilitate greater participation in digital trade.

Aid for eTrade is a multi-stakeholder initiative that aims to improve the ability of developing countries to use and benefit from e-commerce by scaling up collaboration. It is a demand-driven mechanism in which leading development partners cooperate with the private sector to pool capabilities and resources.

The rise of e-commerce presents a unique opportunity to make trade work for all. Our vision at ITC is one where small firms in developing and least developed countries have access to advanced solutions. That way they can sell through international market places transparently and efficiently and are able to retain a significant part of the international value creation in the country of origin.