The next frontiers in ecommerce determined by far more than just technology.
The rapid growth of ecommerce since the mid-1990s has taken many traditional retail industries by surprise, the sizable shift to digital business causing long-established brick-and-mortar stores considerable issues adapting to this new form of retail. Throughout industrialised economics, the use of B2C ecommerce developed alongside general internet awareness and connectivity, both making parallel inroads into society and evolving along similar technological lines. Today, many developed online markets (e.g. North America, Europe, China) have become dominated by a few eretailers who were able to stake early leads during this period of rapid local internet growth, their market position greatly assisted by an ability to integrate (or often pioneer) new digital infrastructure technologies. The expansion of ecommerce has however not been even around the world, many developing countries only now beginning to emerge as potential new markets of international interest. With growing attention from major online retailers in the possibility of further expansion into these new territories, it is important to understand the elements shaping ecommerce and internet penetration in the developing world and how these new geographies will not necessarily follow the same digital evolutionary path as seen in more established markets.
Connectivity, digital habits and data costs
One of the primary obstacles to becoming an ecommerce consumer in a developing economy is the ability to get online. This is known as connectivity. A country’s connectivity rate acts as an assessment of its population access to technology and knowledge they possess to use digital resources. Historic connectivity rates are of particular interest in understanding the growth of the internet on a global basis, helping to calculate how this technology will perform in new environments and how it is adapted in individual societies. For example, at the turn of the millennium only three countries had internet user rates above 50%, while nearly two decades later this figure now stands at well over one hundred nations. These increased connectivity rates are however not evenly distributed, ranging from rates above 95% in the Nordics to under 10% in some areas of sub-Saharan Africa (though only fifteen countries fell into this latter category by the end of 2018). Despite such impressive expansion in a short period, the era of rapid internet growth is seemingly coming to an unexpected end. Since the late 2000s to the end of the 2010s, connectivity slowed from 19% per annum to 6%. The reasons behind this drop, apart from market saturation, are largely socio-economic; users online habits influencing the direction of this evolving technology. While many populations have had internet access for decades and have had their digital behaviours influenced as the technology advanced, others, mostly in the developing world, are being introduced to the internet in an alternative format than more established digital populations, primarily through social media rather than the internet proper.
While the method of how the internet is used in new markets is one significant factor shaping its evolution in developing economies, another primary influencers to online growth is physical infrastructure. Digital technology is dependent on the construction of mobile data towers and the laying of cables, linking users directly to services. Such infrastructure project are expensive and can be hindered by a lack of funding. Several major tech firms have promoted methods of circumventing such problems, notably with this use of high altitude drones to provide wireless online connections, though such ‘tech-dumping’ into developing countries has been criticised as doing little to promote digital education and often achieving far less than initially hoped. Even where infrastructure exists, having and using technology are two very different issues with the expense of accessing services often being a deciding factor. High data cost rates in developing economies, sometimes as much as 20% of an average monthly income for 1GB of data, greatly restricts user uptake. This issue is further exaggerated in countries with telecommunication monopolies, a common feature of smaller or emerging digital markets, potential users often simply unable to afford the costs from sole providers due to a lack of alternatives. Additionally, the price of internet-enabled devices is often beyond the means of many, access to digital banking for ecommerce is often non-existent and parcel delivery services and street address systems may be lacking. Potential new ecommerce markets in the developing world are therefore frequently limited to small, financially empowered and technologically educated social groups – mostly those in the upper and middle classes and with access to services on par to more developed countries. With up to 3.5 billion people still unable to gain access to online services globally, the reduction in internet growth rates through lack of infrastructure and cost factors indicates that these remaining populations will take significantly longer to gain connectivity than it took with the billions who already have access.
Ecommerce taxation and government control
Though the points above relate primarily to technology and its cost, B2C ecommerce is often influenced by factors that would not necessarily be the first to come to mind when thinking about online shopping – namely sales tax. Over the past several years a number of taxation and legislative changes have been made around the world by national governments specifically related to cross-border ecommerce and the way eretailers sell to their international customer base. Chiefly, these are directed towards the collection of sales taxes, a field that for much of the history of ecommerce has been one of much confusion due to the physical separation between retailer and customer. Recently several governments in developed ecommerce economies have introduced online sales taxes, ensuring that eretailers must pay duties in the country where their customers are based. Major ecommerce firms have reacted with numerous stratagems to such moves, ranging from compliance to resistance though several companies have had to restrict services in effected jurisdictions as a result, such as Amazon recently limiting access to its parent (.com) site to Swiss consumers after new tax laws were put in place.
The growing awareness of ecommerce taxation by governments will invariably influence the growth of ecommerce in the developing world. Much will depend on approaches that national authorities have towards ecommerce in general and the influence major international eretailers have in the surrounded economic sphere – usually neighbouring countries or primary trade partners of the country in question. For some nations, the implementation of protectionist taxes have been a positive step towards the promotion of domestic eretailers by making cross-border goods more expensive and therefore less attractive to consumers. Many governments, such as India, fear that if their market becomes more receptive to major international sites emerging local ecommerce independence could be hindered or simply find foreign companies dominating their domestic market. To others developing economies, the field of ecommerce taxation is of significantly lesser importance due to its limitation to small social groups (usually the more affluent) and of overall lower national interest compared to the development of health, education and transport systems. Understanding political outlooks and trends in developing digital economies should therefore be of great interest to international eretailers seeking new markets.
As can has been seen above, the expansion to a developing country can potentially be a daunting prospect for eretailers. One useful method to easily understand the level of sophistication a digital economy has can be their ranking on the ‘International Web Index’. This index, compiled by the World Wide Web Foundation, ranks countries out of a perfect score of 100 based on their contribution to social, economic and political progress online. Many developed ecommerce markets maintain high web index scores, notably Denmark with a 100.00 value, though other emerging digital economies, such as Vietnam (24), Thailand (39), Saudi Arabia (27) and Egypt (28) have sub-50.00 ratings, indicating a higher risk of government interference in online activity or a restricted ecommerce performance due to wider socio-economic issues. It should be noted that a sub-50 score does not necessarily mean poor potential returns for eretailers, with China’s result (46) stemming directly from its strict, government-controlled web filtering policy. This strategy, very much in line with the Chinese Communist party’s ethos, has in fact provided space for domestic tech companies to develop in the void usually filled by major U.S. firms, stimulating the drive for domestically led digital development. The index is of immense value for eretailers in understanding new developing markets, helping them assess wider issues that could potentially influence ecommerce sales and ease of doing business.
Educational and social restrictions
An issue however that such resources cannot help assess is education, both general and digital. This will become a subject of key importance to the growth of digital integration in emerging markets over the coming decades however, unlike infrastructure, it can be easily promoted and aided. Globally, literacy levels are on the rise however this does not necessarily directly translate to digital literacy, which is notably different. While a user may be able to read their own local language, the representation of that particular language online will ultimately guide their digital habits. English (25%), Chinese (19%) and Spanish (8%) account for some of the most popular languages used by websites. If a user is unable to read them or unable to have them translated through their web browser, they will invariably encounter restrictions in their online activity. Languages such as Arabic (4.8%) for example surprisingly have a substantially lower online representation despite the large size of their ‘mother tongue’ real-world populations. Eretailers interested in operating in various international markets must take the lingual diversity of their potential customer base into account, keeping the option of tailoring their website to local requirements where necessary.
A user’s gender can also shape their access and use of digital technology. Women in many developing countries are still actively excluded from full access to education, with family or community requirements traditionally taking precedent. As a result, in these areas general female literacy and numeracy levels are on average lower than those for males. This gap can be multiplied for digital literacy levels and may in the future create a potential underclass – women currently unable to available of general education falling further behind social and employment opportunities as they are also unable (or not permitted) to use digital technology. Some countries are actively fighting such gender divisions, Costa Rica for example providing internet access to low-income households, often single parent families headed by a women. Ghana is also implementing a Universal Access Fund to assist greater female usage of online resources and reduce potential disparity with males. Overall the number of women using the internet in developing economies is 25% lower than men though in areas that emphasise gender equality in education the difference is significantly lower.
While the above points may seem to suggest that the roadblocks to ecommerce integration in developing economies are insurmountable, the opposite is true. The potential ecommerce market presented by the developing world is enormous, and will be a growing source of interest from major international ecommerce firms for decades to come. How such firms tackle local variations will be the key to their success and allow the easier introduction of their services to populations who may otherwise be unaware of how to avail of them. Adaptability is key. Each new frontier brings further need to understand how social and economic issues influence internet usage and is of particular advantage in comprehending the expansion of this form of trade. While many developing countries are hailed as the next frontier in online retail, the reality is that core customer groups will be limited to those with access to education, finances and infrastructure. The manner in which ecommerce evolves in the developing world will invariably differ on a region-to-region basis, dictated by key socio-economic factors. Those ecommerce firms seeking a true advantage in new regions will find that their greatest strength is knowledge; adapting to local needs, adjusting their services to their new customer’s requirements rather than enforcing a one-method approach to global retail.