Global E-Commerce Opportunities For SMEs: Hiding In Plain Sight
In the COVID-19 hit world, the one sector, which not only has shown resilience but growth is e-Commerce. From India to China to Africa, this sector has become the panacea for middle-class consumers. The global e-commerce market was 3534 billion in 2019 and that over 14 percent of global retail sales in 2019 were generated from eCommerce sites. This spree of online sales will continue to grow and it is likely that the global retail sales will be near USD 6.5 trillion by 2023. If India takes one percent of this market, it adds $15 billion to our export figures.
In spite of a rich diversified basket of merchandise, Indian merchants have not been able to make any inroads in the global e-commerce marketplace except in countries served by Amazon Global. What could be plausible reasons?
The efforts of Amazon, through its Fulfilment by Amazon (FBA) program has been able to rope in over 60,000 large and small sellers, many for the first time. The 2018 Indian revenue on Amazon Global was US$ one billion, which would go up to US$ five billion by 2023. Amazon takes over all backroom functions (at a hefty fee) leaving sellers free to concentrate on marketing and selling. Order fulfilment is the process of warehousing merchandise, picking and packing goods selected by online customers, and shipping orders to customers through couriers or post office. Amazon Global does it in-house but it can also be outsourced to a third-party logistics (3PL) provider.
The same success has not been seen in other global marketplaces such as China, Africa, Asean, Japan and South Korea, which are all showing healthy growth.
The stakeholders in Indian exports ecosystem that is the Export Promotion Councils (EPC), Exporters & Trade Associations including SMEs are aware of these large and fast-growing export channels but have not been able to come up with any practical roadmap to exploit these markets which are “hiding in plain sight”. These bodies have to understand that in the e-commerce marketplace, trade shows and B2B meetings, thus far the mainstay of EPCs lose their significance and what takes its place is building end-to-end supply chain and fulfilment services, hand-holding and training in foreign e-commerce navigation with its own obstacles such as foreign language platforms. In short, do for foreign e-commerce sites what Amazon FBA does for its global marketplace.
Take the case of China, notwithstanding the current imbroglio, it has emerged as the leading e-commerce market nearing USD 2 trillion in 2019. As per McKinsey’s report “China had less than 1% of value of worldwide e-commerce transactions ten years back, which has grown to over 40%.” This is one reason why several global companies in the e-commerce sector were found in China. With internet mobility becoming an integral part of daily life, this e-commerce industry has boomed. Therefore, it is the e-commerce platforms on mobile phones such as WeChat which must be the primary gateway to enter the Chinese consumer market.
This assumes importance for new merchants as, for instance, Alibaba’s TMall which is the most well-known platform in India is costly for new SMEs to enter. Mobile outlets such as WeChat have lower entry costs and still have millions of buyers.
China welcomes the entry of imported goods and the government has made the process of entry of goods through Cross-Border E-commerce (CBEC) very easy for exporters. Foreign merchants can do product selling to Chinese customers through bonded warehouses. These are at the designated free trade zones with preferential duty rates and also without a license for business operation. Chinese CBEC offers exemption from filing/registration process and expedited clearance times allowing foreign merchants to enter China faster with affordable costs. However, products must be listed in the Chinese language and hence require the assistance of intermediaries. Several fulfilment agents have set up shops in designated Free Trade Zones and Hong Kong as intermediaries between foreign merchants and Chinese consumers.
Japan, Korea and United States lead in cross-border trades. One advantage in China is that China collects consignments from bonded warehouses operated by fulfilment centres, delivers to customers and collects government dues directly from the customer. This reduces the cost and size of fulfilment centre operations. On the other hand, in India and other countries, last-mile delivery is the responsibility of the fulfilment centres, increasing costs manifold.
Chinese government has published a list of over 350 items, called “Positive List”, which can be sold on CBEC in January 2020. In January 2020, certain types of pharmaceuticals were added to this list. Every Chinese can buy up to RMB26,000 (USD 3782) of goods per year without payment of import duties. This facility is presently available in 38 designated cities and the Government will progressively include additional cities/regions in years to come.
Behavioural shifts in online consumer buying habits since the COVID-19 outbreak present exciting opportunities for sellers on online shopping in China. For instance, since January 2020, buying by senior citizens has increased by 30 percent.
For Indian sellers, in spite of current low in Indo-China relations, this is a growth opportunity to enter and expand your business in the world’s largest cross-border eCommerce market. Take the case of sugar. Our warehouses are full of sugar and require hefty government subsidy to export. China imported 3.3 million tonnes of sugar in 2019 but only 270,000 tonnes from India. Each Chinese national can buy 2kg. of sugar through CBEC every year. We can sell thousands of tonnes of sugar in retail through CBEC without any quotas or restrictions. Likewise, Amul (and other dairies) is sitting on a stock of 80,000 tonnes of skimmed milk powder (SMP) and has asked the government Rs.160 crores in subsidy to export it. There is growing consumer demand for dairy products in China and hundreds of tonnes of SMP can be sold in retail over Chinese CBEC. Same is true for rice, tea, spices, leather products, home textiles and even whiskey and rum.
China is just one of a score of high growth online markets available to exporters such as in Africa, Japan, South Korea, Malaysia and Singapore. In addition, now even larger markets in South American can be tapped without moving out of India.
Country/Region | B2C Ecomm revenue 2019- USD bn. | World Rank | Growth % |
China | 98 from imported goods only | 1 | 15 |
Africa | 24 | - | 18 |
Japan | 122 | 3 | 5 |
S. Korea | 66 | 5 | 6 |
Singapore | 4.9 | - | 14.7 |
Malaysia | 3.75 | - | 11.4 |
The growth rate of some other countries is, Indonesia 16.6%, Philippines 15.2% and Vietnam 13.5%.
African eCommerce is very promising as India already is the second-largest exporter to the continent. After signing of African Continental Free Trade Agreement (AfCFTA), the entire continent will become one borderless market of 1.2 billion people giving a big boost to eCommerce activities. At present, South Africa and Nigeria are Africa’s largest B2C market for e-commerce, with more than fifty percent of internet users shopping online. Egypt follows the same pattern. Jumia from Nigeria is present in over 20 countries and DHL in 13 countries. These are the two leaders in their market with Alibaba and Amazon finalising plans to enter.
Besides, B2C, there is also a large and growing online B2B market in most countries and this should also be explored. For example, in Malaysia, B2C market is only 15% of total $25 billion eCommerce market. However, only China has eased the selling process of imported goods in B2C market to a great extent.
To gain billions of dollars in export revenue from CBEC, we need to build an infrastructure in logistics and fulfilment services. Servicing each customer through small consignment sent from India by airfreight is very costly as shown in Model A. This is possible for high-value items only. This way, we will remain a marginal player in the global e-commerce arena.
To get big volumes and generate large revenue, we need to first organise aggregation of consignments from SMEs and transport these in containers. Second, we need to build Fulfilment warehouses in various Free Trade Zones starting with China. The E-Commerce companies do maintain their own fulfilment centres but the exporter will have to keep stocks in each of the company’s facilities. Therefore, bonded warehouses should be run by Third Party Logistics (TPL) to enable them to service order coming from any of the platform exporter chooses to sell on as shown in Model B. Language is another obstacle. Indian sellers must work with native speakers, as they have a deeper understanding on the keywords, appropriation of usage etc.
The government of India has a scheme to provide subsidy for warehouses in foreign countries but very few exporters take advantage of it. Exporters Institutions such as FIEO, ITPO, DGFT etc. can come forward to facilitate the building of an CBEC infrastructure. Within the country, we have all the know-how and international 3PL institutions which can be mobilised to build this infrastructure but who will “bell the cat”.
The market is huge and in times to come, will also overshadow the brick & mortar selling outlets. We have thousands of small suppliers who can profit from it, provided we can get our act together.
- The authors of the article are Dr Aseem Chauhan - Chancellor, Amity University; Suhayl Abidi -Consultant with Centre for VUCA Studies, Amity University; Prof (Dr) Manoj Joshi - Fellow Institution of Engineers, Professor of Strategy, Director, Centre for VUCA Studies, Amity University; Prof (Dr) Ashok Kumar - Consultant with Centre for VUCA Studies, Amity University
_20241128134030_original_image_35.webp)
_20241128130031_original_image_20.webp)
