Trends and challenges for small e-commerce businesses
By Sidra Tariq
With the Middle East region’s and Africa’s B2C e-commerce sales expected to reach $51.4 billion by 2017 (eMarketer data), the opportunities for budding entrepreneurs looking to tap into the market can be immense. A growing internet population and its gradually increasing receptivity to buying online, means that companies that truly create value stand a chance of making room for themselves and enjoying a piece of the $51.4bn pie.
However, starting an e-commerce venture takes time, resources, dedication and planning, and there are several other boxes that need to be ticked before you can get started. For entrepreneurs hoping to take the plunge, it is essential to first understand the market, and identify opportunities and challenges that can come along the way.
Transportation and logistics company, Aramex, has been a part of the regional e-commerce ecosystem, providing logistical support and distribution services to businesses. Its global director of e-commerce, Hassan Mikail, talks about e-commerce trends in the Middle East region and highlights logistical challenges that budding entrepreneurs, looking to break in to the market, should be aware of:
Have you seen an increased demand from new small e-commerce businesses in the UAE?
A number of new e-commerce companies have recently setup in the UAE market, which is clearly a positive trend. Numerous new players have come to the market with diverse offerings to consumers, such as verticals and niche-oriented e-commerce sites.
One example is a web store geared specifically towards progressively designed slippers and national dress. Another interesting trend is merchants eager to do cross-border trade out of the UAE into foreign markets, such as Hobbygulf.com. Hobbygulf.com opted for warehouse management at the Aramex eHOUSE in Al Quoz and has plugged into the Aramex Shop and Ship cross-border solution for merchants, in order to reach out to new markets swiftly and cost-effectively. To-date, there are more than ten UAE-based merchants who have also plugged into the Shop and Ship Merchant solution.
As the number of new e-commerce entrants to the UAE market continues to rise, the e-commerce economy grows and develops – and there remain significant further opportunities for growth.
What has the uptake been in the past few years and how much business do they drive?
In terms of the entire e-commerce sector across the Middle East region, the market grew 29 per cent from $7bn in 2011 to $9bn in 2012. In the UAE, e-commerce is currently worth $2.9bn (AED10.7bn) and is expected to grow to $5.1bn (AED 18.78bn) in 2015. Aramex believes that the Middle East’s online commerce market will reach $15bn by 2015.
This growth over the past few years was clearly driven by a jump in demand from the Middle East region’s online commerce population, as well as a flood of local retailers coming online, who can offer local consumers what they could only have purchased outside the region prior [to that].
What are the main logistical challenges small e-commerce businesses face here?
There are several logistical challenges that all e-commerce businesses face in the region:
• Current GCC laws do not recognise e-commerce and instead focus on ‘hand-carried’ regulations
• Companies can only send consolidated freights by road and not by air; equally, companies cannot currently send consolidated express freights to individual consumers by road. To provide an illustrative example, it is cheaper to freight goods from New York to Dubai, than it is to send the equivalent materials from Dubai to Saudi Arabia. Clearly, this does not make business sense, both for time or financially
• Customs costs remain prohibitively expensive, with additional fees frequently making the purchase of goods from overseas uneconomical – negatively impacting both suppliers and consumers
• Online payment gateways are also restrictive, preventing SMEs from providing the initial up-front collateral needed to start trading. To open a payment gateway, companies usually require a minimum of AED300,000 and a bank guarantee, which is often impossible for small start-ups. Online payment gateways also charge 2.5 per cent or three per cent on every transaction, presenting additional challenges for start-ups and entrepreneurs in the region
• Receiving a bank loan for young entrepreneurs is also often difficult, having no established credit history or real estate assets
However, progress is being made with helping small e-commerce companies build their businesses. For example, Economic Zones World and Dubai Customs, along with key founding partners, recently announced that the world’s first purpose-built smart retail hub, matajircom, will be launched in 2015. This smart retail hub initiative will create an opportunity for SMEs to widen consumer bases, create new opportunities for trade and enhance customer satisfaction. Customers will get a wider choice and greater flexibility in terms of ordering and delivery.