Written by Arántzazu Sánchez Article No. 26 [UNCTAD Transport and Trade Facilitation Newsletter N°80 - Fourth Quarter 2018]
Established in 2002, Transport Intelligence (Ti) provides expert research and analysis dedicated to the global logistics industry.
UNCTAD spoke to Nick Bailey, Head of Research, and Violeta Keckarovska, Research Analyst, about the recent developments in cross-border e-commerce, and its implications for developing and least developed countries around the world.
UNCTAD: Is it too soon to talk about South-south cross-border e-commerce?
Violeta Keckarovska, Ti: It's not too soon to start thinking about South-South cross-border e-commerce from a strategic planning perspective, but it's worth remembering that e-commerce is generally a market with three poles - Europe, North America and China. It's more accurate to describe South-South e-commerce trade as a market of potential to be realised compared with a market of immediate opportunity, at a general level, but with some immediate specific opportunities.
But, qualifying the optimism and strength of the opportunity is important. Whilst China has created a centre of gravity that is spurring some South-South cross-border trade, it's hard to put a timeframe on this development, or even to predict which are the most likely countries that will see development.
There are a few key measures, such as growth in per capita income and retail sales as well as general economic growth, that seem to indicate potential for growth in e-commerce, but as we've seen, internet access, payment systems, and physical infrastructure development are just as important. As such, it could be said that Asia Pacific is the region that has the most immediate cross-border South-South opportunity. However, again, it's worth remembering that domestic e-commerce is still the larger market, with cross-border volumes generally nascent or making up a minority of the overall market.
UNCTAD: The value of e-commerce is increasingly growing. Countries are eager to reap the full benefits of this new trend. However, this seems to be particularly difficult for African countries, why is this so?
Nick Bailey, Ti: Africa is a large and varied region, and access to these types of service that facilitate e-commerce is similarly varied. Firstly, there's internet access. The adoption of smartphones and mobile internet access is helping drive internet adoption across large parts of Sub-Saharan Africa, with growth in the middle class and a generally young population also aiding this. Overtime, the signs are that the adoption of both mobile devices and online payment systems will help bridge the gap between retailers and consumers. At the moment, internet access amongst consumers is still low at around 20-25%, so while the trend is positive there's still a long way to go. Payment systems, meanwhile, are particularly important as trust in banking infrastructure across the region is generally low and cash on delivery remains the preferred payment method.
The region's rapidly growing middle class is often cited as a reason for optimism, and with 350 million people in the category, it stands to reason that online retailers should find a sizable market as consumption increases and demand for new types of products grows. Around 60% of the middle class, however, still have low incomes and purchasing power remains a constraint on e-commerce growth. This is reducing the addressable market for online retailers to the more stable middle- and upper-class populations and expat communities, a much smaller number overall.
Given the particular character and challenges of the African e-commerce market, solutions are having to be designed for specific cases, rather than exported from other countries or regions where they've seen success.
This has resulted in investment in call centres to help manage customer relationships and showrooms to display the tangible products for sale online. Local knowledge of delivery locations is also highly prized, as with no central addressing system a delivery drivers' ability to quickly find a customer is a competitive advantage, as is the ability to educate and generate trust amongst the population in online payments and other cashless transaction methods. There remains a huge amount of potential in the e-commerce market is Sub-Saharan Africa. Solutions to some structural and operational problems are helping to turn that potential into a reality, but there remain significant barriers in place.
UNCTAD: In your opinion, how could policy makers in developing countries help boosting cross-border e-commerce?
Nick Bailey, Ti: One of the biggest challenges to overcome in developing markets is logistics costs. Generally, logistics tends to be considerably more inefficient in emerging markets compared to developed markets. This arises for numerous reasons, including poor or under-developed infrastructure, higher tolls and taxes, excessive bureaucracy, a complex customs and regulatory environment, corruption and a lack of integrated logistics service providers, to name just a few. This inefficiency associated with emerging markets increases e-commerce logistics costs as a % of sales. Offsetting this is the fact that labour costs are lower in emerging markets, which is particularly important when it comes to e-commerce logistics as picking and packing is highly labour intensive, as is last-mile delivery.
Violeta Keckarovska, Ti: When it comes to cross-border e-commerce, some of the most important actions policy makers can take is to help drive down the inefficiencies which increase costs.
Boosting cross-border e-commerce in developing markets requires a business environment in which online retailers can operate and grow domestically. While there is strong growth in cross-border trade, we still see that domestic e-commerce markets are generally larger than international markets, although growth in both is strong. As such, policy makers need to ensure it's as easy as possible to set up and operate businesses domestically to encourage entrepreneurs and established businesses to start online retail operations, while at the same time addressing corruption, streamlining tax regimes and reducing complexity in customs and regulatory frameworks.
Domestic actions such as ensuring online retailers have reliable supplies of electricity and high-speed internet access are important too. As retailers also need inventory, policy makers should ensure that's it easy to import finished products and raw materials. Allied to the import of raw materials is the need to ensure domestic manufacturing capabilities are in place and the ability of domestic and international businesses to invest in their development is facilitated.
For cross-border trade specifically, policy makers need to make sure there are robust frameworks in place to facilitate exports, and that online retailers have access to foreign exchange, so they can turn international revenue into domestic currency. Clearance procedures at major export gateways also need to be efficient - speed-to-consumer is vital, and having a shipment held at a port for days or even weeks means a lost sale verses a retailer that can guarantee quicker delivery. As such, there's a bureaucratic process to ensure exports and clearance is as straightforward and speedy as possible, as well as a physical infrastructure need that makes the movement of goods by road, rail and through air and sea ports as efficient as possible.
Want to know more about e-commerce and logistics? Don't miss UNCTAD e-commerce Week - 1 to 5 April 2019. More info can be found here.
