I hope you’ve enjoyed this journey through the world of e-commerce. My goal has been to share my perspective on where e-commerce may be going. Along the way I’ve tried to provide the local context in which it is developing, in the hope that the next generation of e-commerce pioneers can avoid some of the mistakes, and learn some of the lessons, of the early e-commerce players.
It’s an exciting time for entrepreneurs and e-commerce pioneers to be alive. Until about ten years ago, the benefits of e-commerce were largely limited to those in the developed world. But the future of e-commerce belongs to emerging markets. And e-commerce is now at the tipping point: the center of e-commerce is about to shift from the one billion shoppers of the developed world to the developing world’s six billion shoppers.
With this in mind, I leave you with seven key takeaways.
We are now in the golden era of e-commerce in emerging markets
If you’ve read this far, I assume you agree that this is the golden age of e-commerce in emerging markets. Yet many business leaders still think that e-commerce in emerging markets offers only marginal opportunity. In fact, the e-commerce opportunities in countries like China and India and in regions like Southeast Asia and Latin America are far greater than most people realize.
To understand the full scale of the opportunity, look at China, a country where, fifteen years ago, people thought e-commerce might never take off. In 2016 Alibaba’s Singles’ Day Global Shopping Festival
• generated $17.8 billion in transactions in a twenty-four-hour period (a 32 percent increase from the previous year) on Alibaba’s websites alone
• attracted the participation of nearly 100,000 merchants
• saw at its peak the processing of 120,000 Alipay payment transactions per second
• saw 37 percent of buyers purchase from international brands
• processed 657 million delivery orders placed through Alibaba’s marketplaces
And that’s just one company in one emerging market on one day.
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THE KEY POINT is this: The same revolution that occurred in China’s retail market is gaining momentum in other emerging markets. Forward-looking companies and entrepreneurs can get into these other markets early, knowing that history is likely to repeat itself, albeit in a manner unique to each market. The market with the greatest growth potential in the near term is India’s, followed by Southeast Asia’s, Latin America’s, and, long term, Africa’s.
The key driver for global e-commerce growth is smartphone adoption
The popularity of the smartphone, combined with the drop in Internet data prices, is powering Internet penetration in emerging markets. The result is that each week millions of new potential e-commerce consumers are coming online in those markets. These smartphone users literally have a virtual shopping mall (or storefront) in their pockets.
Because e-commerce shoppers in developed markets started shopping online with desktop computers, they were slower to switch to mobile phones for their purchases than consumers in emerging markets. But for consumers in countries like China and India, a smartphone is often the first (and only) device they own for accessing the Internet, and they are therefore more likely to adopt the habit of using their phone to shop. Because consumers in emerging markets prefer phones with larger screens, companies can tailor all their branding activities to a smartphone screen, educating new consumers and building a brand for their products solely on the smartphone. Indeed, Alibaba’s Singles’ Day mobile sales figures overcame the concerns of the greatest skeptics: 82 percent of its sales came through mobile devices.
The preeminence of mobile use in emerging markets has important implications for e-commerce. It means that location-based marketing and services will become more fully developed. It means that mobile payment will become easier and that social commerce will play a more important role, because communication and shopping are more easily integrated on a mobile phone.
The failure to adapt US business models to emerging markets dominates the early history of e-commerce
In my travels to research this book, one common thread came through, no matter the market—the story of the first e-commerce attempts in emerging markets is the story of a failed attempt to apply the business model of eBay or Amazon to the local markets. Whether the company was 8848 in China, Baazee in India, or DeRemate in Latin America, those that stuck rigidly to the US business model either went out of business or limped along without achieving true success.
The reason for their failure is that US business models simply don’t fit the conditions of emerging markets. EBay’s auction model for secondhand goods didn’t work in China, India, or Latin America because the big opportunity in these markets was to empower entrepreneurs to sell new goods—there was no big market for secondhand goods. Amazon’s first retail-led model didn’t work because the emerging markets were too inefficient for a comprehensive retail model that relies on large scale and low costs.
The companies that succeeded in the long run, such as China’s Taobao and Latin America’s Mercado Libre, may have started out as clones of their US counterparts. But they quickly pivoted and created something that fit the local market, starting with the local customer and working backward.
The Chinese model for e-commerce was the breakthrough that emerging markets needed for e-commerce to take off
The business model that Alibaba pioneered in China proved e-commerce could work in emerging markets, and its influence continues in other emerging markets today. The model is defined by a platform that empowers entrepreneurs and retailers by giving them the tools to create highly customizable storefronts and leaving responsibility for the success or failure of their business almost entirely in their hands. This platform is accompanied by an ecosystem that provides the services, such as payment and delivery, that buyers and sellers need to complete their transactions but that otherwise are nearly nonexistent locally.
In other emerging markets, e-commerce players have moved from favoring the Amazon and eBay models to favoring Alibaba’s marketplace model. This does not mean that the Alibaba business model will work just as well in India as in China. And in fact the lesson from the China experience is that each market is unique and no one business model fits all. But entrepreneurs in emerging markets are now able to borrow from and adapt both the US and Chinese models while adding innovative services to meet local needs.
E-commerce in emerging markets will prove more creative than disruptive and will help lift millions out of poverty
Creative disruption is a popular goal for entrepreneurs in the tech world. But too often the creative aspects are celebrated while the disruptive effects, such as job displacement, are overlooked. Amazon is a great example. Yes, it has brought less-expensive products to consumers around the world. But it has also wreaked havoc with the traditional retail it has replaced, driving bookstores and retailers out of business as shoppers check out goods offline and make their purchases online. “Amazon is not happening to bookselling, the future is happening to bookselling,” Jeff Bezos famously told the US television magazine 60 Minutes. As much as I agree with Bezos and admire Amazon for its innovation, I can’t help but also feel sympathy for the many traditional retail workers in the United States who have been displaced.
Fortunately, the moral argument against e-commerce is harder to make in emerging markets. Rather than replacing an already efficient retail infrastructure and displacing millions of workers, e-commerce in emerging markets is likely to be creating opportunities that did not exist offline. As studies cited earlier in this book have shown, e-commerce has an additive effect in emerging market economies. And the inventory-free “China model” that companies in emerging markets now favor tends to empower small retailers rather than compete with them. As Jack Ma put it in Davos in 2017: “We want to empower others to sell, to service, to make sure that other people are more powerful than us.… We think, using our technology, we can make every company become Amazon.”1
Cross-border retail sales will become a major driver of worldwide e-commerce growth
As more of the emerging world’s six billion shoppers buy smartphones and use them to shop, they are likely to begin their shopping with online retailers who are local. But over time, as their incomes rise and they begin to seek new products and experiences, they will begin to shop overseas after they realize that the world’s products are literally at their fingertips. The result will be a boom in cross-border retail sales, which have only just started.
Consider that during Alibaba’s 2016 Singles’ Day, shoppers in China bought products from retailers in more than two hundred countries and regions through cross-border transactions. This means that a family in rural China that wants to celebrate a special occasion might buy lobsters sent directly from Maine. Or an office worker in Kunming might buy a wedding dress from an online boutique based in France. Cross-border e-commerce has already arrived in China, making it possible for brands and entrepreneurs to sell into China directly, without setting up a local China operation. In fact, eMarketer estimated that cross-border sales into China would hit $85 billion by the end of 2016.2
As these cross-border sellers become more savvy about working through the customs paperwork and logistical challenges of cross-border fulfillment, they will pay more attention to other emerging markets, like India, where shoppers are quickly coming online. It’s why a study by Accenture and AliResearch (Alibaba’s research arm) estimates that B2C cross-border e-commerce volumes will surpass $1 trillion by 2020.3
However, as cross-border B2C transaction volumes rise, so will trade tensions between countries whose local retailers are adversely affected. After all, if a shopper in Mexico can get a better price on a product bought online from the United States or China and avoid local taxes, why wouldn’t she go straight to Amazon or AliExpress for her purchase? In the recent political climate, with nationalism and protectionism on the rise around the world, a boom in cross-border e-commerce may also give rise to increased regulation designed to protect local jobs.
The e-commerce boom will give rise to important environmental challenges that emerging markets need to manage responsibly
It’s easy to get excited about what e-commerce in emerging markets may bring. But no one should lose sight of the potential downsides and harmful effects, the greatest of which, in my view, is the potential for harm to the environment.
Nothing drove this home to me more than watching coverage of the 2015 Singles’ Day Shopping Festival held by my former employer, Alibaba, in Beijing’s Water Cube, once the venue for the swimming events of the 2008 Summer Olympics. As company officials and participants celebrated Alibaba smashing yet another record, air pollution was visible both within the venue and throughout the city. Even as China’s orgy of online mass consumption was setting new records, people were walking Beijing’s streets with face masks, protection from air quality deemed so unhealthy that parents were advised not to let their children play outside.
Yes—the benefits of e-commerce are great. And in a country like China, India, or Nigeria, it can provide a step up for a small entrepreneur’s family, allowing them to buy basic necessities, such as enough protein to eat or books for their children’s education. But simply replicating the mass consumerism of the West is not sustainable if these small entrepreneurs also want clean air and a healthy environment. Emerging markets should embrace e-commerce in a way that also considers the environmental impact to ensure that, as factories pump out more products and motorcycles whiz around town delivering packages, e-commerce’s golden age doesn’t lead to an environmental dark age.