How to adjust your e-commerce business in developing countries

Since the beginning of the global community lockdowns in 2020, e-commerce has become one of the key channels for people to purchase goods and services, both essential and non-essential. It revealed to the world how much untapped potential this sector still has as an industry. With no clear end in sight for the pandemic, the e-commerce business will only continue to thrive and become a convenient alternative to physical shopping.

With many e-commerce magnates, such as Amazon or Alibaba, already firmly planted in the developed economies, the battleground has now shifted to the potential markets in the developing countries. Unfortunately, barriers to entry in these developing countries make it challenging for new players to join or for current small and medium enterprises (SMEs) to scale up operations.

How do businesses adjust to confront these barriers then? The United Nations Conference on Trade and Development (UNCTAD) identifies and scores countries in an index based on a set of assessment criteria that make any developing country “e-commerce ready”.
Among them are the following:

  • Developing Infrastructure, Information Service and Business Portals
  • Enabling electronic payment systems
  • Improving logistical systems and structures
  • Establishing Effective Legal and Regulatory Framework for electronic systems to ensure cyber security and data protection

Each developing nation carries varying degrees of e-commerce readiness based on these key areas. These criteria are designed particularly for policy makers, but they also provide a good framework for evaluating how to proceed and adjust any entrepreneur’s business model, especially when planning to transact with the developing countries. What follows is a short discussion on the key features of developing countries, in relation to these assessment areas.

  1. Developing Tech Infrastructures and Narrowing the Digital Divide
    Over the years, the growth rate of internet users for the developing countries has been consistently increasing, despite the relatively low internet usage of the population. Internet bandwidth has also been improving, and the pandemic only accelerated this process of digitalization, reinforcing the urgency of these countries to address their barriers to entry in the e-commerce market.

    Thus, there is a concerted effort globally to help these countries improve technological infrastructures, in order to upgrade internet accessibility and make them more e-commerce ready. This calls for extensive investments from the private sector, prioritizing long-term returns in the society than private returns. Taking advantage of the public-private partnerships instituted to bridge this so-called digital divide is something that should be of interest to entrepreneurs opening e-commerce initiatives in these developing countries.

  2. Improving Logistic Systems and Structures
    Guaranteeing that the products or services are delivered to customers in a timely manner is one of the strongest propositions of the e-commerce business. But doing so requires streamlining the supply chain from inventory management to delivery to consumers. This happens through effective management of demand and supply, and optimization of logistics and transport in order to make costs competitive with other players.

    For many developing countries, unfortunately, there is a great need to improve transport and logistics infrastructures, and to decongest urban centers that would facilitate the flow of goods from the rural to city, and back. Logistic structures should also be prepared to cater to countries with unique geographical features.

    Other channel supports such as product and market visibility (through social media platforms) also contribute to influencing customer’s purchase of seller’s goods. New entrants can exploit the high penetration of social media in these countries in order to build brand recall and preference.

  3. Enabling electronic payment systems
    Another critical challenge is the availability of payment options to customers. At the onset of the pandemic, there were some important changes in the payment methods offered by businesses in the developing countries, in order to accommodate the markets who are poor and underbanked (i.e those who don’t have bank accounts/ credit cards/ debit cards to pay for their orders). 

    The inclusion of Cash on Delivery (COD) option was one of them, and the launch of so-called virtual wallets became a secondary popular payment method. The high penetration of mobile phones makes these virtual wallets compatible with customer’s everyday life, practically becoming a convenient (and perhaps more secure) alternative. While these improvements are already in place, there is a need for financial systems in the developing countries to continue innovating in this regard, in order to catch up with the aggressively evolving e-commerce business worldwide.

  4. Establishing Effective Legal and Regulatory Framework
    It cannot be emphasized enough that the success of e-commerce strategies is hinged on the trust that the customers place on the whole ecommerce environment. Sustaining this confidence requires creation and enforcement of e-commerce laws to protect the customers from privacy invasion, cybercrime, and fraudulent transactions.

    Aside from trust issues, the government has an important role to play in facilitating fair competition between players, including brick-and-mortar businesses. Laws legislated should ease investment of private companies to further improve all the important facets of e-commerce. While many developing countries have made a significant push in this area, there is much work to be done to firm up the security and reliability of ecommerce transactions.

All the considerations above are for companies to keep in mind in order to remain competitive in the developing countries.

It goes without saying, however, that it will take a lot of initiative from both the governments as well as businesses to embrace the potential economic development and productivity that e-commerce business provides. Businesses have to be knowledgeable of local policies, structures, and supply chain, in order to create adaptable strategies to operate in these countries.

Overall, however, the eCommerce market of developing countries presents a lot of untapped opportunities for companies interested in diversifying their investments and business operations to expand their reach.

The forced isolation of communities will continue to put the pressure on these markets to catch-up in ecommerce and close the widening digital divide worldwide. Trying to find your business’s niche on what role it will play in this catch-up is the way to go. Exciting times are ahead for the e-commerce industry especially for these developing countries given the growth potential that they have.