A.T. Kearney published a 12 page paper „E-Commerce Is the Next Frontier in Global Expansion“, which we‘ve summarized with focus on Asia for our readers‘ convenience.
As e-commerce sales skyrocket across the developing world, building an online presence is a low-risk way to test new markets or complement existing store footprints. Gaining maximum advantage from such strategies requires knowing a country’s true e-commerce potential and its online market challenges.
A.T. Kearney’s 2012 E-Commerce Index, the first in a series, examines the top 30 countries in their 2012 Global Retail Development Index (GRDI). Using 18 infrastructure, regulatory, and retail-specific variables, the index ranks the top 10 countries by their e-commerce potential.
The findings provide a wealth of information for retailers’ use in developing successful global e-commerce strategies.
The 2012 E-Commerce Index
Global e-commerce is thriving as infrastructure, laws, and consumer preferences evolve, growing 13 percent annually over the past five years.
A country’s prospects for online retail success are closely related to how many people use the Internet and how many are comfortable purchasing products online.
The matrix seen below compares these two factors for all 30 countries ranked in the 2012 GRDI.
here are four types of online markets:
1. Infrastructure impediment: These markets lack the technological and logistical infrastructure for high-volume e-commerce. For example, most consumers in India, ranked 5th in the GRDI but unranked in the E-Commerce Index - due to lacking technology to connect to the Internet - and those who do have the technology still avoid e-commerce because of a poor infrastructure that prevents reliable delivery and returns.
2. E-commerce inequality: Markets such as Mexico and Sri Lanka have low-to-moderate Internet penetration overall but have a wealthy class that uses the Internet extensively and regularly buys online.
3. Ready and willing: Five of the 10 countries ranked in the E-Commerce Index fall into the ready and willing category of markets, because they have the full e-commerce package—the infrastructure to support high-volume e-commerce and users who are comfortable buying online.
4. Hesitant shoppers: Some markets have the technological infrastructure to support e-commerce, but are poor in-country dynamics—such as logistics, digital laws, or cultural biases— that make Internet users wary of purchasing online.
China: Ranking No. 1 in the Index
China’s $23 billion online retail market places it atop the E-Commerce Index. With a 78 percent annual growth rate since 2006, its online retail market is expected to explode, reaching $81 billion over the next five years as the country’s infrastructure improves and online purchasing behaviors evolve.
China has 513 million Internet users, the largest online population in the world, and 164 million online shoppers who are drawn in by lower online prices, promotions, and free shipping on transactions over a certain price.
Chinese online buyers value the ability to read consumers’ online comments and reviews of stores, products, and service quality. Consumer electronics and apparel are the two most popular categories among China’s online shoppers. Apparel attracts more than half of all online shoppers (both men and women) in metropolitan areas, a higher percentage than in the United States. Beauty is also popular, as almost half of women online buyers in China’s big cities purchase beauty products online.
Infrastructure challenges continue to hamper China’s e-commerce potential; however, only 34 percent of citizens use the Internet, lower than other markets primarily because of a large rural population that is less likely to use the Internet.
The quality of China’s transportation infrastructure also varies outside of its metropolitan hubs, inhibiting deliveries. In tier 1 and tier 2 cities, online retail purchases are typically delivered by couriers, which are price-competitive with high-end express services offered by FedEx, UPS, DHL, and EMS.
Payment solutions such as Alipay are the most popular form of online payments and are frequently the first option offered by leading online retailers. Cash on Delivery (COD) exists but is less popular, and some retailers, such as U.S.-based amazon.com, cap the amount that can be paid via COD because of security concerns. Luxury goods sellers go even further. For example, Swiss-based Richemont has partnered with security companies such as Brinks to ensure delivery and payments, while others send two couriers to deliver high-priced items and to guarantee that funds are deposited correctly.
Local Chinese retailers, including Taobao, Paipai, and 360Buy dominate the online retail market. 360Buy, originally selling consumer electronics online, has expanded into clothes, food, cosmetics, and books. The company owns 16 percent of the market and is considered China’s homegrown version of amazon.com.
International retail leaders, including Carrefour, Tesco, and Wal-Mart are attempting to take online market share from the domestic players. Wal-Mart has a controlling stake in the Chinese e-commerce firm Yihaodian, allowing it access to the company’s premium customer base and extensive logistics network. Other foreign retailers are close behind, with Spanish apparel retailer Zara and U.K. online luxury goods seller Net-A-Porter establishing an online presence.
Malaysia Ranking No. 7: Asia’s next e-commerce leader?
Half of all households in Malaysia own a PC, and 56 percent of the population is connected to the Internet. Besides, Malaysians are relatively heavy users of credit cards (1.1 cards per household) and debit cards (5.6 per household), allowing for easier online shopping. Moreover, Malaysia’s high-quality logistics infrastructure ensures that online retail purchases can be delivered in a timely manner. According to the World Economic Forum, the quality of Malaysia’s transportation services is on par with the United States.
Malaysia’s active online user base has embraced e-commerce. More than half of users shop online and rely on personal recommendations, search engines, and special Internet offers to make purchasing decisions.
Today’s online retail sales level of $250 million will double over the next five years.
Some of the main challenges to e-commerce in Malaysia include cyber-security concerns and the need to touch and feel products before purchase.
Malaysia’s online potential has drawn, among others, Germany’s Rocket Internet GmbH, which designed and launched local versions of Zappos and Amazon, and Zalora, an online fashion retailer from Singapore that began e-commerce operations in Malaysia in February 2011 and offers 48-hour delivery, COD delivery payment, and 30-day free returns on all orders.
The race to expand online retail in developing markets has already begun for both international and home-grown retailers. E-commerce and multichannel integration in emerging markets offer tremendous opportunities—at potentially lower risk and investment than building bricks-and- mortar stores.
The best path to online retail success is the one that creates an immediate impact in developing markets and builds a growing, long-term advantage. (Source: www.atkearney.com)