On the backs of several successful e-Commerce companies, an increasing number of entrepreneurs are launching online businesses. However, the region lacks basic e-Commerce infrastructure, a fact which hinders growth potential in the space.
There are many proclamations that e-Commerce has arrived in Arabia and that we should expect to see local versions of e-Commerce juggernauts such as Amazon and eBay in the near future. We are seeing the popularity of websites such as Souq.com and Dubizzle grow every day, and with the introduction of many regional ‘daily deal’ sites, it seems that consumer trust issues with online shopping are dissipating. E-Shopping also seems to present an exciting opportunity for everyone from ‘mom & pop’ shops to large businesses to compete on an even playing field.
In more developed markets, launching an e-Commerce company is simple. Registering a company costs a few hundred dollars. Turnkey websites offer e-Commerce solutions out of the box for peanuts. A number of payment solutions offer cheap, cost-effective ways to collect money. Customer service is offered, measured, and valued. Shipping is simple and often free! All of these factors minimize the start-up ‘risk’ factor for a new entrant, and allow small stores to successfully compete against the big giants. For example, a friend of mine runs a successful online cheese company (seriously) out of small town USA, and does a modest $1 million USD per month in sales.
Here in the region, the potential to create similar success stories exists; however, the effort and high costs required to design and launch a new venture have become insurmountable barriers. Furthermore, the lack of proper infrastructure makes it very difficult to get past the idea phase, which further stagnates the entrepreneurial economy.
Here are five e-Commerce related infrastructure shortcomings presently found in the region:
1. Payments: Accepting payments on a website can be a huge ordeal. Choices include credit card, prepaid cards, cash on delivery, PayPal, etc. Getting a merchant account and payment gateway in the region is extremely expensive and probably greatest inhibitor. Sites like PayPal can be used, but having earnings transferred locally is a challenge. Regional payment gateway charge very high pricing to riskier e-Commerce companies, and demand a $25,000 or more deposit. Other regional payment companies such as CashU offer a pre-paid solution, is still inconvenient for the experienced shopper.
What’s Needed: An online payment gateway that offers online merchants the ability to accept credit and debit transactions with fair pricing.
2. Logistics (Shipping& Inventory): Finding a restaurant in Dubai or Riyadh can be a nightmare at times. Finding a residence address is frighteningly worse. Coupled with the cost of shipping goods, the economies of scale of an e-Store are diminished for cross-border sales. The lack of a proper, cheap shipping solution is still needed, although Aramex is making inroads. Also missing in the region is the concept of ‘drop-shipping’, where a supplier / distributor ships directly from their warehouse to the customer, thereby eliminating the need for a merchant to keep inventory.
What’s Needed: Simple, affordable and reliable order fulfilment services specifically tailored for e-Commerce purchases.
3. Design / Development: Arabic is
a beautiful language. Unfortunately, Arabic text on a website
requires mirroring (from right to left), which is much easier said
than done. It requires custom website interface design, not
only language translation. Turnkey e-Commerce solutions such
as Shopify do not offer an
Arabic version, therefore requiring companies to build websites
What’s Needed: A method to display an English website in Arabic (or vice versa), while keeping the inherent structure intact. Alternatively, more bilingual web design and development companies in the region are required, with both pricing and talent that remain competitive with the larger agencies.
4. Customer Service: Modern day business gurus view ‘customer service’ as a mindset rather than a process. It goes a long way to build shopper trust and brand loyalty. My personal experiences vary in the region. For example, a popular daily deal portal offered an immediate refund for a bad spa experience, while another ‘click and mortar company’ who was unable to find the history of a specific online transaction that I made from their e-Store despite days of searching.
What’s Needed: A realization that each online customer is valuable to the bottomline and the reputation of a company – whose residual value increases after a successful sale. Investing in customer service through all channels (phone, email and social media) is paramount. A memorable customer experience will increase brand loyalty and trust and result in multiple referrals.
5. Legal: Forming a company in the region is difficult and labour intensive due to the complexities of navigating local partners, free zones, employee visas, and license types. The cost of a business license can run into the tens of thousands with expensive annual fees, sometimes forcing businesses to register offshore. Furthermore, in many regional countries, the laws around consumer protectionism, transaction disputes and fraud protection for online transactions are not well defined or supported.
What’s Needed: A country-specific or regional policy for online transactions. Rules are needed to protect the customer. Also required is a specific business license that is cost-effective, that would allow entrepreneurs to setup companies with limited investment.
Aside from the fifth point, the previous four areas highlight challenges that are also opportunities for business creation. Each challenge is a successful industry on its own in North America, Europe and Asia. These five elements need to be put in place before we will see the region achieve its true potential, and yet if the current momentum can be turned towards building solutions, the industry will be well on its way.