Many e-Commerce Opportunities Ahead in Emerging Markets
E-commerce as a share of total retail sales may soon be larger in emerging markets than in developed countries. The demand in the nine countries surveyed by Credit Suisse is driven by expanding incomes and rising Internet access.
The future growth potential for e-Commerce across the developing world is very strong. "Total annual online retail sales across our surveyed markets – Brazil, China, India, Indonesia, Mexico, Russia, Saudi Arabia, South Africa and Turkey – could reach up to 3.5 trillion US dollars and impact companies across multiple sectors, including retail, finance, security and technology," according to the findings of the Credit Suisse Research Institute's latest Emerging Consumer Survey. The main drivers behind this soaring demand for online shopping is the rapid rise in Internet access, as well as expanding incomes, which are resulting in an emerging middle class craving for goods and services. Another factor buoying online retail is the fact that emerging markets' traditional ("bricks and mortar") retail sectors are relatively underdeveloped.
One Billion Additional Online Shoppers?
Assuming that Internet usage across the developing world matures to the levels found in the developed countries, would imply an additional 1 billion Internet users in the nine countries surveyed, with India and China likely to be the largest contributors to this growth. It is worth highlighting that emerging consumers are likely to access the Internet through their smartphones to a much greater extent than through the fixed-line-based Internet. In India, for example, two-thirds of the Internet access is through smartphones and, in China, nearly three-fifths. This trend is observed in urban as well as rural areas. This fact is particularly relevant as the traditional "bricks and mortar" retail sector is far less developed in the developing world than in the developed, particularly across rural areas. Rural spending on e-commerce by the rural consumer in the countries surveyed is soaring. The proportion of rural respondents in India who had bought goods online rose from a mere 3 percent in 2010 to 34 percent in 2014. In China, this proportion almost doubled to 64 percent over the same time period. "Online retailing in emerging economies might therefore actually become bigger as a share of total retailing than in developed economies," the study's authors write. This also means that companies aiming to benefit from the on-going e-commerce boom across emerging countries should have a well-developed mobile strategy.
China Has the Most Online Shoppers
The Chinese are the most avid online shoppers, with 65 percent of respondents in the 2014 survey claiming to have made at least one purchase online during the past six months. This compares to less than 40 percent in the other eight countries surveyed, but this figure is on the rise. In India, a third of its Internet users now shop online, compared to a seventh in 2011. Online shopping is still dominated by the younger generations. In China, more than 70 percent of the Internet users who shop online are less than 30 years old. In India, the share of younger online shoppers almost doubled between 2013 and 2014 to around 35 percent. In the seven other surveyed emerging markets e-commerce still has not really taken off. Online shopping accounts for less than 10 per cent of Internet usage, as web users there mostly focus on social networks, instant messaging and gaming. But, as Internet usage becomes more widespread, the examples of China and India show that Internet activity switches to more commercial transactions such as shopping, banking and travel. The potential of e-commerce thus appears huge.
Huge E-Commerce Potential
Today, buyers across Western Europe, Japan and North America spend approximately 1,700 US dollars per year online. The average for developing economies currently stands at less than 800 US dollars. If we assume that the online penetration in the nine countries surveyed converges to the 50 percent average of the developed economies and if we estimate that the average spending on e-commerce will to rise to as much as 2,000 US dollars per buyer per year, then – the e-commerce market of these nine countries could reach an annual turnover of up to 3.5 trillion US dollars in the long term. The Chinese online market could on its own generate approximately 1.1 trillion US dollars in long-term revenues, compared to 300 billion US dollars in 2013. That year, China's online shopping expressed as percentage of total retail sales almost reached the US level of 9 percent. The Chinese online retail segment accounted for 8 percent of total retail sales in 2013, compared to only 1 percent in 2009.
The Likely Winners: Retail, Finance, Security and Tech
The main end markets likely to benefit most from this e-commerce boom are not only technology hardware and software companies enabling people to shop online, but also numerous product providers. These include music, books, and electrical products as well as companies offering online education. "The Chinese e-learning sector is underpinned by high employment pressure and a migration to use of mobiles in professional training," notes Credit Suisse's Chinese Internet analyst Dick Wei. The successful development of secure online payment systems appears to be strongly correlated to the greater demand for online shopping. The share of online transactions being paid for in cash on delivery has, for example, more than halved in China. Meanwhile the number of transactions executed through third-party online payment solutions is on the rise. So not only product providers should benefit from the ongoing e-commerce boom, but companies enabling online payments, credit card companies and firms offering greater online payment security should also emerge as big winners.