Ecommerce platforms in the developing world are tapping into vast markets of newly connected consumers, and their investors are optimistic.
The emerging world is home to countless small businesses, and local ecommerce platforms are enabling them to do an increasing share of business online. The ecommerce firms are thriving, and attracting deep-pocketed investors. Nigeria-based Jumia floated on the New York Stock Exchange in April. Mercado Libre of Argentina listed in New York 12 years ago, but saw its share price more than double this year. In March, PayPal invested $750 million. Shares in Singapore’s Sea Group, owner of ecommerce platform Shopee, have tripled in value this year. It raised $1.5 billion.
Other firms are being snapped up by giant retailers such as Walmart, which acquired Indian ecommerce firm Flipkart in 2018. M&A activity has been particularly high in Russian ecommerce. Fedor Virin of research firm Data Insight says a “sprint” is on for control of the $18 billion market. China’s Alibaba has charged ahead, forming joint ecommerce ventures with Russia’s sovereign wealth fund, telecom company MegaFon, and internet firm Mail.Ru in the past year.
Many developing world ecommerce firms are based on the Amazon model. Dubbed “baby Amazons” by The Economist, they continue to be dwarfed by their progenitor in most respects – with the exception of regional growth. While Amazon’s international sales grew 12% year-on-year in the second quarter, the locally based firms’ sales are rising by high double digits or more: 342% in the case of Shopee, The Economist reports.
They are taking a different path to growth than Amazon did, as they started with very different infrastructures. Amazon had the U.S. Postal Service and extensive credit card networks to work with, while firms in developing economies had payment and delivery systems that were emergent or non-existent. Many have had to build their own, or manage without. Therefore their growth had a slow start. But now, better infrastructure is in place, and many more customers are able and eager to participate in global ecommerce.
A key advantage for firms in the developing world is their local knowledge. Walmart, for example, exited Brazil in 2018 when it encountered the difficulty of accessing the global supply chains it relies on. As Sean Summers, Chief Marketing Officer of Mercado Libre points out, red tape related to tax, shipping and payments proved too much hassle. Developing world ecommerce platforms do not have to adapt to complex local markets. They are rooted in them. And with foreign giants out of the way, they have room to thrive.
For the moment at least, the burgeoning ecommerce companies are not making much money. Yet their investors are optimistic. The funding keeps coming, and joint ecommerce ventures with global giants continue to form. As connected consumers multiply, firms expect their markets to expand quickly enough to generate profits before their coffers run dry. Jeremy Hodara, one of Jumia’s co-founders, says the consumer class is growing fast. “They come to us and say, ‘Look, it’s the Africa Cup of Nations and my country’s qualified. I need my first TV.’”