Nextrade Group Announces New, Actionable Ecommerce Development Survey and Index

By Kati Suominen, Founder and CEO

Ecommerce is reshaping the patterns, players, and possibilities of international trade. It is opening new trade opportunities for companies of all sizes and across sectors. However, numerous challenges need to be overcome for digitization to translate into trade and growth gains especially in developing countries, such as poor Internet connectivity, populations’ limited digital skills, logistics and market access bottlenecks, and policy and regulatory issues such as data privacy rules that limit access to customer data and its transfer, incomplete intellectual property frameworks, and legal liabilities for Internet intermediaries of contents such as user reviews on their portals.

However, lack of systematic and actionable data complicates developing countries as well as international aid agencies’ ability to design and prioritize policy solution to these challenges. There is still relatively little data and mostly only anecdotal evidence about the obstacles companies face when engaging in ecommerce in any given country. This limits developing countries and international aid agencies’ ability to fuel digital trade – to prioritize policy choices and investments in digitization and ecommerce.

A new Nextrade Group survey and report starts filling this gap. Covering 15 developing economies (Argentina, Brazil, Chile, Colombia, Mexico, Uruguay, Pakistan, Bangladesh, India, Philippines, Kenya, Nigeria, South Africa, and Ghana) and 3,500 merchants and ecommerce ecosystem companies (ecommerce and payment platforms, shippers, banks, IT firms, etc.), the survey provides nuanced and actionable policy insight for governments to unlock their ecommerce economies and tailor interventions to meet the needs of different types of firms, such as small vs large, exporters vs. non-exporters, and online sellers vs. offline sellers.

The study also creates a new Ecommerce Development Index that enables tracking private sector views on ecommerce development in countries worldwide, and encouraging countries to engage in races to the top. The key findings include:

• In every size category, companies with online sales are much likelier to export than companies that do not have online sales. While fewer than 20 percent of small offline sellers export, about 50 percent of small online sellers do, and while offline exporters tend to export to only one market, over 60 percent of online sellers export to two or more markets.

• Online sellers are also more geographically diversified: some 63 percent of online sellers export to two or more markets, while only a third of offline sellers do, whereas surveyed companies that neither buy nor sell online typically export to only one foreign market. Companies with online sales also derive a larger share of their revenues from exports than companies that do not buy or sell online. Similarly, companies that sell online are also likelier to be faster-growing—they have 10 percent or higher annual revenue growth—than companies that grow slowly (at less than 10 percent per annum), controlling for company size.

• Small companies tend to be considerably more affected by these various potential barriers to ecommerce than large companies in every country, with access to finance and ecommerce logistics posing particularly steep challenges for small businesses. Midsize and large companies, meanwhile, wrestle most with logistics and digital and other regulations. The gaps are significant between small and large companies: for example, some 60 percent of surveyed small companies rate areas of ecommerce enabling environment 5/10 or below, while only a third of large companies do. These differences are echoed in responses to questions about cross-border ecommerce.

• Perceived challenges to ecommerce vary very significantly across and within countries; every country has its idiosyncratic challenges, which means that policy recommendations and interventions need to be tailored to each country. For example, in some countries such as Bangladesh, online payments are a leading problem to ecommerce; in others such as Argentina and Kenya, cross-border logistics and customs procedures are the most challenging. In still other countries, such as Brazil, ecommerce and digital regulations and the overall regulatory environment complicate ecommerce. In Nigeria, access to finance issues and logistics dominate the list of problems. In Pakistan, the high cost of broadband and lack of Internet connectivity are reported to hamper ecommerce.

• Driving ecommerce development requires actionable insight into specific bottlenecks. When asked about specific challenges within these broader categories, developing country merchants see such challenges as total cost of delivery, legal liability rules, and customs procedures for ecommerce imports as key challenges in cross-border ecommerce. Ecosystem companies meanwhile also see logistics as a bottleneck – but also highlight a range of digital regulations as challenging for cross-border ecommerce.

• Companies believe that undoing barriers to ecommerce would result in significant revenue and growth gains. If their top-3 perceived challenges to ecommerce were removed, developing country companies believe they would score annual revenue gains of 34 percent in their domestic markets and 30 percent in international markets. Small companies report gains of 37 percent domestically and 34 percent internationally.

• Companies that have yet to start selling online worry about complexities in exporting using ecommerce and uncertainties related to the return on investment. Companies in Latin America highlight logistics as a challenge, while companies in Africa mention small size of the market as an obstacle.

• Brazil, India, Mexico, and Colombia come out on top in the survey; Ghana, South Africa, Bangladesh and Pakistan score lowest. The rankings are similar also in an ecommerce inclusiveness index developed in the study. They are also quite correlated with countries’ level of development. Brazil and India also overperform on the index when compared to their level of development, while LDCs underperform. However, also Brazil and India have a great deal of work ahead – their average scoring was far from a perfect 10 – in both, merchants rated the enabling environment for ecommerce at 7.