Echelon - May 2016

The battle for e-commerce leadership will benefit more than retailing

Price and convenience are driving e-commerce growth around the world. However, in emerging markets like Sri Lanka, there is the potential that online commerce can contribute to far more profound changes than keener prices and convenience.

The circumstances of underdevelopment have forced e-commerce pioneers to adapt their business in ways that, if done with success, will benefit far more than the retail trade they are trying to change. Online retail has to tackle three problems unique to poor countries to build scale. The first is financial development. Not everyone who wishes to transact online has a credit card and a mistrust of technology may prevent even those who do from transacting. Alternative payment systems are critical. Some of the most innovative regional e-commerce firms are helping their small business partners, whose inventory they sell, raise working capital.

Second, e-commerce firms help overcome derelict infrastructure by forcing firms to figure out faster and cheaper ways to deliver products to customers. Around 90% of online orders are delivered to metropolitan addresses, but the share of deliveries out of town is growing. Investments in logistics infrastructure will also benefit business at large.

Third, the impact online commerce has on retailing itself by forcing traditional firms to rethink their strategies. E-commerce is tiny as a share of retail, but is growing quickly. It’s helped that more than one in three people have a smartphone and high-speed internet is widespread. Wow.lk, a unit of Dialog, is at the forefront of online commerce here (See Wow.lk is investing in bottleneck-busting infrastructure to win at online commerce on page 47), not because the firm’s low prices and convenience are a potent combination, but because of its willingness to invest to tackle bigger challenges. Firms like Wow.lk with a bigger vision will win e-commerce dominance.