Digital trade – changing the landscape in the information age

For the past 16 years Walmart has been among the top three companies in the Fortune Global 500 list. Globally it employs 2.3 million people and posted $482.1 billion in revenue for 2015. Reportedly Walmart’s biggest concern is its lagging e-commerce growth compared to its’ main competitor, Costco. When considering the trend in e-commerce growth it’s no mystery why Walmart has set its sights on the digital front.

Currently e-commerce accounts for a small percentage of global GDP. As it stands, the internet has not yet reached all corners of the globe and neither have online transactions become the norm just yet. However, according to a 2015 UNCTAD report the trend is changing fast. In the United States, for example, business to business (manufacturing sector) e-commerce revenue surged from $752 billion in 2002 to $2.9 trillion in 2012. Over the same period online business to consumer transactions (retail trade) grew fivefold from $45 billion in 2002 to $227 billion in 2012. As more people connect to the internet, more consumers use online transactions, and each consumer increases their spend.

There are also marked differences, pros and cons between traditional brick and mortar and online operations. As a consumer your experience with shopping online is very similar to your experience shopping in person. You land at your chosen suppliers’ store front (or homepage), you’re presented with the stock, occasionally bombarded with special offers not to be missed, you can add and remove goods from your ‘cart’ to check-out and pay when you’re done. Sure, there’s no instant gratification when purchasing online, as a delivery delay is expected, but you have the benefit of home delivery. Traditional retailers will also point out that you have a tactile and personal interaction with goods in their stores before purchasing, in addition to having helpful, friendly in-store assistance; and that is true.

E-tailers cannot possibly replicate these services, however, savvy shoppers will have no problem visiting a retailer for these services and do online comparison shopping, literally at the same time. Odds are that you’ll be able to find a better deal online as e-tailers do not have the expensive overheads that retailers do. While shopping online you can have multiple suppliers on a single platform offering different deals and occasionally you’ll find an even better match to your needs, thanks to cleaver catalogue algorithms, but mostly due to the limited stock space in traditional brick and mortar stores.

Of course not all goods sell as well online as they do at your corner shop, this is mostly true for nondurable consumer goods as people still prefer to pick the best looking apples from the cart. For everything else though, odds are that you’ll have a better experience online. The benefit of using online transactions from a consumer perspective lies in the fact that it’s much more convenient, especially if you like to shop around. You’re able to browse through thousands of offerings, make technical comparisons, price comparisons, and read previous buyers’ reviews before making a decision to purchase.

However, from a producer/supplier perspective e-commerce can be a game changer. Starting a business can be a challenge especially when considering the fixed costs. When testing the waters, so to speak, ideally you want to keep them as low as possible. Traditionally this meant looking for the cheapest, best suited, location for your business; however, this still meant that you needed to pay rent even when getting a small part in a shared space. With the advent of e-commerce, you have other options:

  • Set up you own website, using any of the number of platforms available, for example Magento which is dedicated to handling high traffic volumes, hosting on a global scale, simplified contract management and includes extension services to automate documentation and assist with business management and marketing; or
  • Become a vendor on an established website (domestically or internationally) where you list your offers, ship your stock to distribution warehouses and pay small subscription, warehousing and sales fulfilment fees.

Both options are available at a fraction of the price compared to brick and mortar start-ups and all of the technical setup work can be outsourced. These options are also not mutually exclusive as you can run your own website and be a vendor on an established e-tailer. Start-up costs for professional, online, services can be even cheaper as you do not need to pay for physical storage or logistics. Engaging in e-commerce instantly expands your market reach from your local area to an almost global reach, this is also true when sourcing inputs or services. This global reach unfortunately also comes with its somewhat unique set of constraining factors according to the UNCTAD: unreliable and lengthy transit times, complex and ambiguous return processes, customs delays, lack of transparency on delivery and pricing, and limited ability to alter delivery times and locations.

As for economic development e-commerce looks to be a capitalist dream. A seemingly open and fair market place for a virtually unlimited number of consumers who, in turn, have a seemingly unlimited number of suppliers to choose from. Rather than solely relying on supplier generated marketing material you have access to user reviews and ratings. In addition, the larger market access means that niche markets can be sustainable without compromise to meet local or regional demands.

But all this could come at a price. One of the larger fixed costs, depending on the sector, tends to be wages. In brick and mortar operations you need people to fulfil a number of functions from stocking shelves and managing inventories to occupying the floors and acting as sales representatives. In the world of e-commerce the number of people needed to successfully run a business is much less. In comparison to Walmart’s 2.3 million employees, the online retail giant Amazon employed 230 800 people in 2015, while the entertainment streaming service Netflix only employed 3 700 people (and posted $ 6.7 billion in revenue). On the domestic front South African e-tailer Takealot employed more than 800 people in 2015. Unfortunately, these digital giants also have a cascading effect on downstream services. Amazon is reportedly building a shipping network to cut down on delivery times, putting the squeeze on large package delivery companies who themselves employ a lot more people than Amazon, while the streaming service Netflix has all but decimated the video rental market in the US.

Only time will tell if large shopping complexes will turn into popcorn-scented wastelands however, there’s a growing body of work that suggests a rapid change in the composition of the workforce is occurring. From anecdotal evidence at least it seems that the spread of new technologies could further increase inequality as it leaves behind labourers with redundant skill sets. E-commerce is surely bringing a lot of new and exciting opportunities and experiences to the world, possibly at a more affordable price and definitely to the benefit of consumer comfort. While it could be having a detrimental effect on employment it’s worth noting that taking an opportunity has never been this affordable.

Photo credit: hnnbz via VisualHunt / CC BY
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