E-Commerce: Growth, challenges and rural inclusion

Dr B K Mukhopadhyay

(The author is a Professor of Management and Economics, formerly at IIBM (RBI) Guwahati. He can be contacted at m.bibhas@gmail.com)

Dr. Boidurjo Rick Mukhopadhyay

(The author, international award-winning development and management economist, formerly a Gold Medalist in Economics at Gauhati University)

According to UNCTAD figures, the combined volume of E-commerce amounted to 29 trillion dollars in 2017 of which the share of e-commerce in global retail sales reached 12.2% in 2018. In 2019, e-commerce comprised 14.1% of the global merchandise trade. And in 2023, projections show that this share is forecasted to rise to 22%. When it comes to BRICs, in 2019 India has shown 31.9% growth in e-commerce, whereas China held 27.3%, Brazil with 16%, Russia shared 18.7% and South Africa experienced 25–30% growth in e-commerce in 2017 and 2018 respectively.

E-Commerce introduced additional growth opportunities for small and medium businesses as well as transformed logistics operations in these above markets and also countries which they trade with. Several studies show that E-commerce also promoted inclusive and sustainable economic growth over time, in particular empowering rural areas. Of the BRICS, China maintains the highest valuable e-commerce market (thanks to Alibaba, Taobao, and Jindong) in the group, with a forecast to generate nearly 840 billion US in e-commerce sales revenue by 2021, a significant increase from the previous years. In 2016, China generated 376.2 billion US dollars in revenue from e-commerce sales. That year, the number of digital buyers in China stood at an estimated staggering 468 million. The figures do a good job of portraying the scale and demand for e-commerce services.

It is evident that the emerging nations [Brazil, Russia, India, China, and South Africa, i.e., BRICS] have leveraged e-commerce to facilitate rapid, inclusive, and sustainable economic growth. It boosts small businesses and creates gig work to generate additional income for many. Both public and private initiatives have supported e-commerce development in rural and remote areas in each of the BRICS countries. Clearly, Indian and Chinese e-tails have raced ahead of others. However, the impact of e-commerce had been rather limited in rural areas or at least evidenced so (far).

Disproportionate development of infrastructure in rural and remote regions, limited awareness and education of ICTs, the concept of consumer protection, and the facilities of online dispute resolution are some of the aspects that require some understanding. In addition, how countries represent themselves in the Digital Services Trade Restrictiveness Index (STRI) also matters going forward.

Rural opportunities with e-commerce

E-commerce brings opportunities to rural communities as well as a sense of ownership and economic engagement, ultimately giving power to customers in rural communities. It also nourishes job creation and industry development. According to a UN study, rural markets are expanding faster than urban markets in many countries, Latin American countries fall in this category especially. Rural communities tend to have a short supply of retail stores, and e-commerce provides an opportunity for them.

Not only does E-Commerce make it more convenient for rural communities to become customers by removing the burden of transportation, but also allows rural sellers to do broader and more dynamic sales instead of simply restricting their reach to customers in their immediate vicinity. Brazil is a good example of this score. The country is the leader in e-commerce in Latin America and seeks to expand operations further. During the pandemic, the Brazilian government supplied pandemic relief funds to citizens through digital wallets, providing access to online stores. Increased internet access offers inclusivity and access to consumer markets typically out of reach to rural communities.

How e-commerce functions: A look at electronic retail (e-tail)

When launching a new product in an e-commerce online space, target customer analytics and perception of the customers' product/ service engagement online is of paramount importance for Electronic Retails (e-tails). A huge amount of stress is given to ensure a rapid response rate from the customer on the 'ratings' and 'service experience'. Therefore, having artificial intelligence (AI) today to come up with newer push notifications, adverts, and alerts from these companies on our smart devices is a constant reality.

Apart from customer analytics, identifying and acting on newer forms of demand and needs, the e-tails make the best use of available omnichannel (i.e., a multichannel approach whereby consistent information and experience is provided to customers at both physical stores and online platform of the company) and working with innovative partners with their demand forecasting and inventory optimization strategies on an ongoing basis. Part of the planning involved in the strategy, however, is constantly in a state of flux.

In recent US-based research conducted by the esteemed Boston Consulting Group (BCG), a survey of 63 retailers of various sizes and categories shows that the most valued customer is the multi-channel customer. This, therefore, can be both rural and urban. Both e-tailers and now retailers are utilising cross-channel coordination whereby their website primarily focuses on promoting stores and catalogue offers. It is not unusual for customers to walk into stores with website printouts illustrating a particular product, service, or offers/ deals that they have found prior to visiting the physical store.

What's happening in India?

India's e-commerce market is projected to reach the US $111 billion by 2024 and US $ 200 billion by 2026. At its current pace, the Indian e-commerce industry has been on an upward growth trajectory and is expected to surpass the US to become the second-largest E-commerce market in the world by 2034. In 2022, the Indian e-commerce market is predicted to increase by 21.5%, reaching the US $74.8 billion. Additional policy support of allowing 100% FDI is B2B e-commerce tops up the overall potential significantly.

The combined effect of the complexities of store expansion, managing, costing and low returns at shopping malls combined with a distinctive model of e-tailing could lead to a different retail dynamic. Projections show that the e-tail industry in India may leapfrog the second stage, passing directly from the regional to the multichannel one surfeiting newer target demographics and innovative product offerings and delivery models. What's more, e-tailing is not just replacing traditional retail transactions but also stimulating consumption that would not otherwise take place. Finally, e-tailing may catalyse a 'leapfrog' move by the broader retail sector, putting it on a fast track to a more digital future.

Word of Mouth (WOM) is mightier than the Sword, also in Marketing.

Word-of-mouth marketing (or simply, WOMM) is essentially a process of influencing and encouraging organic discussions about a brand, organization, resource, or event. It can make or break a business that is further amplified by the toxic use of social media. If the word-of-mouth marketing is done right, the business may not need to keep an exorbitant Ad budget; customers will share their stories (good or otherwise) across their social media and connections if they are happy with the customer service, quality of products or/and services, quick and hassle-free delivery.

Customers spreading the word about a business, particularly if good, is definitely better than the stubborn, lifeless and overpaid billboard. This works heavily in E-Tails and online streaming platforms where the choice of product purchase is heavily influenced by 'recommendations' for friends and family which is further influenced by user reviews of experiences online.

Cut to credits

A range of barriers such as costly internet services, overreliance on cash, lack of consumers' trust, poor digital skills among the population, and governments' limited attention to e-commerce do still exist in developing economies. There are also significant micro-level barriers to firms, such as in the case of emerging omnichannel sales models or new modes of delivery. These challenges are nothing new for some markets but the current crisis and the new role of e-commerce for individuals and firms calls for progressive policy action.

The state commerce/ small business development departments need to identify the many benefits of supporting SMEs going into the e-tailing business, and the consequent effects on the supply chain and regional job creation. For firms in the E-Tail businesses, there are opportunities to use tools of AI and machine learning to better understand the nature of demand and design ads more strategically rather than only focusing on novelty aspects and repeated advertisements that lead to loss of value rather than creating it in the mind of potential customers.

The future of the e-tails 'favours the fast'. For these e-tails, however, the mad run for 'likes' and 'comments' continue at a faster pace. For the e-tails that are constantly advertising and pushing new products, introducing product lines, advertising offers, and also informing customers and clients about any changes in their company policy and new value creation - the use of cross-platforms, multimedia, brand names, and hashtags likely will produce more electronic Word-of-Mouth (WOM), i.e., more likes and positive comments. However, the framing and positioning of e-businesses should also equally consider the rural population where there is a colossal market (both b2b and b2c potential) waiting, this is still rather untapped in India compared to what selected Latin American countries have achieved.