Strategies for Expanding

into Emerging Markets with

E-Commerce
Amanda Bourlier
and Gustavo Gomez
Not to be distributed without permission.
STRATEGIES FOR
EXPANDING INTO
EMERGING MARKETS
WITH E-COMMERCE

Amanda Bourlier
Senior Research Analyst

Gustavo Gomez
Senior International Business Development Executive

CONNECT WITH US

© EU R OMONITOR INTER NAT I ONA L 2 0 16

 CONTENTS

1 INTRODUCTION: E-COMMERCE GOES GLOBAL

3 KNOW YOUR TARGET MARKET: DEMOGRAPHIC

AND INCOME

6 CONSIDER THE DIGITAL LANDSCAPE

9 ASSESS THE STRATEGIC STATUS QUO

13 UNDERSTAND PAYMENT PREFERENCES

18 ADAPT TO THE LOGISTICS ENVIRONMENT

22 CONCLUSION

23 ABOUT EUROMONITOR INTERNATIONAL

24 THE AUTHORS

26 REFERENCES

iv © E UR OM O N I TO R IN TERN ATIO N A L
 INTRODUCTION:
E-COMMERCE GOES GLOBAL

The growth in e-commerce over the past five years has transformed consumer
spending and shopping habits, affecting emerging and developing countries product
pricing, consumer behaviour, lifestyle and products and goods availability. According
to Euromonitor International, global e-commerce is projected to grow at a constant
value Compound Annual Growth Rate (Cagr) of 12% globally from 2015 to 2020. In
contrast, store-based retailing, which continues to be the biggest channel by value, will
grow by a Cagr of just 2% over the same time period.

To date, much of this growth has taken place in developed markets; however, as more
consumers in emerging and developing countries gain access to the internet and
consumer and investor interest increases with intensifying retailing competition,
e-commerce will create a better business environment. Emerging market economies
will become an increasingly attractive destination for foreign players looking to
expand their global footprint and enhance their product and service offerings,
impacting prices, product quality, variety and the range of services available online.

E-Commerce
800 Sales Outlook for Emerging and Developing Markets: 2015–2020

700

600

500
US$ Billions

400

300

200

100

0
2015 2016 2017 2018 2019 2020

Source: Euromonitor International from trade sources / national statistics

Note: (1) Data refers to retail sales prices (RSP) excluding sales tax. (2) Data is in constant terms,US$ fixed 2015
exchange rates.

© EU R OMONITOR INTER NATIONAL 1

I nt ro d uc t i o n : E- c o m mer ce Goes Globa l

With internet use growing rapidly across most of the world, retailers and
manufacturers seeking to broaden their reach have an unprecedented opportunity
for international expansion through digital channels. Choosing the best markets for
an internet-based expansion and developing an effective model for a chosen market
requires careful analysis of the opportunities and consumer expectations across
strategy, payments and logistics to ensure effective market entrance and prevent
expensive missteps.

This white paper presents five strategic considerations for assessing and expanding
into emerging and developing countries, identifying market characteristics and
indicators specific to emerging and developing countries that retailers and
manufacturers should understand when selecting a market for entry. Case studies
demonstrate how successful retailers have effectively entered emerging markets by
navigating local conditions and consumer preferences.

2 © E UR OM O N I TO R IN TERN ATIO N A L
KNOW YOUR TARGET MARKET:
DEMOGRAPHIC AND INCOME

Understanding local consumers is essential for shaping a successful strategy. Home

to over 85% of the world’s population and totalling six billion people in 2016,
emerging markets will continue to drive global disposable income growth through
2030. As a result of rising income and the expansion of the middle classes, emerging
and developing countries represent attractive opportunities for consumer goods
companies. And internet penetration will continue to grow: Euromonitor International
projects the percentage of the population with internet access in emerging and
developing countries will increase from 34% in 2015 to 45% in 2020 and 50% in 2025.
This increased access is changing and informing consumers’ decision-making process
along the path to purchase. For this reason, it is imperative that companies consider
how demographic factors differ between emerging and developed markets.

Age: Rise of the millennial consumer

A natural and gradual shift in consumer demographics will continue to shape
commerce around the globe. Members of the millennial generation, also known as
Generation Y or the “Echo Boomers”, were born between
1980 and 1994 and will take centre stage as consumers in Millennials
the future. In fact, millennials represented over 1.5 billion represented over
people in emerging markets in 2015. In both developed and 1.5 billion people
emerging markets, the demographic cohort following in emerging
Generation X is the first generation to come of age using markets in 2015.
digital technology and services, making them a prime audience
for retailers to reach through the internet. For this reason, it is important for
companies to understand how to target this segment.

Across many markets, this generation is, on average, more educated, better able
to multi-task and has had greater exposure to the world of information through
the internet when compared with preceding age groups. Despite the fact that baby
boomers are currently the largest generation of active workers, millennials have
increasingly more purchasing power and decision-making influence in economies
worldwide.

© EU R OMONITOR INTER NATIONAL 3

K now Yo ur Ta r ge t M a r ket: Demogr a ph ic a nd Income

China and India represent the biggest markets of millennial consumers, with over
600 million people combined in 2015—twice the size of the total US population.
Millennials in countries such as Indonesia, Brazil, Russia and Mexico accounted for
over 25% of the total population in each country in 2015. Given the prominence of
this demographic in years to come, it is critical for companies to know how this
generation makes decisions along the purchasing path. Having grown up with the
internet, millennials are highly attached to their smartphones, which they use for
browsing, researching products and services, conducting price comparisons and
when companies create a trusted payment environment and comfortable user
experience, completing purchase transactions.

Millennials: A Key Demographic

45%

40%
Millennials, Percentage of Total Population

35%

30%

25%

20%

15%

10%

5%

0%

Source: Euromonitor International from trade sources / national statistics

4 © E UR OM O N I TO R IN TERN ATIO N A L
 K n ow Your Targe t Marke t: De m ographic a nd Inc o m e

Income: Expansion of the middle class

In 2016, there will be more than 1.1 billion households with an annual disposable
income over US$10,000 (in purchasing power parity terms) across major emerging
markets and developing countries. The expansion of the
middle class in these countries continues to bring a new
way of living. 1.1 bn
Number of households
There is a clear disparity among the world’s largest in 2016 across major
emerging markets and the average incomes of their emerging markets with
middle income households from 1995 to 2015. Saudi annual disposable
Arabia, for instance, had the highest average disposable income over US$10,000
income at US$33,393 in 2015, while Ukraine had only
US$3,086—a difference of over US$30,000. At the same time, China has aggressively
grown its average disposable income with 308% (or US$2,337 to US$9,532) period
growth. Similarly, countries like Kazakhstan and Vietnam increased their disposable
income by 317% and 107%, respectively, in the last 10 years. These disparities
demonstrate how consumer conditions vary significantly across emerging and
developing countries and highlight the importance of tailoring retail sales strategies
to suit market-specific conditions. For example, retailers and manufacturers should
approach consumers in Brazil differently from those in India.

Average
45,000
Disposable Income Climbs across Emerging Markets

40,000
Disposible Income, US$ - Middle-Class

35,000

30,000

25,000

1995
20,000
2015

15,000 2025

10,000

5,000

Source: Euromonitor International from trade sources / national statistics

© EU R OMONITOR INTER NATIONAL 5

 CONSIDER THE
DIGITAL LANDSCAPE

Internet penetration rates: Consumers

connecting online
Understanding if—and how—consumers access the internet is a second early step for
developing an e-commerce strategy. Access to the internet varies significantly across
emerging markets, and companies seeking to target consumers in these countries will
need to understand local internet conditions to develop an effective strategy for that
market. For example, in 2015, the United Arab Emirates had the highest number of
people using the internet at 92% of the population; by contrast, the internet usage rate
remained below 50% in Mexico, Ukraine, Peru, the Philippines and Vietnam in that
same year. Many emerging markets are experiencing rapid change in connectivity: from
2010 to 2015, Chile, Russia and Argentina saw the fastest internet penetration increase,
from an average of 40% of the population using the internet to an average of 70%.

In places where this growth has taken place very rapidly, many consumers are
accessing the internet for the first time—and for many of the newly connected, the
idea of shopping online may not yet be intuitive. Further, shopping online versus
in-store presents different “risks” to consumers, including a greater perceived
threat of payment fraud, the possibility that a product will not meet the consumer’s
expectations, or that the product will not arrive at all. Retailers in markets where
perceived risk is a barrier will need to work to build greater trust with consumers
before they feel comfortable shopping online.

6 © E UR OM O N I TO R IN TERN ATIO N A L
 Con sider t he Digital L a nds ca p e

Percentage of the Population Using the Internet in Selected Markets: 2010 / 2015

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

2015 2010

Source: Euromonitor International from International Telecommunications Union / OECD / national statistics

Mobile internet subscription rates: More

devices at-hand
In some countries, mobile phones are the main way consumers access the internet,
suggesting strong growth potential for m-commerce. The rise in mobile internet
access in emerging and developing countries increased
sharply between 2010 and 2015, with the number of
mobile internet subscriptions growing from 299 million
to two billion in just five years. China represents the
1.7bn
Total increase in mobile
biggest market, with 660 million subscribers in 2015. internet subscriptions
Similarly, Brazil, Indonesia and Russia have rapidly between 2010 and 2015
increased their mobile internet subscription rate, across emerging markets
collectively representing a total market of over 397
million in 2015. In countries where mobile is the primary way of accessing the internet,
retailers must adjust their strategies to ensure a very strong mobile experience and be
sure they are positioned to take advantage of consumers shopping on-the-go. For
example, companies will need to ensure their website is mobile-optimised, evaluate
whether an app is an appropriate tool considering their value proposition and target
audience and look for ways to use mobile technology outside of the purchase
transaction, such as to engage with consumers through social media.

© EU R OMONITOR INTER NATIONAL 7

C o n si d e r t he Digita l La nd sca p e

Mobile Internet Subscriptions in 2015 by Emerging Market

3% 3%
3%
5%
China
7% Rest of EMEs

41% Brazil
Indonesia
7% Russia
India
Thailand
Mexico
10%
Egypt

21%

Source: Mobile Internet Subscriptions: Euromonitor International from International Telecommunications

Union (ITU)
Note: Refers to the sum of both standard mobile internet and dedicated mobile internet subscriptions.
Dedicated mobile internet subscriptions include all stand-alone services that use mobile internet connection.
Include data cards, USB modems and other devices using SIM card other than mobile telephones.

8 © E UR OM O N I TO R IN TERN ATIO N A L
 ASSESS THE STRATEGIC
STATUS QUO

Market conditions
Once a company has an understanding of the consumer demographics in their target
market, devising a strategy for expansion into an emerging market via e-commerce
requires assessing the channel’s state of development to understand how to situate
their brand in the market. This includes identifying the factors that have limited
the channel’s development so far: for instance, a prevalent consumer opinion that
shopping online is risky, or a signal that companies already operating in the space
have left gaps in their strategies that others may be able to fill, such as only shipping to
consumers in tier one cities, thus neglecting consumers in second tier cities and rural
areas. Understanding the “status quo” enables potential newcomers to improve the
overall online shopping experience for consumers in a given market or take advantage
of competitive opportunities.

Consumer-side factors such as a lack of internet access or a low level of trust in

shopping online are more characteristic of markets that are relatively earlier in their
e-commerce development. In cases like this, marketing campaigns that aim to educate
consumers can be effective. Case in point, Amazon India’s partnership with Vakrangee
is a venture designed to both educate people and offer additional security to consumers
who are not already heavy online shoppers. Vakrangee, which operates across 50,000
outlets in India, 70% of which are in rural locations, takes over many of the physical
store functions Amazon ordinarily does without. For example, Vakrangee provides
pick-up services for purchases made on Amazon India’s website, performs follow-up
on orders on behalf of customers and offers other services that promote the idea of
shopping online.

© EU R OMONITOR INTER NATIONAL 9

Asse s s the St r ategi c Statu s Qu o

Competitive landscape
Next, potential new entrants should consider the nature of the emerging and
developing countries’ competitive landscape, which in the e-commerce channel across
emerging markets ranges from consolidated to highly fragmented:

Early-stage markets tend to be dominated by a small number of players,

often companies without local operations who benefit from cross-border
transactions. This scenario explains Amazon US’ popularity in markets
like Ecuador.

Mid-stage emerging markets tend to have highly fragmented e-commerce

landscapes, as they represent a more attractive target for international
retailers and store-based domestic players increasingly investing in the
channel as part of an omnichannel strategy.

Later-stage markets in recent years have generally returned to a more

consolidated landscape, as marketplace-style companies become
immensely successful and smaller players are acquired or exit the market.
For example, the top three e-commerce companies in Japan control
42% of sales, and Alibaba alone accounts for almost half of China’s
e-commerce sales.

Expansions across significant geographic, linguistic or cultural boundaries are

generally more difficult to complete successfully, especially for companies lacking
significant international experience. Companies seeking to execute such an expansion
may find that marketplaces—where e-commerce is already present—may constitute
the easiest route to market. Consumers are drawn to online marketplaces for their
wide variety of inventory as well as the additional services they provide to uniformly
handle every step of the purchase and delivery processes. The benefits are similar for
manufacturers seeking to sell online in a market for the first time, as marketplaces
often function as a one-stop shop and it is easy for businesses to set up and manage
store fronts, handle payments, manage logistics and draw traffic from a wide and
diverse group of consumers.

10 © E UR OM O N I TO R IN TERN ATIO N A L
 Assess t he St rat egic Stat us Q uo

Case study: MercadoLibre

MercadoLibre is an example of a marketplace offering new market

entrants both technology and potential customers. With presence in 16
countries, primarily in Latin America and the Caribbean in 2015, it is a
platform on which a new market entrant can sell their merchandise and
functions as an alternative to launching their own website. It provides a
convenient place for consumers to find products from a wide variety of
brands, making it attractive for manufacturers looking to reach a broad
audience. MercadoLibre offers a secure method of online payment
called MercadoPago and coordinates shipping services through their
platform MercadoEnvios. The company reports that in 2015, 72.5% of
gross merchandise volume done on the marketplace was paid for via
MercadoPago, and in mid-2014, approximately 18% of inventory sold was
shipped via MercadoEnvios.

Marketplaces like MercadoLibre have found demand not just from local manufacturers,
for whom retail operations are either a side focus or are completely unknown, but
also from foreign retailers who find the ease of using a marketplace’s services too
compelling to ignore. These foreign retailers may partner with the marketplace to
complement their proprietary e-commerce operations or as a substitute for dealing
with the complexities of establishing proprietary e-commerce operations in an
unfamiliar environment. Gucci, for example, maintains an official storefront on
MercadoLibre Mexico and US-based retailer Costco has found tremendous success
selling on Alibaba’s T-Mall platform throughout China.

Consumer preferences
When it comes to attracting customers, a company deciding to launch proprietary
e-commerce operations—as opposed to simply opening a storefront on an established
marketplace—has a more complex task ahead of them, whether their initiative is
their sole e-commerce strategy or is occurring in tandem with developing an online
marketplace presence.

The primary challenge for new entrants is persuading existing online consumers to
do their online shopping with them rather than with a competitor. Earning away their
dollars requires delivering a superior shopping experience, and that takes a deep
understanding of what consumers in the market are looking for from a retailer.

© EU R OMONITOR INTER NATIONAL 11

Asse s s the St r ategi c Statu s Qu o

Motivators for Shopping Online

Best Price

Time Savings

Variety of Brands

Ease and Availability of Delivery

Product information at my fingertips

0% 10% 20% 30% 40% 50% 60% 70%

% of respondents that identified the quality as a motivator

Russia India Brazil China

Source: Euromonitor International Global Consumer Trends Survey, 2016

Consumers will have different concerns about

the internet as a shopping platform depending Product variety
on the conditions of their markets, but a few
generalities can be drawn across markets about Ease and low cost of
the features shoppers care the most about in an shipping and returns
online experience. Consumers tend to prioritise:
product variety, ease and low cost of shipping Reliable and quick
and returns, reliable and quick delivery and delivery
payment transaction security.
Payment transaction
Global leaders in e-commerce such as Amazon security
or Alibaba generally deliver services that meet
these criteria. It’s important to note that today,
consumers do not view these services as exceptional; rather, they represent a standard
level of service that they increasingly expect from their internet retailers. That is why
all internet retailers should be watching for opportunities to continually improve on
the services they offer.

12 © E UR OM O N I TO R IN TERN ATIO N A L
 UNDERSTAND PAYMENT
PREFERENCES

The payments dilemma

Tangential to the developmental state of e-commerce in a market, but equally relevant
for brands seeking to enter a market for the first time, is understanding consumers’
preferred payment methods. While card-based payments are the dominant method of
payment in developed markets, cash payments are by far the preferred method across
the consumer populations of most emerging markets. The prevalence of cash can
be attributed to a variety of factors ranging from the dominance of traditional retail
and foodservice outlets in these markets that generally do not accept card payments
to credit card application requirements that are difficult for lower and middle class
consumers to meet. It’s easy enough to transact with cash at brick-and-mortar
locations, but cash payments cannot be processed for online transactions, posing a
dilemma for internet retailers—especially purely online players—who want to attract
customers from Southeast Asia and other emerging and developing countries through
internet channels.

Cash Dominates Payment Landscape in Key E-Commerce Markets

Argentina

United Arab Emirates

China

Colombia

Hungary

Poland

Malaysia

Egypt

Thailand

India

Vietnam

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

% of total consumer transactions done in cash, 2015

Source: Euromonitor International

© EU R OMONITOR INTER NATIONAL 13

U nde rsta n d Pay m e n t Pr efer ences

Case study: Lazada

Lazada launched as a pure e-commerce player in 2012 and quickly grew

sales to nearly US$1,025 million by the end of 2015. Formerly owned
by German Rocket Internet, Lazada was purchased by Alibaba in early
2016 and has a strong presence in Indonesia, Malaysia, the Philippines,
Thailand and Vietnam, some of the most cash-prevalent markets in
the world.

To circumvent the issue and ensure that the majority of potential

consumers in these markets could shop on Lazada’s platform, Lazada
implemented a cash-on-delivery service. This gives consumers the option
of either paying online via a card at the time of purchase or paying in
cash when the product is delivered. Allowing cash on delivery has proven
to be a very successful strategy. According to a 2015 interview between
the Philippines’ Business Mirror and the CEO of Lazada e-Services
Philippines Inc., 75% of the company’s Philippines revenue comes from
cash-on-delivery sales, with chief executive Alessandro Piscini telling
Thailand’s the Nation that approximately 70% of Lazada customers prefer
cash on delivery in that country as well.

The paradox of accepting cash

There are two substantial caveats to a cash-on-delivery strategy, however. First,
allowing cash-on-delivery significantly increases the complexity of delivery logistics,
wherein logistics divisions or third party logistics companies handling deliveries
on behalf of retailers must prepare employees making deliveries to accept cash and
ultimately deliver the payment back to the retailer. Additionally, some consumers
will, upon receiving the product in person, decide to make an immediate return. That
means the delivery person must also be prepared to accept returned merchandise
and store these items until they can be returned to the retailer.

These circumstances are relatively easy to manage when logistics are handled by the
retailer directly, for example, in the case of MercadoLibre’s MercadoEnvíos service or
Alibaba’s logistics network. But they make cash-on-delivery more difficult to establish
when a third-party logistics company is used for deliveries or if the notion of cash-
on-delivery is not yet commonplace in a market, as is the case in many emerging and
developing markets whose e-commerce markets are not yet heavily consolidated by a
small handful of players.

14 © E UR OM O N I TO R IN TERN ATIO N A L
 Un derstan d Paym en t Pr e f e re nc e s

In Mexico, for example, where cash payments account for 82% of all consumer
purchase transactions due to the fact that 51% of the population over the age of 15 was
considered unbanked in 2015, many major e-commerce companies
offer cash upon receipt of the product. This is done in an attempt Cash payments
to facilitate online purchases by consumers that would prefer not account for
to risk their payment information or are cardless. In an
interesting strategy, some retailers, including the leading
company in Mexican e-commerce, MercadoLibre, which does not
82%
of all consumer
operate stores, allows consumers to make a purchase online via transactions
MercadoLibre and then pay for their purchase in cash at an outlet in Mexico
of the convenience store chain Oxxo, which has more than 14,000
locations throughout Mexico.

This brings to light the second potentially disadvantageous factor surrounding

cash-on-delivery strategies: even in cash-preferred markets, some consumers may not
be interested in paying cash on delivery. Offering cash-on-delivery or the option to
pay cash at a brick and mortar location has not proved to be the panacea for boosting
e-commerce in Mexico, where online sales accounted for just 2% of total retailing in
2015 despite the extensive efforts made by companies to facilitate card-less payments.
This is low, compared to global level of 7% as well as in comparison to others in Latin
American markets such as Brazil and Argentina, where online sales accounted for
nearly 4% of total retail sales.

Internet Retailing Share of Total Retailing in Selected Markets: 2015

Iran
Philippines
Bolivia
Indonesia
Colombia
Croatia
Mexico
Chile
India
Russia
Argentina
Lithuania
Poland
Japan
World
Taiwan
US
Finland
Denmark
China
South Korea

0% 2% 4% 6% 8% 10% 12% 14% 16%

Source: Euromonitor International

© EU R OMONITOR INTER NATIONAL 15

U nde rsta n d Pay m e n t Pr efer ences

There are several hypotheses as to why cash-on-delivery or cash at third-party

locations have not proved popular in Mexico. One of these is that it requires payment
to be made in full before receiving the product—not necessarily an attractive option
if retailers and banks provide interest-free financing for in-store and online, credit
card-based purchases. And unlike in developed markets, where such financing is
generally limited to durable goods with high unit prices, this financing is available in
emerging and developing countries across a wide range of product categories, allowing
consumers to make payments towards a purchase over the course of an extended
period of time, sometimes up to 18 months.

Looked at from another angle, high-income consumers are more likely to be banked
and have access to a credit card or alternate method of financing beyond what is
offered by retailers, as well as a greater ability to make a purchase without making
payments over time, whereas store financing is favoured by consumers who find it
inconvenient or impossible to pay the full cost of their purchase up front. As a result,
those who are least likely to pay by card are also the consumers that are most likely
to rely on store-offered financing, an option that is sacrificed by paying in cash.

Case study: Falabella’s focus on financing

Falabella Saci, a Chile-based department store with a presence

throughout South America and one of the leading regional players in
e-commerce, employs an innovative payments strategy to help address
the challenges of expanding to and operating in emerging markets.
Through its subsidiary, Falabella Financiero, the company has developed
payment and financing options for consumers who lack access to
traditional financial services or are underserved by existing financial
institutions. They offer two successful credit card products that function as
a card-based method of financing: the first is a store credit card that can
be used to finance purchases made within the Falabella network of stores,
and the second is a Falabella-branded credit card that is accepted by all
Visa and MasterCard merchants. Thus, a major credit card is issued with
lower application requirements than those from conventional banks and
is backed by a brand that frequent Falabella shoppers already trust. The
company reports that as of the end of 2015, it had 5.8 million active cards
combined in Chile, Colombia, Peru and Argentina.

16 © E UR OM O N I TO R IN TERN ATIO N A L
 Un derstan d Paym en t Pr e f e re nc e s

The strategy of offering financing options like store cards has also proved popular
in Mexico. The department store chain, Liverpool, with 254 outlets in 2015, issued
more cards in the country than leading banks including Santander, Banorte and
American Express. Likewise, Palacio de Hierro has found success with store cards
and co-branded credit card offerings among its higher-income segment of customers.
Despite the likelihood that they have their own bank credit cards, the Tarjeta Palacio
accounted for 43.7% of sales in 2015. This shows that beyond providing a method
of payment for online purchases, store cards and unique financing options are an
effective way to build brand loyalty.

© EU R OMONITOR INTER NATIONAL 17

 ADAPT TO THE LOGISTICS
ENVIRONMENT

Consumer expectations for logistics

Once the payment is made—or, in the case of cash on delivery, planned—the next
challenge and fifth consideration for brands is ensuring their logistics network is
prepared to deliver products to the consumer. While reliable shipping is a key part
of a retailer’s strategy in any market, it is especially important in markets where
e-commerce is underdeveloped and many consumers are not yet regularly purchasing
online since consumer trust in the channel has not had a chance to develop.

Shopping online offers several benefits for consumers in the form of generally lower
prices, wider product variety and the convenience of anytime, anywhere shopping.
It does, however, increase the risk associated with the purchase. As with payments,
where consumers see more potential for transactions to go awry or be conducted
fraudulently, consumers risk the possibility that their purchase will arrive late or not at
all, and then face additional hassles in the event the product needs to be returned.

It is critical, therefore, that retailers seeking to sell online ensure consistent delivery
operations to build consumers’ faith in the process. Potential pitfalls just in the initial
delivery include: packages that are lost, delivered to the wrong address, delivered late
or stolen by a consumer’s neighbour. The challenges are similar for product returns.

18 © E UR OM O N I TO R IN TERN ATIO N A L
 Adapt in g to t he Logist ics E nv i ro nm e nt

Case study: Alibaba

One company that has risen above a complex logistics environment

to ensure reliable delivery is Alibaba, now the largest retailer in China
and one of the largest internet players globally. In the earlier days of its
operations, Alibaba relied on local delivery services. But recognising
that consumers wanted a high quality delivery system to match a
strong shopping and payment experience, the company formed its own
distribution system to ensure purchases would arrive reliably and within
a predetermined time frame. As in many emerging markets, Alibaba was
working to persuade consumers who were not habitual internet shoppers
to increasingly shop online.

Building trust amongst consumers, not just during the path to purchase but also to
the very end of the consumer’s interaction with the brand, is a key component in
convincing consumers to even consider the online channel. While not every new
retailer in a country can or should build their own distribution system from scratch,
it’s important for companies to commit to providing services that customers expect.
Identifying customers’ preferences and finding logistics partners that can deliver on
those preferences are key tasks for any company seeking to enter
a new market.

The operational environment

Of course, it is never easy to find or build a high-quality distribution network, and
in many emerging markets the universal challenges associated with efficiently and
correctly delivering millions of packages are further compounded by operational
complexities that may be more common in emerging markets than in countries that
currently lead e-commerce sales. The lack of proper infrastructure, for instance, could
diminish or complicate the process for establishing proper business operations in a
market. Countries with large rural populations represent an immense challenge for last
mile delivery, while dense urban areas in emerging markets bring other difficulties, like
heavy traffic and other logistical restrictions that make it difficult to transport goods.
In both areas, formal addresses may not be commonplace.

These challenges are real and new entrants should arrive informed and with a plan.
At the same time, these market conditions also signal opportunities for companies
that are prepared to adapt to them. For example, companies that plan efficient delivery
routes will likely find that home delivery can be much more cost-effective in
densely-populated cities than less densely-populated ones as seen in the US. This
makes it easier to offer low-cost or free shipping, which consumers across markets
identify as one of the key features they expect from internet retailers.

© EU R OMONITOR INTER NATIONAL 19

A dap t i n g to the Lo gistics Env ir onment

This is evidenced by retailer Konga.com’s strategy. Konga launched in 2012, selling only
to consumers living in Lagos, later broadening its reach to all of Nigeria. Shipping
costs for items purchased on Konga.com varies by where the consumer is based, with
Lagos having the lowest shipping costs. At the time of this writing, major cities other
than Lagos had shipping fees 33% higher than Lagos, while shipping to locations
outside of major cities cost three times as much as shipping to Lagos. A second benefit
is that shipping to major cities is often faster, given that they facilitate more efficient
warehouse locations.

Most Densely Populated Cities in Emerging and Developing Countries

12000

10000

8000
Persons per sq km, 2015

6000

4000

2000

Source: Euromonitor International

Densely-populated cities also tend to have thriving networks of convenience stores

and / or independent small grocers, which make prime pick-up partners especially for
pure e-commerce players, who do not have their own network of brick and mortar
stores to rely on as distribution centres. Amazon, for example, is piloting this strategy
in a number of markets, including partnering with convenience store chain Oxxo in
Mexico, as well as 7-Eleven in the US and Canada. Pick-ups at third-party locations are
another strategy for improving retailer margins.

20 © E UR OM O N I TO R IN TERN ATIO N A L
 Adapt in g to t he Logist ics E nv i ro nm e nt

Rural opportunities
Due to the limited infrastructure in many rural areas across the emerging and
developing countries, it can be more challenging for businesses to reach rural markets
and get the products consumers purchase online into buyers’ hands. This makes urban
areas an obvious target for emerging and developing countries market growth, but by
no means are they the only option. Thanks to the growing popularity of the internet
and smartphone access even outside urban areas, internet retailers have the potential
to boost rural consumption via digital channels. Limited infrastructure affects
internet retailers looking to ship product to rural areas, but they also impede efforts
to establish brick and mortar locations. As a result, consumers in rural areas are often
underserved by store-based channels, making those with digital access receptive to
online purchases. Towards this end, Alibaba has identified growing share in rural areas
as a strategic priority. AliResearch, Alibaba’s research division, estimated in 2014 that
by 2016 total e-commerce sales from rural China would reach US$75 billion. Alibaba
plans to reach these consumers by using Taobao stores as pick-up partners, building
rural distribution centres and encouraging more rural sellers to list on the platform.

Increasing
80% Internet and Mobile Connectivity Could Boost Rural Consumption

70%

60%

50%

40%

30%

20%

10%

0%

% of total population living in rural areas

Source: Rural and urban population Euromonitor International from national

statistics / UN

© EU R OMONITOR INTER NATIONAL 21

 CONCLUSION

With e-commerce in emerging markets projected to increase at a constant value sales

Cagr of 15% between 2015 and 2020—and double digit growth to be seen across nearly
all product categories through this channel—emerging markets are attractive targets
for companies looking to expand. Choosing a market and developing an effective
strategy for market entry is a complex task with many components a consideration
for a successful launch. A deep understanding of their target market’s unique
demographics and digital and operational landscapes is the first step in evaluating
target markets. Developing a successful strategy requires a careful assessment of the
competitive and strategic positioning of other companies, as well as the payments and
logistics characteristics of the market in question. Answers to the questions posed by
these five considerations are must-haves for a company seeking to understand how to
use the internet as a tool for e-commerce expansion, both for retailers expanding their
own operations or manufacturers seeking to identify the strongest retail partners.

22 © E UR OM O N I TO R IN TERN ATIO N A L
 ABOUT EUROMONITOR
INTERNATIONAL

Euromonitor International is the world’s leading provider for global business

intelligence and strategic market analysis. We have more than 40 years of experience
publishing international market reports, business reference books and online
databases on consumer markets.

Our global market research database, Passport, provides statistics, analysis, reports,
surveys and breaking news on industries, countries and consumers worldwide.
Passport connects market research to your company goals and annual planning,
analysing market content, competitor insight and future trends impacting businesses
globally. And with 90% of our clients renewing every year, companies around the
world rely on Passport to develop and expand business operations, answer critical
tactical questions and influence strategic decision making.

To discover more about the power of Passport, read product reviews or request
a demonstration.

Euromonitor International is headquartered in London, with regional offices in

Chicago, Singapore, Shanghai, Vilnius, São Paulo, Santiago, Dubai and Cape Town.

© EU R OMONITOR INTER NATIONAL 23

 THE AUTHORS

AMANDA BOURLIER
Senior Research Analyst
Euromonitor International, Chicago
Connect via LinkedIn

Amanda Bourlier is a Senior Research Analyst at Euromonitor International,

conducting multinational market intelligence studies on sectors including retail
and consumer payments in North and South America. Her projects analyse
business landscapes as well as economic and political conditions to identify
consumer trends and market developments. Amanda’s work is featured in
Euromonitor International’s award-winning syndicated research offering, Passport,
which is used by Fortune 500 companies, leading banks and consultancies, and
institutions of government and higher education worldwide. In her role at
Euromonitor International, Amanda collaborates with stakeholders throughout
the world to advise on the factors shaping the digital consumer in both
developed and emerging markets. A graduate of the University of Michigan, her
professional interests include international strategy and the effect of politics on
business environments and consumers.

24 © E UR OM O N I TO R IN TERN ATIO N A L
 The Aut ho rs

GUSTAVO GOMEZ
Senior International Business
Development Executive
Euromonitor International, Chicago
Connect via LinkedIn

Gustavo Gomez is a Senior International Business Development Executive

advising Latin American corporations on how local market potential,
consumer trends and international drivers can impact their business. Gustavo
has successfully focused on business opportunities internationally and locally
for stakeholders, where he provides syndicated market research solutions
and assists in developing customised projects that are aligned with his clients’
strategic objectives and market share growth. Working at Euromonitor
International for over five years, Gustavo has been advising a diverse
portfolio of corporate clients, from industrial, consumer goods and consumer
service industries.

© EU R OMONITOR INTER NATIONAL 25

 REFERENCES

1. “How Alibaba Is Working Towards Establishing Itself In Rural

China?” Forbes. Trefis.com, 21 Mar. 2016. Web. <http://www.forbes.com/sites/
greatspeculations/2016/03/21/how-alibaba-is-working-towards-establishing-
itself-in-rural-china/#109446396e1d>.

2. Sy, Nicole. “Chinese E-Commerce Companies Head to the Countryside.”

CKGSB Knowledge, 22 April 2015. Web. <http://knowledge.ckgsb.edu.
cn/2015/04/22/ecommerce/chinese-e-commerce-companies-head-to-the-
countryside/>.

3. Boonnoon, Jirapan. “Lazada Aims to Increase Transactions with Nationwide

Coverage.” The Nation, 25 Feb. 2016. Web. <http://www.nationmultimedia.
com/business/Lazada-aims-to-increase-transactions-with-nationwi-30280093.
html>.

4. Diega, Alladin S. “Lazada Says Big Majority of Sales Cash on Delivery.”

BusinessMirror, Web. June 2015. <http://www.businessmirror.com.
ph/2015/07/20/lazada-says-big-majority-of-sales-cash-on-delivery/>.

5. Moriarty, Mike, Bart Van Dijk, Mirko Warschun, Jaco Prinsloo, Emanuele
Savona, and Marieke Witjes. “Retail in Africa: Still the Next Big Thing.” A.T.
Kearney, 8 Sept. 2015. Web. <https://www.atkearney.com/consumer-products-
retail/african-retail-development-index/2015>.

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 Re f e re nc e s

Definitions
Emerging and developing countries are countries, which don’t match the criteria
of developed markets according to the imf, are classified as emerging and developing.
It is composed of 170 countries: Afghanistan, Albania, Algeria, American Samoa,
Angola, Anguilla, Antigua, Argentina, Armenia, Aruba, Azerbaijan, Bahamas, Bahrain,
Bangladesh, Barbados, Belarus, Belize, Benin, Bhutan, Bolivia, Bosnia-Herzegovina,
Botswana, Brazil, British Virgin Islands, Brunei, Bulgaria, Burkina Faso, Burundi,
Cambodia, Cameroon, Cape Verde, Cayman Islands, Central African Republic, Chad,
Chile, China, Colombia, Comoros, Congo, Democratic Republic, Congo-Brazzaville,
Costa Rica, Côte d’Ivoire, Croatia, Cuba, Curacao, Djibouti, Dominica, Dominican
Republic, Ecuador, Egypt, El Salvador, Equatorial Guinea, Eritrea, Ethiopia, Fiji,
French Guiana, French Polynesia, Gabon, Gambia, Georgia, Ghana, Gibraltar,
Grenada, Guadeloupe, Guam, Guatemala, Guinea, Guinea-Bissau, Guyana, Haiti,
Honduras, Hungary, India, Indonesia, Iran, Iraq, Jamaica, Jordan, Kazakhstan, Kenya,
Kiribati, Kosovo, Kuwait, Kyrgyzstan, Laos, Lebanon, Lesotho, Liberia, Libya, Macau,
Macedonia, Madagascar, Malawi, Malaysia, Maldives, Mali, Martinique, Mauritania,
Mauritius, Mexico, Moldova, Mongolia, Montenegro, Morocco, Mozambique, Myanmar,
Namibia, Nauru, Nepal, New Caledonia, Nicaragua, Niger, Nigeria, North Korea, Oman,
Pakistan, Panama, Papua New Guinea, Paraguay, Peru, Philippines, Poland, Puerto Rico,
Qatar, Réunion, Romania, Russia, Rwanda, Samoa, Sao Tomé e Príncipe, Saudi Arabia,
Senegal, Serbia, Seychelles, Sierra Leone, Sint Maarten, Solomon Islands, Somalia,
South Africa, South Sudan, Sri Lanka, St Kitts, St Lucia, St Vincent and the Grenadines,
Sudan, Suriname, Swaziland, Syria, Tajikistan, Tanzania, Thailand, Togo, Tonga,
Trinidad and Tobago, Tunisia, Turkey, Turkmenistan, Tuvalu, Uganda, Ukraine, United
Arab Emirates, Uruguay, US Virgin Islands, Uzbekistan, Vanuatu, Venezuela, Vietnam,
Yemen, Zambia, Zimbabwe.

Developed countries are countries that have a high level of development. According
to the International Monetary Fund (Imf) the following 38 countries are classified
as “developed countries”: Andorra, Australia, Austria, Belgium, Bermuda, Canada,
Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hong
Kong, Iceland, Ireland, Israel, Italy, Japan, Liechtenstein, Luxembourg, Malta, Monaco,
Netherlands, New Zealand, Norway, Portugal, Singapore, Slovakia, Slovenia, South
Korea, Spain, Sweden, Switzerland, Taiwan, United Kingdom, United States.

Middle class households are households with between 75% and 125% of median
income in a given market.

© EU R OMONITOR INTER NATIONAL 27