How E-Commerce Is Taking Over Emerging Markets
It’s no secret that e-commerce is on the rise. In developed countries, online shopping has already become the norm, with customers spending billions of dollars annually on everything from groceries to clothes to electronics. But what about emerging markets? Is e-commerce starting to take hold there as well?
The short answer is yes. Thanks to a combination of factors—including increasing mobile and internet penetration, a growing middle class, and favorable government policies—e-commerce is taking off in emerging markets and attracting attention from venture capital investors. Let’s take a closer look at how this trend is playing out.
E-Commerce Is Growing Rapidly in Emerging Markets
According to estimates from the World Economic Forum, the global e-commerce market will be worth $27 trillion by 2025. A large chunk of that growth will come from emerging markets, where e-commerce is expected to grow 20% annually over the next decade. This represents a huge opportunity for businesses—and one that many are already starting to capitalize on. Alibaba, for example, is China’s largest e-commerce company and one of the world’s largest companies overall. In 2018, it generated $30.8 billion in revenue—an increase of 61% from the previous year.
Investors are pouring money into e-commerce startups in emerging markets.
In 2018 alone, these companies raised $7.5 billion in funding, according to data from Crunchbase. That represents a nearly threefold increase from 2017 when they raised just $2.6 billion. And this trend doesn’t seem to be slowing down anytime soon; in 2019, e-commerce startups in emerging markets have already raised $2 billion in funding as of April, putting them on pace to easily exceed last year’s total.
One of the most notable deals so far this year was a $1 billion investment in Jumia, an Africa-based e-commerce company that is often referred to as the “Amazon of Africa.” With this round of funding, Jumia became Africa’s first startup unicorn—a company with a valuation of $1 billion or more. Not bad for a company that was founded just six years ago!
There’s no question about it: e-commerce is taking over emerging markets. Thanks to factors like increasing mobile and internet penetration and favorable government policies, e-commerce startups are attracting attention—and investment dollars—from all over the world. With billions of dollars up for grabs, it’s an industry that businesses can’t afford to ignore.
In recent years, we’ve seen a dramatic increase in the amount of online shopping being done in emerging markets.
Thanks to the proliferation of smartphones and other mobile devices, as well as the improvement of internet infrastructure in many parts of the world, people in countries like China, India, and Brazil are buying goods and services online at an unprecedented rate. And with the Covid-19 pandemic causing a significant spike in e-commerce activity globally, it’s likely that this trend will continue in the months and years to come.
Venture capitalists who are looking to invest in e-commerce businesses would be wise to keep a close eye on these developing markets. With their large populations and rapidly growing economies, they offer a lot of potential for businesses that are able to tap into them effectively.
The Chinese Market
Of all the emerging markets for e-commerce, China is by far the most mature. Chinese consumers have been shopping online for years, and the country’s e-commerce market is currently worth more than $1 trillion. Alibaba Group, China’s biggest e-commerce company, handled over $578 billion worth of transactions on its platforms in 2019 alone. And with Covid-19 causing a surge in online shopping globally, Alibaba’s sales have only continued to grow; in the first quarter of 2020, its total revenue rose by nearly 40% year-over-year.
Much of Alibaba’s success can be attributed to its early focus on mobile commerce. The company was an early adopter of apps and mobile payments, which helped it gain a strong foothold in the Chinese market. It also invested heavily in logistics and developed its own delivery network, which has been essential for meeting the demands of China’s vast population. These investments have paid off handsomely; today, Alibaba is one of the most valuable companies in the world, with a market capitalization of over $700 billion.
The Indian Market
India is another huge market for e-commerce, with nearly 1.4 billion people and a burgeoning middle class that is eager to spend money online. The country’s e-commerce market is currently worth around $65 billion and is expected to grow to $200 billion by 2027. Amazon Kindle entered India way back in 2012 when eCommerce was still nascent there but left without much impact because people didn’t really know what an Kindle was or what it did – which brings us to our next point: Amazon hasn’t had much success breaking into India either despite multiple attempts characterized by big investments (over $5B so far) . A lot of this has to do with local regulations that make it difficult for foreign companies to do business there—but that’s not stopping Walmart from trying. The US retail giant acquired Flipkart—one of India’s leading e-commerce platforms—for $16 billion last year in an effort to get a piece of the Indian market. Only time will tell if Walmart will be successful where Amazon has failed, but one thing is certain: India presents a huge opportunity for whoever can get it right.
E-commerce is no longer just a developed world phenomenon. Here are three reasons why now is the time to invest in e-commerce in emerging markets.
The first reason to invest in e-commerce in emerging markets is the sheer size of the opportunity. There are currently over 4 billion people worldwide who are connected to the internet, and this number is only expected to grow in the coming years. Of these 4 billion people, roughly 60% live in emerging markets. This presents a massive opportunity for e-commerce companies to tap into new customer bases.
The second reason to invest in e-commerce in emerging markets is the young population. In many emerging markets, the median age is below 30. This is a huge opportunity for e-commerce companies, as young people are typically more engaged with technology and more likely to make purchases online.
The third reason to invest in e-commerce in emerging markets is the growing middle class. As economies in emerging markets continue to develop, we’re seeing a growing middle class with more disposable income. This presents a major opportunity for e-commerce companies, as middle-class consumers are more likely to make online purchases than lower-income consumers.
These three factors—the sheer size of the opportunity, the young population, and the growing middle class—make now an ideal time to invest in e-commerce in emerging markets. If you’re looking to get involved in this space, now is the time to do it.