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E-Commerce: The Vital Ingredient of Success Formula for Pakistan


By SAHAL MANZOOR SHEIKH

Many years ago, people were alien to the concept of purchasing something from the internet. If someone had told you that you can order literally anything sitting on your couch, you’d have debunked it as a hoax. This renaissance of e-commerce is due to relatively larger penetration of the internet. The emergence of online marketplaces such as OLX and Daraz.pk has helped the businesses to grow and sell goods on the web. This has opened new avenues for other businesses and retailers, ranging from clothing outlets to hardware stores.  In the process, e-commerce has helped the economy of Pakistan and the number continues to grow.

E-commerce in Pakistan

E-commerce is a broader term and incorporates multiple sectors within it.  Currently, the following sectors are working in Pakistan:

Retail: This sector involves the online sale of products and goods. There are two avenues for retail e-commerce: marketplaces and brands. Daraz, shopping, and Goto are some examples of marketplaces operating in Pakistan.  Online brand stores deal in products they themselves produce. For example, clothing brands such as Outfitters, Engine, Leisure Club, Khadi, and Sapphire have opened their online stores. The retail market has the biggest revenue-generating potential.

Although, it is quite convenient to order something directly from home, there are other deterrents which stem from cultural factors. Families in Pakistan love going to malls together where impulse led shopping is a powerful tool. In addition to this, the traditional shopping method allows one to see the product and most importantly, to ask for a discount. These factors, no matter how little they look, have proved to be a huge impediment to online shopping.

Ali Express’s acquisition of Daraz

Founded in 2012, Daraz.pk became a giant in Retail E-commerce scene of Pakistan. It was incubated by Germany’s Rocket Internet and the company managed to achieve a record Rs1 billion sales in 2016 with its Black Friday event. The sales even tripled in the next years, earning Rs 3bn. Seeing the potential of Daraz in Pakistan, Bangladesh, Sri Lanka, and Myanmar, Alibaba Group acquired Daraz in a staggering $200 million deal.

Ride Hailing: When Pakistan opened its doors for Uber and Careem, no one realized that these companies would turn out to be this successful. Both of these companies are global giants and inspired many local startups in Pakistan. Bykea is a local startup and growing exponentially in its motorcycle-powered rides and parcel delivery business. Before these services, people had to wait for an hour to get a taxi and the cities were dominated by Auto rickshaws demanding a ridiculous amount of money. With the emergence of Uber and Careem, the waiting time has reduced while simultaneously making the rides much cheaper on average. Mobility has always been a challenge in Pakistan, especially for women. These companies have made mobility safer.

Uber’s acquisition of Careem

In a shocking deal of $3.1 billion, Uber acquired Careem’s mobility, payment businesses, and delivery across the greater Middle East region. The countries include Pakistan, Saudi Arabia, Egypt, Jordan, the United Arab Emirates, and Morocco. With this acquisition, Careem became a wholly-owned subsidiary of Uber. However, it will operate independently with the same team. This match made in heaven brings together Careem’s regional technology infrastructure and Uber’s global leadership. Together both the companies will be able to expand the reliability of services offered.

Classifieds: It includes a wide range of offerings from used cars to real estate. Sites such as OLX, Zameen, and PakWheels have been able to create a niche for themselves. However, most of the avenues in this category are saturated. There are no close competitors.

Future of E-commerce in Pakistan

Pakistan is one of the fastest growing e-commerce countries in Asia and could easily become one of the future destinations of emerging B2C e-commerce. The industry hasn’t reached its maximum potential yet. The sales were $622 million in 2017 which was only 0.34% of the retail market. The numbers are doubling every year and expected to reach1 billion US dollars by 2020. While these numbers are very less if compared with the global players in e-commerce, we are not far behind. The entrepreneurial culture is rising and the e-commerce in Pakistan reflects promising prospects with exponential growth.

E-commerce globally

The United States and China being the world’s two largest economies dominate e-commerce globally. Together, they accounted for more than half of the worldwide sale of physical goods.

China is the world’s No.1 e-commerce market. The online sales soar from $685.16 billion to $685.16 billion in 2017-2018. The reason why China touched this huge number is because of their growing middle class and huge demand for foreign goods. Asia is considered to be the “growth engine” for online sales. China managed to outpace the United States which is the second-largest global market in e-commerce. The consumers spent a staggering $449.88 billion on U.S. retail sites in 2018 and growth is expected to increase 15.6% every year.

In the United States and the rest of the world, Amazon.com has been the big shark. Amazon operates in a simple way. The retailer sells its own inventory and is given access to operate a marketplace on which other retailers sell their products through Amazon Platform. In return, Amazon takes a commission of each order. Amazon is the clear global winner in recent years when it comes to sales of retailers’ owned products. It has a 21.2% year-over-year growth. It is interesting to know that Amazon single-handedly accounted for 43.1% of all e-commerce growth in the United States. The company touched a giant chunk of online retail sales. On the other hand, Chinese rival mass merchant JD.com Inc. comes second on the global stage. Large retailers like Alibaba Group and Ebay Inc. operate as pure marketplaces as they don’t own any inventory.

Pakistan’s Internet Capacity

Pakistan has to cope up with the increasing reliance of its people on e-commerce. Therefore, the internet should be accessible in the urban centers and remote areas of the country. To meet this ever-increasing demand, an agreement has been signed between PEACE Cable International Network and Cyber Internet Services (Cybernet Pakistan). PEACE, which stands for Pakistan and East Africa Connecting Europe, is a privately owned 12,000km long cable system providing internet services to different countries. It is still under installation and will reach completion in the first quarter of 2020.

The system shall adopt latest 200G and WSS technology. It will be able to transmit 16 Tb/s per fiber pair. This cable system will connect the three most populated continents in the world. As a result, a total capacity of 96 Tb/s will be added to our internet infrastructure. Cybernet has always been on a mission to bring affordable and lightning fast broadband to the far reaches of Pakistan and this initiative will enable carriers to extend gigabit speeds to the people. This agreement will also be instrumental in meeting the exponential growth in bandwidth demand from internet users in Pakistan.

E-commerce is empowering youth with Entrepreneurial Culture

With the creation of promising e-commerce stratosphere, Pakistan’s government and leading institutes are fostering budding entrepreneurs to help them in their startups. All of this is being done in the bid to empower the youth in creating jobs than settling for one.  The institutes like LUMS, NUST, FAST, GIKIST, and COMSATS are nurturing IT-based startups and have been able to produce some of the finest individuals with entrepreneurial acumen. The incubates are offered scholarships, grants, and infrastructure to hone their skills and secure a foothold in the corporate industry. The Punjab Government has created Plan9 which is a tech incubator helping striving entrepreneurs to expand their startups.

Small and medium enterprises (SMEs) are pushing Pakistan’s entrepreneurial drive to new heights. Presently, they account for 90% of the business economy and roughly 40% of our entire GDP. With the incorporation of more and more SMEs, millions of new jobs are generated which in turn creates a high-engaging online user base. Therefore, lower to upper-middle-income strata can engage with online shopping platforms and dispense their income on services and physical goods. The success of e-commerce is contingent upon the size of Pakistan’s working class and will continue to pave its way in becoming a key figure in the global e-commerce arena.

How e-commerce is helping the economy of Pakistan?

The digital revolution is helping the economy of Pakistan. The digitalization helps the businessmen in a number of ways. The conventional exchange involved multiple agents such as producers, wholesalers, transporters, and consumers. With the emergence of e-commerce, the middle parties are bypassed allowing direct dealing between buyers and suppliers. The leading producers of apparel, food, smartphones, and electronic industries have online e-retailing channels in place. Internet is accessible in the remotest areas of the country and more than 62 million people use the internet. The cash on delivery services has increased consumer trust and satisfaction. All of this is contributing to the economy in the macroeconomic perspective.

McKinsey Global Institute (MGI) issued a report which stated that Pakistan can experience a seven percentage points increase in its GDP and can create four million new jobs till 2025 by the increasing usage of digital financial services alone. Pakistan’s e-commerce market has nearly doubled to Rs 40bn and with the right attitude of Government, investment in startups and SMEs, and facilitation to the global giants the numbers will grow even more.

 The writer is former general manager and strategist of two leading hotels in Istanbul,

Turkey and is currently serving as Head of Sales in Bima Mobile Pakistan (Ltd). He can be reached at: sahalmanzoor@gmail.com

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