How behemoth global e-commerce flex their muscles

The launch of amazon go, has brought the conversation back to e-commerce. For the last one month, India has been talking about de-monetisation; which in itself is a fillip to digital buying. But when global technological breakthroughs like amazon go, change the paradigm, and challenges a whole industry- how do local players cope?

Theres no denying that Amazon and Alibaba are global commerce brands. Theres also no denying that they have major advantages, when they enter new markets; especially as they have operated successfully in various geographies have some unique advantages while entering into new local markets.

And free markets are good news. Most developing counties are now easing the Foreign Direct Investment routes and with the western markets maturing, global e-commerce firms are constantly looking more attractive markets elsewhere. Euromonitor estimates that Global e-commerce sales went up from US$ 994 Billion in 2015 to US$ 1155 Billion in 2016 and is expected to touch US$ 1506 by year 2018.

As more and more e-commerce firms get the global tag, lets look at factors that give global commerce firms an added edge.

1. Proven customer value preposition: Global e-commerce companies know how to capitalize on their distinct customer value preposition well. This also helps in fast and effective positioning of the company as the new customers would know what to expect. If handled suitably this can be a great advantage as the company need not invest more resources in customer education and can benefit immensely from the existing awareness and image even while entering in the new local markets.

2. Time-Tested portal and logistics operations: The success of an e-commerce enterprise depends on how well the company handles and integrate the web portal operations with fulfilment and logistics. Global companies have tried and tested approaches that help them to scale up operations effectively. Their pre-existing Information systems and business process alignment is a major strength. They can replicate their best suited practices in the new local markets while a new local player has to go through this critical cycle of learning which can put the local player in a stark disadvantage. In the context of global e-commerce, perfection in the alignment of IT and business process is indeed the ‘silver bullet’.

3. Knowledge and know-how: Global e-commerce companies also come with a vast knowledge and experience of previously entered markets. This provides valuable customer insights and companies develop their intellectual property which helps them in serving newer markets swiftly as compared to new local players.

4. Minimal Investment in additional e-commerce infrastructure: Technically it is possible for global e-Commerce companies to roll out their new country specific e-commerce portals on the fly. As they have already dedicated e-commerce infrastructure for their existing operations across geographies, it is not difficult to set-up fully functional country specific web portals. Of course this has to be adequately supported by local business operations as is needs the actual ‘boots on the ground’. However, the IT investments needed for an incremental portion of shared infrastructure is minimal. On the same note, IT security, payment and transaction handling capabilities also need not be reinvented for a new market entry.

5. Diverse international talent pool: Global e-commerce companies also generally have diverse talent pool to handle intricacies of new regional and cultural setup while entering into local markets. Regional and cultural sensitization is extremely important to align well with new local markets.

6. Appetite for acquisitions: Sometimes global firms venture into major acquisitions to support their local market entry; and they know what to look for. They have their global operations to fund or support such strategies. Successful local or small firms often are seen as acquisition targets by such global e-commerce companies.

7. Penchant for diversification and evolving new marketspaces: To support local operations the global players often take a mentor approach; they tend to create new marketspaces to facilitate e-commerce between new stakeholder communities like Business-to-Business, Consumer-to-Consumer, reverse auctions etc. E-Bay is a classic example where they have ventured in to new countries aggressive acquisition during the last decade.

However, it is important to note that there are some exceptions, some peculiar geographies (such as China, Russia etc) where some of the above cited advantages may not be obtained fully. Such countries are peculiar because of various reasons, most notably because of their regulatory restrictions or limited ease of doing business. Multinational e-commerce players successful elsewhere may not get an easy foothold in such countries because of either the governmental control over markets or lack of transparency over economic and market policies.

So if an amazon or flipkart or snapped want to enter these countries, from a cultural, social and language perspective,regulatory perspective; such markets are inherently difficult to enter. Amazon’s typical path to success – buying market share – has been repeatedly blocked since it entered China in 2004. Analysts peg Amazon's share of the Chinese online retail market at less than 1.5 percent. The situation became so bad, that Amazon had to open a store on rival Alibaba’s Tmall platform, where it pays fees to the Chinese e-commerce giant!

Largely, in open economies, advantages such as agility and relatively smaller size that local players have, are edged out by the massive scale of global e-commerce companies. In a nutshell, its all about the batting turf.

(About the Author: This article is authored by Prof Dhrupad Mathur, who is Astt. Dean – Executive MBA,SP Jain School of Global Management, Dubai)