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Picture: 123RF
Picture: 123RF

The news that Amazon is eyeing the SA market is sparking predictions that a new online future is almost upon us, and the established local e-shopping scene will never be the same. The beneficiaries of a more competitive local scene are expected to be consumers and the small business sector.

There is little doubt that introducing a global e-commerce platform into SA will give small e-commerce businesses and consumers options. It is also expected that local e-commerce leaders will develop defensive strategies and prepare to fight for their market share. Meanwhile, pundits say, the small and medium-sized businesses with bright futures in e-commerce will be on the sidelines, taking advantage of a battle between the platforms and standing ready to benefit.

What drives these predictions is that many major e-commerce players operate as marketplace platforms, allowing third party sellers to list and sell their products. Small local businesses could, therefore, use these platforms to reach broader audiences without investing heavily in building their own e-commerce infrastructure.

According to Forbes, Amazon has a thriving third-party seller programme that accounted for about 55% of the goods it sold in the last quarter of 2020. Moreover, 78% of all Amazon searches are “unbranded,” meaning customers are searching for items rather than brand names. And the argument in favour of listing becomes even more attractive for local companies that may be selling largely unknown, boutique and local brands. 

As a financial institution active in both the SME and e-commerce spaces and assisting companies in launching e-commerce operations, we believe it pays to do research, examine options and make informed decisions. As with all business dealings, creating a new venture or folding a business into a larger player relies on ensuring all facets of a deal are examined, contracts are scrutinised and absorbed with the use of specialist resources if necessary, and those terms and conditions are closely examined.

We say this because no two businesses are the same. What appeals to one entrepreneur may not be valid for another. A choice to “go big” with an international e-commerce platform or “stay local” could be driven by several considerations. Let’s look at the pros and cons of the e-commerce market. The most quoted reasons for a small business to take the leap into the e-commerce space or become listed on a major international e-commerce platform are that:

  • Instead of competing against others with a traditional retail operation, an SME can immediately broaden its audience and attract customers from a larger range of markets.
  • New markets can be created at minimal cost.
  • Local companies could use the payment options, gateways, logistics and delivery services that major e-commerce entities bring to markets. (Small local businesses could leverage these improved services to enhance their operations.)
  • New categories of customers can be attracted to the business. (By being associated with a well-known e-commerce platform, local companies enhance the credibility and trustworthiness of their operations. Consumers feel more confident dealing with a local business because it is found on a reputable site.)
  • An SME can compete above its normal “fighting weight,” as e-commerce shoppers, as mentioned earlier, are more likely to make buying decisions based solely on the goods available, the price and availability.
  • By offering products or services that major companies do not supply, an SME can become more specialised and develop niche markets for their benefit.
  • The need for a high-rental, customer-facing shopfront to attract customers is unnecessary. (Instead, cheaper space can be hired, as the focus moves to storage and logistics. Many e-commerce platforms offer features for inventory management and order fulfilment, helping small businesses track their inventory levels, process orders efficiently and manage shipping and returns seamlessly.)
  • Distribution costs are reduced as courier companies replace trucks and delivery vehicles.

When considering whether to move into e-commerce for the first time, to stay with a SA platform or to go international, one should:

  • See whether the e-commerce platform integrates seamlessly with the business’s existing systems and software and what the costs would be to bring a smaller business up to scratch in these two vital areas.
  • Understand that fees vary between operators. (E-commerce platforms can charge for setting up a site on their platform. Then, there can be transaction fees, subscription fees and other charges associated with being given access to the platform.)
  • Pay attention to terms of service, user agreements and contractual terms associated with using the e-commerce platform. (Close attention should be given to any exclusivity clauses, termination policies and legal obligations that may affect the SME.)
  • See whether there are other suppliers on the platform that sell related products. (This could require developing a strategy and market approach so that your business stands out on the e-commerce platform.)
  • Carefully consider the policies of the e-commerce platform regarding product listings, returns, refunds, customer service and dispute resolutions for any unintended consequences that could arise.
  • Research the platform's track record and check its policies regarding preferential deals it has in place for products and services that may compete with those supplied by a smaller company.

And what about expanding through e-commerce, but going it alone using a dedicated site linked to a website? The advantages of this approach include:

  • Becoming a specialist in a niche market or product range that is not found on large platforms. (This means meeting the needs of a smaller market with defined interests that require personal service.)
  • Being adaptable and quickly tracking changes in consumer trends, market conditions, and technologies.
  • Building strong relationships with customers by bringing specialised knowledge into customer contacts.
  • Being a smaller company, and thus being more likely to make fast decisions, introduce changes and respond to industry challenges.
  • Being able to build a unique brand that resonates with customers who choose to deal with smaller companies and being able to customise offerings to meet specific needs. (Customers can become part of a community and engage through social media, blogs and programmes that build brand and business loyalty.)

Ultimately, the decision to go big, to cross international borders, to stay with a local platform that offers a bigger local market, or to stay focused and agile and have personal control over the business, depends on the outlook of the business owner.

What can be certain, though, is that the entry of the major e-commerce players into SA will attract attention, which will mean more awareness of e-commerce and its benefits and more purchases from sites and platforms. E-commerce is the linchpin. And being “listed” on a platform or selling through a specialised site is the way to go. 

• Pillay is head of enterprise direct propositions for Standard Bank Group.

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