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How to Help Entrepreneurs in Developing Countries

By bringing together public- and private-sector support for digital trade, the Global Fund for Ecommerce could help developing country entrepreneurs go global.

Kati Suominen | Nextrade Group, LLC

E-commerce has emerged as a powerful driver of economic growth, inclusive trade and job-creation worldwide.

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Most businesses around the world have yet to use the tools of 21st century trade.

Yet while research shows e-commerce dramatically increases the odds for small businesses to stay in business, export and grow, most businesses around the world have yet to use the tools of 21st century trade — especially in developing countries.

A new initiative, the Global Fund for E-commerce, could play a critical role in bringing developing country entrepreneurs into the digital era.

[Also on Longitudes: On the Road to Disruption]

The digital era of trade

As global trade digitizes, the thorniest challenge remains the scant adoption and use of e-commerce capabilities and online payment tools, particularly in the developing world.

Only 9 percent of small companies and 16 percent of midsize companies in low-income countries sell online, according to the World Bank, while adoption is only 35 percent for midsize companies in upper-middle income countries.

Even fewer merchants have adopted online payments required for transacting with overseas shoppers, with a recent MasterCard study of four advanced and emerging economies showing that while 90 percent of merchants had a website, only 20 percent were set up to accept payments online.

Of course, some of the low adoption is due to macro factors, such as expensive broadband connectivity. Yet research shows that the main elements obstructing companies from leveraging ecommerce are their lack of e-skills and e-commerce capabilities, such as marketing abroad.

The main reason for merchants’ sparse adoption of online payments is not — as usually believed — low consumer adoption, but the perceived cost of online payments and lack of ability to set up online payment systems.

What merchants in developing countries need is greater awareness of why — and how — to adopt e-commerce. Trade capacity-building needs an upgrade for the digital era.

In addition to standard trade issues such as meeting foreign product standards, participation in cross-border e-commerce requires merchants to have a range of new capabilities, such as:

  • Identifying best-fit foreign markets and customers in the cyberspace
  • Marketing via social media and geotargeted ads
  • Leveraging plug-ins for tasks such as data analytics on customers
  • Creating a multichannel shopper strategy
  • Using online payment systems used by overseas customers
  • Partnering with foreign e-commerce platforms
  • Calculating the total cost of delivery
  • Understand e-commerce fulfillment process

[Also on Longitudes: Customer-Centric Delivery]

E-commerce development

Governments, merchants and e-commerce companies all share an interest in expanding merchants’ use of e-commerce. Yet trade capacity-building as we know it won’t suffice.

Public sector support tends to be ad hoc, and export promotion agencies are unlikely to have the best technical knowhow.

The best trainers of merchants are either other merchants who have used e-commerce successfully, or e-commerce platforms like eBay or payment platforms like PayPal that have not only the right expertise — but also a keen corporate interest cultivating new e-commerce users. However, they are as yet not organized to systematically train merchants.

The best way boost e-commerce adoption rates around the world would be a Global Fund for E-commerce, a public-private partnership that could incentivize e-commerce platforms, payment providers and other commerce companies to train merchants in developing countries on ways to apply e-commerce and the associated technologies.

The Fund fuels the new Aid for eTrade initiative I’m launching with the United Nations.

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What merchants in developing countries need is greater awareness of why – and how – to adopt e-commerce.

Through the initiative, developing country governments and industry associations would systematically identify groups of merchants that want to learn to leverage e-commerce and understand their specific needs. The fund would respond by creating a custom capacity-building program with the right team of trainers.

Providing capacity-building is not new to platforms. An excellent example is the capacity-building project that B2B e-commerce platform TradeKey launched with support from the Deauville Partnership, World Bank and International Trade Center to help merchants in Tunisia, Morocco and Jordan to reach international buyers.

eBay’s Seller Center helps guide aspiring eBay sellers, while eBay University offers low-cost personal instructors in U.S. and Canada for companies to learn to sell online — an approach that could work worldwide.

A particularly useful business model for the Global Fund for E-commerce is a social impact bond, whereby private foundations and social impact investors make the initial investment and get compensated by donor governments and development agencies if certain metrics are hit.

This model incentivizes private investors to invest in high-impact projects to support e-commerce development — and upon success, secure both financial and social return.

This model ensures iterative improvement. All parties have an interest in analyzing each project’s impact rigorously, and improving the next time.

Everyone wins: merchants get more sales, governments get more exports, investors get a return, donors get impact, and e-commerce platforms get more clients in hard-to-reach markets.

Naysayers may say that e-commerce companies would provide training without outside subsidies to get more clients.

This however has not happened even in big markets — some nudge, organization and seed funding are required for e-commerce capacity-building to take off.

E-commerce and online payments are historic tools of trade and development: they enable entrepreneurs to get into business and access world markets at a lower cost than ever before. Yet for business owners not steeped in technology, these tools can initially be intimidating.

Until now, there hasn’t been a coherent vision on ways to take merchants to the e-commerce era. A Global Fund for E-commerce would be a key way toward that goal. goldbrown2

This article first appeared on GE Reports and was republished with permission.

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Kati Suominen is Founder and CEO of Nextrade Group, LLC and TradeUp Capital Fund

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1 Comment

  1. Pingback: Microfinancing Climate Resilience | Longitudes

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