Breaking Down the BRIC Wall Selecting the Right Emerging Market

Transcription

1 Selecting the Right Emerging Market MAR Photography/Shutterstock When entering emerging markets, understanding its culture and business requirements will determine your success

2 arvato Systems North America 6 East 32nd Street, New York, New York United States All Rights Reserved Copyright 2015 This document is arvato Systems sole and exclusive property. You are not permitted to duplicate, hand out, or distribute without prior written approval. Version 1.1 January 1,

3 Introduction e-commerce investment in the emerging Brazil, Russia, India, and China (BRIC) market economies continues to remain a key business initiative entering The Alibaba Group s September 2014 IPO reflects the extraordinary attention native BRIC e-commerce companies are starting to attract. On the one hand, the BRIC nations represent tremendous growth opportunities, but not without unique challenges for current and potential market entrants. This white paper will provide insight into the four major emerging market economies and highlight the e- commerce landscape and identify significant growth trends within each. If your company, like many other B2B and B2C enterprises, is planning or in the process of implementing an e-commerce program within one of the BRIC markets, one quick fix might entail getting products posted on some of the BRICs native e-commerce sites. Most are familiar with Amazon and ebay the cornerstones of Western e- commerce. Though each has successfully developed a beachhead into emerging markets, unfortunately their market share often remains relatively small, far behind the likes of Jing Dong in China and Casasbahia in Brazil limiting penetration into these rapidly growing consumer bases. Meanwhile these native platforms boast millions of monthly visitors, and yet remain relatively untapped by many companies seeking to expand internationally. China In terms of sheer numbers, the rising popularity and rapid growth of e-commerce within China is unprecedented. In 2013, China surpassed the United States to become the world s largest Online retail market with an e-commerce spend of RMB 1.3 trillion reflecting a 70% annually compounded growth rate since Fortunately for retailers choosing a 3 rd party distribution model, most Chinese consumers tend to buy from mass retail, multi-category sites, rather than official product sites. Leading the way is Alibaba, which is not just China s but the world s leading B2C e-commerce site. Contrary to consensus opinion, Alibaba is not the only game in town. In fact, ignoring the competition could mean missing out big time. Jing Dong, formerly known as 360Buy, is China s second largest B2C retailer, accounting for 15 percent 3 of the market and now represents hundreds of millions registered users. Whether selling directly into this market, or leveraging one of the above 3 rd party channels, some important characteristics of the Chinese consumer base to be considered include: 2015 Projection 30 million people are projected to shop online for the first time as an untapped market grows 2. Price elasticity dominates Price is the number one reason for shopping Online, not convenience. Sales and bargains are critical to success in this market. Mobile mania Over 50 percent of Chinese Online shoppers, similar to others around the world, initiate their search via a mobile device 4, suggesting high mobile penetration and rapid adoption. Low brand and site loyalty Shoppers frequently switch brands within the same product line, and purchase similar products from multiple sites, suggesting little to no loyalty and reinforcing the theme of price sensitivity. Version 1.1 January 1,

4 Purchases from foreign web sites Product categories where health concerns or authenticity are factors have led consumers to foreign Online retailers. There is an identified cache for US retail products. Brazil Brazil s e-commerce market continues to garner global attention thanks to total e-commerce revenues increasing 250 percent from 2008 through In fact, experts project Brazil s R$ 51 billion e-commerce market to reach R$ 118 by 2018, more than doubling from current levels 6. Yet surprisingly, nearly two-thirds of the consumer market remain disengaged from Online shopping, meaning that Brazil remains a relatively unsaturated market with extremely high growth potential 7. One unique aspect of Brazil s e-commerce industry has been lack of regulation. However, government legislation announced in 2014 stipulated that all eretailers in Brazil must display official registration numbers, addresses, and contact details, while fully disclosing all terms and conditions. While this may discourage market participants it bodes well for consumer interest and confidence, and should stimulate growth of that base. Within the market, retail and travel are the dominant categories, accounting for 56 percent and 44 percent, respectively, of e-commerce revenues 8. Electronics dominates the retail Online spend, but this is a trend many domestic sites, including Buscapé and Casabahia, are acutely trying to resolve. A noteable develpment, however, is the rapid expansion within fashion and accessories as these subcategories are catching up with sites such as Amo Muito, Netshoes and Comprafacil expanding their product offerings and experiencing a surge in registered users. While navigating through the Brazilian e-commerce market, consider its unique characteristics: High social media adoption As recently as 2012, nearly 90 percent of internet users belonged to at least one social network, an adoption rate almost 20 percent higher than the global average 9. Twitter usage continues to be among the world s highest in terms of penetration. Social media engagement Brazilian consumers are more likely to follow companies via social media outlets like Facebook or Twitter. These users have high click-through rates on platforms such as Facebook and are relatively more cost efficient to reach using social media. Unique concerns among shoppers Unlike other regions where price or security dominates, Online shoppers are concerned with logistics and the loss of a traditional browsing experience where products are more thoroughly evaluated. Amazon s recent entrance into the market is likely to improve the overall user experience and alleviate these concerns. Facebook Metric United States Brazil Click-Through Rate 0.17% 0.21% Cost per Click $0.24 $0.08 CPM (Cost/1k Impressions) $0.67 $0.34 Cost per Page Like $0.64 $0.32 Cost per App Install $1.40 $0.61 Source: Salesforce.com, Inc. 2013, The Facebook Ads Benchmark Report Version 1.1 January 1,

5 Russia As internet penetration in Russia surged to about 70 million people in 2014, the country now boasts more internet users than any other European country 10. This reflects extraordinary growth, as less than 10 percent of the population was Online in Accordingly, the demands for e-commerce seem poised to skyrocket. Some facts strongly supporting this theory include: Russia ranks first among BRIC countries in online spending per shopper and Internet penetration 11. From 2008 through 2013, the total number of internet users doubled, ranking fifth highest worldwide in terms of user growth within this time period 12. The country is already the ninth largest B2C e- commerce market, by 2018 it is projected to reach $38 billion 13. Russia represents one of the few e-commerce growth opportunities within the European market with 2013 Online sales growth surpassed only by China, Indonesia, Mexico and India. The biggest player in the Russian market is Ulmart.ru, with a diversified assortment ranging from electronics to items for the home and garden. Its 2013 sales revenue reached an approximately 420 billion euros, not including VAT or sales captured offline. Another is Ozon, part of the German-based trading company, Otto Group, also a long-established player in Russian e-commerce. Ozon reported revenues of $492 million last year representing a fabulous year-over-year growth rate of 67 percent. CEO Maelle Gavet has also stated his aspiration is to capture 80 percent of Russia s e-commerce market share. The primary risk e-commerce companies currently face in Russia is political instability. The geopolitical climate has negatively impacted the overall Russian economy, and despite relatively robust e-commerce growth, the full impact of these tensions may not be fully reflected in backward looking economic indicators. Despite these risks, Ebay has shown a continuing commitment to its investments in the Russian marketplace. One reason for its success has been its Global Shipping Program, which lets Russian shoppers purchase goods from many global regions, including the United States, without delivery or logistics concerns. The lack of a reliable, affordable shipping franchise however continues to be another threat to the country s e-commerce growth. India Fast Facts about Retail e-commerce in Russia 14 Leading product categories by purchase volume: Electronics (31%) & Apparel (21%) 48% of purchases made through social media Yandex is the search engine of choice with 62% of total traffic Though still lagging behind China, India has seen a sharp uptick in Online demand for consumer goods. Retail e- commerce in India is currently dominated by fashion, with apparel giant Myntra.com accounting for 30 percent of the total market share 15. In 2013, Myntra.com earned revenues of about $65 million, but failed to turn a profit. However, similar to other BRIC online retailers, expectations are high for the upcoming years. For example, the company expects revenues to more than triple from Rs 2,000 crore at the end of the 2014 fiscal year to about Rs 6,300 crore (approximately $1 Billion) by March, 2016, resulting in a first time profit. Broadly speaking, the apparel category has grown 66 percent Version 1.1 January 1,

6 over the last 12 years, representing by far the country s largest e-commerce growth during the period fragrances and cosmetics ranked a distant second with 12 percent growth 16. Source: Technopak India stands out among the BRICs due to the following: Fastest growing internet user group is the highly sought-after year old range. Retail e-commerce penetration recently increased to 65 percent of the population, and continues to grow at an annual rate of 15 percent ranking third among BRIC nations. Overall e-commerce market projected to expand dramatically in 2015 and reach $20 billion in overall size potentially a 37 percent growth rate year-over-year 17. Version 1.1 January 1,

7 Key Takeaways I. Bigger is not always better The BRIC nations are typically associated with growth and untapped expansion potential. However, the e-commerce landscape differs significantly from country to country. Your business expansion into any nation and market must make sense strategically, and involve careful consideration of the: a. Local cultural tendencies such as payment methods, consumer behavior, etc. b. Regulatory environment c. Sales and distribution channels d. Geopolitical and social climate e. Internet infrastructure f. Transportation and logistics landscape II. III. IV. D2C or third party marketplace With local e-commerce markets often dominated by at least one existing multi-category, domestic retail site, attempting to sell directly to consumers via your own e-commerce site may not be the best approach. Strategic partnerships with existing consumer sites allow you to leverage their expansive visitor base and the comfort zone local shoppers enjoy there. Re-creating this environment without local expertise or experience may prove to be both difficult and inefficient. Best of both worlds A hybrid solution, perhaps phased into stages of strategic and tactical initiatives, can allow you to leverage the benefits of enormous existing Online marketplaces, while simultaneously taking the time to plan and localize a D2C site that will generate higher margins down the road. The back-end matters Localization is important, and while cultural, currency, and legal considerations are important factors, the back-end integration makes or breaks an expansion effort. Operational processes, fulfillment, and customer service present more difficult challenges than complying with laws or calculating local sales tax at the POS. Fulfillment models in Brazil and China require a combination of regional and local partners, as the payment, transportation, and logistics grid are vastly different than in places like the United States. Success requires providing customers with the service and options they are accustomed to without sacrificing margins. Version 1.1 January 1,

8 arvato Systems connects global leaders to BRIC e-commerce In 2014, arvato Systems worked with a major Japan-based client in the digital imaging and precision optics industry to launch their Brazilian e-commerce site. Leveraging hybris 5.0, development time and costs were dramatically reduced largely in part to a 2013 re-platforming initiative which allowed for future extensibility and scalability. The new site allows the company to tap into Brazil s rapidly expanding Online consumer base with lower total cost of ownership and at a fraction of the typical time-to-market needed to launch a world-class localized platform. In fact, the client now plans to launch additional country-specific eshops in the Americas before the end of 2015 initiatives made feasible by the cost savings from the Brazilian effort. In yet another instance, arvato Systems worked with one of the world s largest CPG companies serving more than 5 billion global consumers, to plan and implement an international e-commerce strategy. The project featured a phased deployment, starting with China and Japan, and eventually rolling out to 29 countries including the United States. The client required the creation of a complex content management system to serve internal stakeholders and its hundreds of retail partners in the targeted expansion countries. The hybris PCM implementation supports hundreds of brands and product lines and many thousands of individual products. It now serves as a single true data source for all business partnersand conforms to each of the end retailers specific requirements through a flexible and scalable CMS. The product information management (PIM) solution generates workflow efficiencies and minimizes erroneous transactions by supplying retailers with consistent, accurate data on-demand. For more information contact arvato systems North America or call arvato Systems North America arvato Systems uses the technology, talent, and expertise of over 2,700 people at more than 25 sites throughout the world to create integrated, future-proof business infrastructures that help make our clients more agile and competitive, and enable them to deliver new standards of service to their customers. We create streamlined digital processes that support innovative business models while providing operation and support services. arvato Systems is a hybris Platinum partner with a solid reputation, over nine years of hybris implementation and product development expertise (B2B module, B2B Accelerator, Telco Accelerator, Digital Module, OMS). Sources: 1. China s e-commerce prize, Bain & Company, marketingtochina.com/e-commerce-china 3. China 360 ecommerce in China: Driving a new consumer culture, KPMG Global China Practice; January Bain & Company; i-research; e-commerce related media researches 5. Brazilian e-commerce market grows, Mintel.com Financial Services, July Brazilian e-commerce market grows, Mintel.com Financial Services, July emarketer, 2013: The Year of the Smartphone in Latin America, Jan Euromonitor International Brazil briefing: Where is the e-commerce market going? McKinsey & Company, July Bloomberg.com, June Russia B2C E-Commerce Market 2014, ystats.com, Market Reports 12. Russia B2C E-Commerce Market 2014, ystats.com, Market Reports Version 1.1 January 1,

9 13. Russia: A massive frontier of e-commerce potential, Internet Retailer, October emarketer- B2C Ecommerce Climbs Worldwide, as Emerging Markets Drive Sales Higher June, India ranks third in online retail marketing, Entrepreneur India, India ranks third in online retail marketing, Entrepreneur India, India ranks third in online retail marketing, Entrepreneur India, 2014 Version 1.1 January 1,