Digital Commerce Accounted For Less than 1 Percent of The Regions GDP; Limited Product Ranges and Low Awareness by Businesses Are Key Obstacles to Growth
Digital commerce in the Middle East experienced double-digit growth over the past year, and the momentum will likely to maintain over the next years, according to Gartner, Inc. Yet the limited product ranges online, along with the lack of participation from businesses, are key obstacles to future growth.
“Close to half of the population in some leading Middle Eastern countries are shopping online, and the region has some of the world’s highest levels of GDP per capita, yet digital commerce accounted for less than 1 percent of the region’s GDP in 2016. This is much lower compared to other countries, such as the US, the UK and China,” said Gene Alvarez, managing vice president at Gartner.
“Today only 15 percent of the businesses in the region have an online presence, and 90 percent of the online purchases are bought from outside the region,” Mr. Alvarez said. “With leading digital commerce players investing in product offerings, logistics and payment, along with supporting government initiatives, the Middle East will see strong growth for digital commerce in the coming years.”
The business to consumer (B2C) market growth is led by marketplaces such as Souq, Namshi and MarkaVIP, which are investing in enriching product ranges, building end-to-end logistics and digital payment methods. Government initiatives in the region are making public services available online and setting up universal digital payment methods crucial to digital commerce growth. The UAE government has even set up a duty-free e-commerce hub “mahajircom”, offering companies technology platforms, payment gateways and logistics services, supported by preferential business and tax policies.
“However, there is still not enough digital commerce participation from businesses in the region, partly due to the early nature of the market, and partly due to the lack of business awareness in using digital commerce as a new way to reach and engage customers,” said Sandy Shen, research director at Gartner.
Gartner calls for more active participation from businesses to grow digital commerce in the region:
- B2C businesses: Digital commerce offers them a new channel to reach customers, on top of the traditional brick-and-mortar stores. This not only gives businesses direct access to customers, but also enables them to offer better customer experience such as “click-and-collect”. The insight businesses gain from direct customer interactions helps them better understand customer needs and design the engagement programs for target customers. Top consumer brands, as well as tier-1 retailers around the world, have embraced the digital channel as their customers shift more spending online.
- B2B Businesses: B2B businesses often lag behind B2C businesses in embracing the digital channel. This has to do with their preferences for face-to-face interactions, the importance of relationship building and complex purchasing processes. Nevertheless, digital commerce offers them a channel to better serve their customers by making information more transparent, improving process efficiency and the purchasing experience for procurement managers. Many B2B businesses have seen success in leveraging digital commerce to grow the business while keeping costs down.
- Small and Midsize Businesses (SMBs): SMBs are usually the early adopters and active participants of digital commerce due to their lack of resources in discovering and selling to targeted customers. They will rely more on marketplaces in selling to prospective customers, and need operational and technical support in getting the online business up and running.