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Key Points
- E-commerce growth rates are reaching maturity in many Western economies. In the coming years, most of the growth in e-commerce sales will happen in emerging markets.
- The fashion industry is a major beneficiary of e-commerce activity and has great potential to deliver economic growth in developing economies.
- In developing countries, GDP growth from e-commerce is not sufficient. It is imperative that the right people benefit from e-commerce sales.
- Trust issues and a lack of expertise are major impediments to e-commerce growth in many developing countries. Established brands can bridge the gap between conscientious consumers in the West and artisan producers in underdeveloped parts of the world.
Introduction
E-commerce proliferation has grown exponentially over the last 20 years. Initially, most of the growth occurred in developed, Western economies. While certain developing countries, most notably China, have also benefited greatly from the growth of e-commerce trade, others lag behind.
However, in recent times, economic data indicates that e-commerce adoption is reaching maturity in Western countries. Meanwhile, many developing countries are now embracing the opportunities for economic growth that e-commerce provides.
In this article, we will first look at the overall state of global e-commerce and its contribution to the fashion industry. From there, we will briefly review the role of international development over the last number of decades. Finally, we will consider the benefits that modern e-commerce systems can achieve in bringing economic prosperity to artisans in underprivileged communities across the world.
E-commerce Growth & Size
E-commerce is now a behemoth industry. The earliest examples of e-commerce can be traced back to the 1960s with the introduction of technologies like Electronic Data Interchange (EDI) and Electronic Funds Transfer (EFT).1 These technologies paved the way for further developments in the 1970s and ’80s with the introduction of credit cards and Automated Teller Machines (ATMs).
However, for most people, e-commerce, as we know it today, began in the mid-1990s with the dawn of the World Wide Web. In 1994, a young economics graduate named Dan Kohn successfully conducted the internet’s first e-commerce transaction by selling a CD to a friend who was located 300 miles away.2 A newspaper article chronicling that auspicious occasion is available in the archives of The New York Times.
Following that milestone came a deluge of e-commerce activity. While Kohn sold his CD for a grand total of $12.48 (plus shipping:-),3 in 2018, worldwide e-commerce sales in the retail sector were a colossal US$2.8 trillion. By 2021, that figure is expected to reach a mesmerizing US$4.9 trillion.4
Responsibility for these impressive figures lies not only with the ever increasing number of online shoppers but also with the fact that e-commerce continues to account for a greater percentage of retail sales. Last year, approximately 1.79 billion people worldwide bought goods and/or services online. By 2021, that number is expected to reach 2.14 billion people.5 As impressive as this may be, those figures are well outpaced by the growth rate of global e-commerce sales as a percentage of total global retail sales. In 2018, e-commerce sales accounted for 11.9 percent of all retail sales worldwide. By 2021, that figure is expected to reach 17.5 percent.6 A graphical representation of these figures from 2015 through to 2021 is presented below.
Graph data courtesy of Statista5, 6
While internet users in developed economies will continue to buy goods and services online, most of the growth in online sales will come from developing economies. For example, it is estimated that 80 percent of internet users in the United States will make one or more purchases online during 2019.5 Therefore, the potential for growth in that market is limited and approaching saturation.
On the other hand, e-commerce sales in the retail sector in India are forecast to grow at a Compound Annual Growth Rate (CAGR) of 19.9 percent from 2018 to 2022. Indonesia, South Africa, and Mexico are other examples of countries that are experiencing rapid growth in online sales.7
At the other end of the spectrum, certain regions of Africa and the Middle East are experiencing e-commerce sales growth at a much slower pace. In 2016, e-commerce accounted for a mere 1.8 percent of retail sales in those regions.8 There are many reasons why businesses in underdeveloped countries have not benefited from the opportunities that exist in e-commerce, chief among them being:
- A lack of internet connectivity in many underdeveloped regions.9
- A lack of effective branding and trust issues.10
- A lack of managerial expertise in implementing e-commerce strategies.8
- A lack of robust logistical networks.11
- Inadequate legal and regulatory environments.12
While these issues continue to hamper the growth of e-commerce activities in many developing countries, green shoots of hope do exist. E-retail in the fashion industry continues to grow. As producers of many textile products for the fashion industry, artisans and larger businesses in developing countries are well positioned to benefit from e-commerce sales.
E-commerce in the Fashion Industry
When it comes to e-commerce, the fashion industry is a big winner. This year, worldwide revenue in the fashion industry is expected to show a 12.5 percent year-on-year growth rate and achieve an overall value of US$600,994 million. By 2023, that figure will increase to US$872,619 million. Therefore, the Compound Annual Growth Rate (CAGR) for the years 2019 – 2023 is projected to be a healthy 9.8 percent.13
As with e-commerce in general, much of this growth will be generated in developing economies. This is largely due to:14
- Expanding markets in Asia, Africa, and Latin America.
- Further development of internet infrastructure and smartphone usage.
- Increasing size of the middle-class in developing countries.
- Ongoing advancements in technology development.
Overcoming technological barriers will enable a greater number of merchants to access global markets via e-commerce. While trust issues may persist in the near to medium term, the opportunities that exist for economic development are undeniable. In time, e-commerce will most likely provide an effective long-term solution for economic growth in developing countries and help them to lessen their dependence on foreign aid.
International Development
International development is a somewhat evasive term in the sense that it is difficult to define it precisely. Historians and economists often trace the origins of international development back to the redevelopment of Western Europe following the devastation of the Second World War. Between 1948 and 1951, the United States oversaw the implementation of a redevelopment program in Europe known as The Marshall Plan. In doing so, the U.S. was able to mitigate against the potential of Soviet influence spreading into vulnerable allied countries.15
Meanwhile, on the other side of the growing divide, the Soviet Union was implementing its own economic package called the Molotov Plan. Similar to the Marshall Plan, the Molotov Plan was used to rebuild the economies of Eastern Bloc countries that were politically aligned to the Soviet Union following the Second World War. In doing so, the Soviet Union was able to lessen the influence of the United States in Eastern Europe.14
The concept of international development has evolved somewhat since the post-war era of development predicated by a desire for political influence. However, while the intentions of international development were often honorable, a persistent suspicion of self-serving motives endured.
As a result, a new Dependency Theory began to emerge in developing countries during the 1960s. The main argument behind this theory was that powerful Western countries had developed new ways and means of exploiting underdeveloped countries. This perceived exploitation, which it was argued often led to a country’s loss of control over its own destiny, was conducted under the guise of new institutions like the World Bank and the International Monetary Fund.14 Therefore, despite its obvious contribution in assisting poor countries, the perception of international development became somewhat tainted over the decades.
With this in mind, it is essential to articulate a precise definition of what international development is or is meant to be. As mentioned above, international development is a somewhat evasive term. Perhaps a useful definition of the term involves the following:
“…a broad range of disciplines and endeavors to improve the quality of life of people around the world. It includes both economic and social development and encompasses many issues such as humanitarian and foreign aid, poverty alleviation, the rule of law and governance, food and water security, capacity building, healthcare and education, women and children’s rights, disaster preparedness, infrastructure, and sustainability”.16
This definition, provided by Virginia Greiman of Harvard Law School, is an impressive synopsis of what people generally mean when speaking of international development. While not the solution to every problem, e-commerce can certainly play a vital role in contributing to the “…economic and social development”16 of people in developing countries.
The Role of E-commerce in International Development
According to a United Nations report entitled, World Economic Situation and Prospects 2018, e-commerce has the potential to stimulate economic growth in developing economies.
“E-commerce is a growing industry with immense potential to spur growth, particularly in developing economies”.17
Furthermore, the United Nations Conference on Trade and Development (UNCTAD) has stated that e-commerce,
“…can become a powerful driver of economic growth, inclusive trade and job creation across the developing world”.18
However, UNCTAD also acknowledges that while some countries have made progress in pursuing e-commerce activities, others are failing to do so.17
For that reason, UNCTAD is committed to promoting an agenda of e-commerce integration in underdeveloped countries. As outlined by Torbjörn Fredriksson, UNCTAD Chief at ICT Policy Section, e-commerce can play an important role in achieving economic and social development in developing countries by enabling,
“…enhanced participation in global value chains, greater market access and lower transaction costs”.19
To further demonstrate their commitment to promoting e-commerce in developing countries, UNCTAD now hosts an annual E-commerce Week. Broadly speaking, E-commerce Week is a series of discussions amongst various influencers and stakeholders about emerging e-commerce topics and trends from the perspective of enabling developing countries to benefit from the opportunities available.20 It is a forum where such influencers can,
“…discuss the development opportunities and challenges associated with the evolving digital economy”.21
This year, the theme of E-commerce Week will be, “From Digitization to Development”. Therefore, in 2019, E-commerce Week is likely to focus on how e-commerce can assist in not only developing economies but also in enabling people to live better lives. Cognizant of this theme, António Guterres, Secretary-General of the United Nations, believes that the worldwide digital economy will continue to have a transformative effect on economic development and people’s lives.21
In this regard, Guterres has the right idea. Economic growth alone is not sufficient. Economic development that improves people’s lives is a more desirable goal. To clarify the difference, economic growth can be defined as an increase in a countries economic output, often measured as Gross Domestic Product (GDP). On the other hand, economic development can be measured as improvements in people’s quality of life.23
Thankfully, thought leaders at UNCTAD are mindful of this important distinction. While addressing an international conference in Geneva, Switzerland, UNCTAD Secretary-General Mukhisa Kituyi told delegates that it was not only a matter as to whether e-commerce was thriving, but more so as to whether or not e-commerce was helping those most in need.24
Similarly, an excellent article in The Yale Tribune asks the question as to whether e-commerce can be the answer to poverty eradication in developing countries.25 While the author succinctly outlines how such countries can benefit from developing their e-commerce capabilities, the question remains as to whether or not they will do so.24 Furthermore, as previously outlined by Kituyi, student writers at The Yale Tribune take great care to mention that the most important aspect of the digital revolution in developing countries is that the right people benefit from its growth.24
While the world is not yet inundated with such cases of e-commerce expansion in hard-pressed countries, examples of what is possible do exist. Djibouti, in the Horn of Africa, is a fine example. Admittedly, Djibouti is a disadvantaged country in many ways. For example, its harsh arid landscape is less than conducive to agricultural production. Instead, the country prospers from service activities and takes advantage of its strategic geographic location by assisting the shipping industry.26 As a result, in 2017, Djibouti was ranked as the world’s sixth fastest growing economy with an annual growth rate of approximately seven percent.27
While such a growth rate is clearly impressive, it is imperative that such a country does not become overly reliant on one sector. With this in mind, Djiboutians are now embracing e-commerce to further diversify their economy. Supported by the World Bank with a fund of US$3.82 million, a development project called, “E-commerce for Women-led SMEs” is now running in Djibouti.28 This project, which has previously been successful in Tunisia, Morocco, and Jordan, helps female entrepreneurs to overcome many of the barriers that prevent them from marketing and selling their products to lucrative economies overseas.27 This is a fabulous initiative and we wish them every success.
Conclusion
Clearly, e-commerce provides immense potential for underdeveloped countries to grow their economies and improve people’s lives. In fact, UNCTAD Secretary-General, Mukhisa Kituyi, suggests that we are now entering a new era where data will overtake oil as the world’s most important commodity.23
Likewise, when discussing the concept of Global Connected Commerce, Nielsen Consulting Group expresses the opinion that shoppers no longer go to the nearest store, instead, they utilize the nearest digital device.29
With such a profound shift in the way retail is conducted, it is reasonable to assert that the target market for most consumer products is now located worldwide. In fact, courier company DHL predicts that cross-border online retail sales will grow at twice the pace of domestic e-commerce sales until 2020.30
All of this means that entrepreneurs, artisans, and craftspeople are no longer restricted to selling in their own local markets. Great opportunities exist everywhere – if one knows how to engage in e-commerce. However, as mentioned before, many of those in developing countries who stand to gain the most from e-commerce are at risk of missing out for a myriad of reasons.
Along with lacking the knowledge and expertise to operate an e-commerce business, entrepreneurs in emerging economies are also at a disadvantage when it comes to the issue of trust. In many cases, consumers in Western countries are much more comfortable when purchasing online from websites that are located in developed, established economies.
This is where brands like Voguelle can step in and bridge the gap between artisan producers in developing countries and conscientious consumers in the West. By collaborating with one another, trusted brands like Voguelle are able to give customers the security they desire when making purchases that they hope will better the lives of skilled artisans in emerging economies. The net result is a win, win, win situation for the artisan, Voguelle, and the consumer. That feels good. Let’s all do the best we can.
References
[1] https://fleximize.com/articles/006970/history-of-ecommerce
[2] https://medium.com/@michaeltefula/a-brief-history-of-e-commerce-c4692a3b2cd9
[3] https://www.nytimes.com/1994/08/12/business/attention-shoppers-internet-is-open.html
[4] https://www.statista.com/statistics/379046/worldwide-retail-e-commerce-sales/
[5] https://www.statista.com/statistics/251666/number-of-digital-buyers-worldwide/
[6] https://www.statista.com/statistics/534123/e-commerce-share-of-retail-sales-worldwide/
[7] https://www.statista.com/statistics/220177/b2c-e-commerce-sales-cagr-forecast-for-selected-countries/
[8] https://www.statista.com/topics/871/online-shopping/
[9] Molla, A. and Heeks, R., 2007. Exploring e-commerce benefits for businesses in a developing country. The Information Society, 23(2), pp.95-108. Cited in: https://www.ijser.org/researchpaper/The-benefits-opportunities-and-barriers-of-e-commerce-for-a-developing-country.pdf
[10] Travica, B., Jošanov, B., Kajan, E., Vidas-Bubanja, M. and Vuksanovigc, E., 2007. E-commerce in Serbia: Where roads cross electrons will flow. Journal of Global Information Technology Management, 10(2), pp.34-56. Cited in: https://www.ijser.org/researchpaper/The-benefits-opportunities-and-barriers-of-e-commerce-for-a-developing-country.pdf
[11] https://www.ijser.org/researchpaper/The-benefits-opportunities-and-barriers-of-e-commerce-for-a-developing-country.pdf
[12] United Nations Conference on Trade and Development (UNCTAD). E-Commerce and Development Report 2004. Geneva, Switzerland: United Na-tions, 2004
[13] https://www.statista.com/outlook/244/100/fashion/worldwide
[14] https://www.shopify.com/enterprise/ecommerce-fashion-industry
[15] https://www.villageearth.org/training/a-brief-history-of-international-development-theories-and-practices/
[16] https://hls.harvard.edu/content/uploads/2008/07/developmentguidefinal.pdf
[17] https://www.un.org/development/desa/dpad/wp-content/uploads/sites/45/publication/WESP2018_Full_Web-1.pdf
[18] https://unctad.org/en/pages/MeetingDetails.aspx?meetingid=1080
[19] https://vi.unctad.org/news-mainmenu-2/885-fast-growth-of-e-commerce-in-developing-countries-creates-opportunities-and-challenges
[20] https://unctad.org/en/Pages/MeetingDetails.aspx?meetingid=1068
[21] https://unctad.org/en/conferences/e-week2018/pages/default.aspx?Ne=7,3,,
[22] https://unctad.org/en/Pages/MeetingDetails.aspx?meetingid=1966
[23] https://www.intelligenteconomist.com/economic-growth-and-development/
[24] https://unctad.org/en/pages/newsdetails.aspx?OriginalVersionID=1573
[25] https://campuspress.yale.edu/tribune/ecommerce-the-answer-to-poverty-eradication-in-developing-countries/
[26] https://www.cia.gov/library/publications/the-world-factbook/geos/dj.html
[27] https://www.weforum.org/agenda/2017/06/these-are-the-world-s-fastest-growing-economies-in-2017-2/
[28] https://www.worldbank.org/en/news/feature/2019/01/14/e-commerce-helping-djiboutian-women-entrepreneurs-reach-the-world
[29] https://www.nielsen.com/us/en/insights/reports/2016/global-connected-commerce.html
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