When it comes to e-commerce investment, emerging markets have long been overshadowed by developed countries. However, as e-commerce penetration and online sales growth rates mature in developed countries, players across the digital ecosystem are shifting focus to emerging markets.
E-commerce growth in emerging markets is expected to outpace developed markets
Supported by the rise of emerging market consumers who are active adopters of digital technologies, as well as a by the support that many national governments’ give to innovation and the expansion of digital services in local markets, emerging countries are the new growth frontiers for e-commerce. Indeed, e-commerce expansion in emerging markets is showing promising potential across various industries. Out of these, retail e-commerce is the most important, accounting for over 44% of the total global e-commerce (good and services) sales.
Retail e-commerce is projected to record value sales growth of USD1.4 trillion from 2022 to 2027; over 64% of this opportunity is expected to come from emerging markets
Source: Euromonitor International
With the growth of retail e-commerce in emerging markets outpacing that of developed markets, emerging markets will constitute more than half of the global retail e-commerce by 2027. As the retail sector often acts as the primary point of entry for e-commerce across many markets, this expansion also supports the spread of other digital services, with bill payments being the second key area of development.
Leapfrogging innovation is leading to growth acceleration
The pace of digitisation in emerging markets has traditionally lagged that of developed economies. In many cases, however, these markets have been able to leapfrog developed markets by skipping the initial phase of technology adoption and proceeding directly to the implementation of more advanced solutions. For example, a mobile-first approach has been the primary driver for wider e-commerce adoption across many emerging markets. Faced by local market constraints and unique consumer demands, many of these markets have created their own, new, mobile-first e-commerce solutions that are better suited to local conditions. The rise of superapps in Asia is one notable example of this trend. Mobile-centred platforms have also enabled emerging markets to leapfrog in the field of payment technologies, with innovators in many countries harnessing telecom infrastructure to create mobile payment solutions ahead of the adoption of digital wallets in developed nations. Innovation continues around new business models for last mile delivery solutions, including crowd-sourced delivery networks.
Untapped consumer segments poised to power further expansion
Emerging markets are home to over 86% of the global population – totaling 6.8 billion people in 2022. This represents a large and dynamic consumer base, much of which remains untapped.
As younger generations naturally embrace digital services, Generation Z and Millennials are the most important consumer segment for e-commerce over the next five years, not only from a generational perspective but also from an economic and social one.
Nearly 90% of Millennials and Gen Z consumers on the planet will reside in emerging markets by 2027
Source: Euromonitor International
As they have come of age using digital platforms, the e-commerce developments these consumer will power will not be limited to transactional elements but will extend to the provision of experiences aimed at evolving lifestyles in these markets.
Women in emerging markets represent a powerful consumer segment.
During 2022, women in these markets represented 43% of the total global population and 86% of the global female population. 69% of the women in emerging markets are aged between 15 and 64 years old.
Source: Euromonitor International
A large number of women shoppers and entrepreneurs in these markets consider e-commerce to be a safer and more convenient way to buy and sell products given various cultural and market factors. The importance of this segment is seen in the significant representation of women merchants on successful e-commerce platforms in emerging markets. Women make up over 40% of sellers on Flipkart in India and Alibaba in China, and over 50% of sellers on Trendyol in Turkey. The segment is set to support further developments in first mile pick-up, last mile delivery infrastructure and convenient financial solutions.
Adopting a locally relevant strategic playbook is key to unlocking opportunity
Regulations around foreign direct investment (FDI), profit repatriation, and ownership rights are some of the key challenges hindering investment and expansion by foreign players into e-commerce in emerging markets. Meanwhile, local players face constraints related to a lack of investment directed towards last mile delivery and scaling up technologies for growth. Given the diversity of emerging markets and each one’s unique properties, no one-size-fits all strategy exists to establish a presence and expand in all of them. As a result, understanding market idiosyncrasies is vital to have a locally relevant strategy that allows for active participation in the overall digital ecosystem, support for the expansion of digital services, and partnerships with governments and local players.
For more in-depth analysis related to this topic, download our new report, Strategies for Expanding into Emerging Markets with E-Commerce covering trends, top markets, case studies and strategic recommendations on how to navigate e-commerce challenges in emerging markets.