If you want a good indicator as to where ecommerce opportunities exist, look at what the big online retailers like Amazon and Ebay do. Ebay is investing heavily in emerging markets suggesting its banking its future success on new global locations.
In today’s uncertain financial climate, most companies are no longer hiring new employees. According to an article on Bloomberg, however, the workforce of online marketplace EBay is not decreasing, but expanding. In order to conquer emerging markets, the company is planning to increase the staff in their emerging-markets group by 50%. This might very well be worth the extra money: the online sales in these emerging markets are estimated to be over $195 billion.
Russia, Latin America and China
The targeted markets are Russia, Latin America and China. Currently, the staff concerned with these markets is made up of 140 employees, but this number will probably increase by 60 people by the end of this year. Wendy Jones, responsible for the geographic expansion and cross-border trade at EBay has stated that the plan is “incredibly well-funded” and that Russia will be the first country to target.
EBay thinks a quarter of its consumers will be located in developing countries in 2015, a 5% rise in comparison to 2012. Dan Kurnos, analyst at Benchmark Co., highly recommends people to buy EBay Shares. “here is still a significant, untapped opportunity out there. If EBay doesn’t address it, someone else will.” To increase their chances, EBay has to win over the loyalty of local merchants. However, EBay has to compete with the other online giant, Amazon. Amazon is gradually adopting the marketplace model that EBay employs as well – in the first quarter of 2013, 40% of the items sold on Amazon were actually from third parties. This is why, according to Jones, EBay is “sparing no expense” when it comes to targeting developing countries.
John Donahoe is EBay’s Chief Executive Officer. With regard to the emerging markets, he has quite a task ahead of him: the markets that EBay is planning to target often have to deal with fraud and do not have a steady delivering system. Moreover, instead of using credit cards, most customers in these markets are used to paying their online products in cash upon delivery. Michael DeSimone, CEO of Borderfree: “The challenges involved are significant. Culture is so different. Language is so different. To really do business in those countries, you need to be on the ground.”
The e-commerce revenue in emerging markets such as China, India and Latin America is growing fast. According to Forrester Research, the revenue is increasing with about 44% a year, while the growth in the U.S. is only 14%. Moreover, a report by East-West Digital News revealed that in 2012, the online retail industry in Russia expanded with 25% to $10.5 billion. E-commerce in all the emerging markets combined is getting closer and closer to the value of the U.S. market, that had a $231 billion revenue in 2012.
Earlier this year, EBay launched its Russian-language site after the release of a mobile fashion application aimed at the Russian market in 2012. As a result, the number of Russian users grew by 75% in 2012. In addition, EBay is now working with local Russian companies to improve shipping times. Vladimir Dolgov, former CEO of Ozon.ru who helped Google Inc. to conquer the Russian market as well, has also been hired by EBay to ensure a successful entering of the market. In Russia, EBay first focused on smartphones and tablets, and the company might use the same approach for Latin America as well as is likely that more consumers have these devices than the more expensive laptops or desktops.
There is one pitfall EBay must try to a avoid at all costs: most websites from U.S. companies targeting markets abroad are not tailored to their foreign customers. Flat-screen TVs displaying [American] football games, for example, can be a turn off for users that are unfamiliar with the game. Senior vice president at MotionPoint Corp. Chuck Whiteman: “It’s the world wide web — it’s a global consumer. As soon as that consumer decides they’re in an experience that isn’t the best that company has to offer, they abandon it.” However, EBay is no stranger to localization. In 2012, the company launched the Global Buying Hub that aims to localize websites for non-U.S. markets.
In addition, EBay also has to deal with problems that can occur with regard to shipping. Products that have to be shipped across borders can be delayed for several weeks, especially if these products are made out of exclusive materials such as ostrich skin. If such a product is not accompanied by the right papers, they cannot enter the country at all. The delivery network in Russia consists of local companies that are responsible to the delivery in a small area. Deliveries often go hand in hand with fraud and theft, and customers pay their items in cash when they are delivered to them.
In order to stay loyal to their Russian users, Jones’ team is looking for ways to implement a payment-on-delivery technology that uses electronic payment. Consumers in Russia often open the box delivered to them, take a look at the items and then decide if they are willing to pay them. Jones: “If the way people shop is an environment where I physically want to see and touch and feel the goods before I pay, that’s great,” But we don’t necessarily want rubles handed over to a delivery person. We’re partnering with PayPal — we’re partnering with others in the market — to continue to learn and figure out how do we solve that in a uniquely EBay way.”
Other markets imply other search algorithms as well. In the U.S. companies use Google’s technology to ensure they can easily be found on the web, but markets such as Russia and China use a different search engine. EBay is now cooperating with companies that have been around on foreign markets for a longer period of time, such as Opera Software ASA (OPERA), which is a Russian search engine that has a quarter of the market. EBay shouldn’t neglect the local competition either. The net sales of Ozon.ru, that describes itself as the Amazon.com of Russia, increased with 55% in 2012. According to Forrester Research, company Taobao even makes up a whopping 90%of the market In China.
In short, EBay’s expansion to developing countries might take a little more effort than expected. However, the potential revenue will even out any bumps in the road. The online retail market in China, for example, is expected to be over $356 billion in 2016, a tripling in comparison to the market in 2011. Last November, EBay re-entered the Chinese market after the company closed its Chinese branch in 2006 due to disappointing results. Now, the company is teaming up with Xiu.com, a company selling luxury items. And more companies are likely to follow. Jones: “Will they be the only people that we potentially will work with? Probably not. We’re now in the process to start to ramp that up and spend a little bit more behind it, as we continue to learn.”