E-Commerce's Dual Realities and Their Impact on Small Online Businesses Globally

13.03.2024| Christian Kreutz
Small Package delivery
Photo by Andrew Dallos on Flickr

E-commerce, likened to a coin with two distinct sides, embodies the dichotomy between digital and physical goods and products. This metaphor illustrates not just the diversity of e-commerce but also the unique challenges and opportunities each side presents.

Digital Products and Services: A Transformational Landscape

The landscape of digital products has undergone a radical transformation since the 2000s. Initially, the concept of purchasing digital services online was met with skepticism. However, the advent of social media and e-commerce ecosystems, such as Shopify, revolutionized this space. These platforms democratized online sales, enabling virtually anyone to market their products from the comfort of their living room, provided they reside in the right country.

This digital boom has seen a surge in the sale of online courses, ebooks, and even Excel templates on platforms traditionally associated with handmade goods, like Etsy. Even seemingly niche products, like sales templates for the information platform Notion, have millions of users.

However, the digital marketplace is not without its challenges. A 2019 UNCTAD study revealed that a majority of developing countries within the WTO import more digitizable goods than they export, highlighting the imbalance in global digital trade.

During their most recent ministerial meeting, the World Trade Union once again extended the Ecommerce moratorium - a longstanding agreement among WTO members to prevent customs duties from being imposed on electronic transmissions. This highlights the difficulties of reaching global consensus in the digital world and regulating the flow of data. As digital products and services continue to grow, governments struggle to collect taxes from this sector. Therefore, many countries are now pursuing the Data Free Flow with Trust (DFFT) concept. In addition, OECD countries are working towards implementing a global digital tax, which is currently being facilitated by the OECD and could potentially be implemented in some countries within the next few years.

Physical Goods: Bridging Local and Global Markets

Informal and formal social commerce have become a global trend, with platforms like Facebook shops, TikTok sellers, and WhatsApp shopping communities gaining widespread popularity. While Western sellers can easily create an online shop and start selling, it is much more challenging for small businesses in other countries to establish an online presence. A study on "Selling Chinese fashion in Mozambique via WhatsApp" showcases the creativity of individuals using these platforms. Due to limited access to specialized e-commerce sites, many small-scale traders in developing regions have turned to WhatsApp to promote their products within their networks. Some have even found success running their businesses from home. Although these platforms have the potential to connect buyers and sellers from rural and urban areas, they struggle to expanded across international borders.

While Chinese companies like Alibaba have the capability to ship even the smallest purchases to customers around the world, this surge in packages has caused significant challenges for customs officials worldwide. In fact, Alibaba has made it their goal to reach international customers in just 72 hours, highlighting the impact of small package trade. Even the Russian postal system has been overwhelmed by this successful approach.

In China, entire villages have been transformed into production hubs for e-commerce businesses. Through government subsidies, these villages focus on a specific product and sell it online - whether it be silver teapots, folding chairs, or bamboo shoots. This has significantly increased the income of these villages. However, having local expertise in digital technology, efficient logistics, and strong digital connectivity are crucial for their success. In addition to these abilities, the main advantage of this village is its strategic placement within the country. The goal is to have all deliveries made within 24 hours, making it a competitive edge over other villages.Thanks to a more efficient logistic system, small businesses in Chinese villages now have the chance to export their products. This is a dream that sellers in other countries can only imagine.

The small package trade

Is there potential for small business owners and social sellers to tap into the global consumer market? In a study by Chris Foster, titled "The Minor Rules Shaping the Development Impacts if Digital Marketplaces," he explores the intricacies of cross-border small package trade for these businesses.

As e-commerce and platform-based trading expand across the globe, one of the major developmental claims is that digital marketplace trading might unleash small firm creativity and profits. Selling online, even reaching lucrative foreign customers, has been a key ambition for many small firms and wider digital development policies.

Foster argues that in the initial phases of e-commerce growth in a nation, the success of digital marketplaces depends heavily on efficient small package logistics. However, there are many obstacles faced by small businesses attempting to broaden their reach to other countries. Foster also notes the adverse effects of a better small-package system in Malaysia, where local companies were overshadowed by Chinese imports, leading to overall economic losses for the country. This situation was reversed for online sellers in the United Kingdom after Brexit, when shipping packages to the European Union became significantly more challenging.

However, challenges can arise at various stages of the customer journey. During my visit to Pakistan, while talking to entrepreneurs in Peshawar, I heard their frustrations with a common issue: the inability to use Western payment systems. These entrepreneurs had quality products and skilled IT teams, but they were hindered by the lack of convenient payment channels for international consumers.