E-commerce: Why Mission Is Possible
In mid-February, Almaty hosted the sixth International Conference "Trade Mission 2015". During the event, it was found that the e-commerce market growth is in Kazakhstan with many barriers, most of which still remains underdeveloped infrastructure, despite a good potential for the development of e-commerce and high demand in the products of domestic e-shops.
The organizers from Kazpost JSC stated the main purpose of the Conference: promoting e-commerce in Kazakhstan, creation of favourable conditions for doing business in the network and its integration into the international system, as well as the development of postal services and logistics. The event was attended by representatives of local and foreign logistics companies, online shops, postal administrations and services.
When opening the Conference, Ernar Kulkybaev, Managing Director of Kazpost JSC highlighted the high level of interest in our country for e-commerce. The figures prove it: only in 2013, the total number of parcels from the distant trade companies was more than 10 million units, by 220% more than the year before.
At the same time, the Kazpost share in the local market of goods delivery, sold by e-commerce is 35% with a turnover of 2.3 billion, while 65% or 4.2 billion account for DPD, Pony Express, DHL Exline, Direct Delivery and other logistics companies. With regard to the overseas delivery market for the e-commerce orders, the operator of the national postal network remains the undisputed leader with its 71% share (1.4 billion), against 29% (0.55 billion) of the other players.
In turn, Bagdad Mussin, Chairman of the Board of Kazpost JSC said that the global crisis would have no impact on the development of e-commerce in our country. According to his assessment, the annual growth in this area is established at the level of 10–15%, and this trend will continue this year. "It is no secret that the distance selling market in Kazakhstan is developing with aggressive pace, and it is important to work together to find the correct way of its growth. Our company is an active participant in this process".
Another example of cooperation between the post and business is the postamat network development project. For reference: postamat is an automated terminal for shipments that receives the deliveries from the online shops or a product, selected by catalogue. At the moment Kazpost already installed 19 postamats throughout the territory of Kazakhstan and this year their number will increase up to 100. In particular, it comes to installing the terminals in retail chains. There is the likelihood that this equipment will also appear in the Almaty underground stations, which is a common international practice. According to Ermek Baimukhanov, Director of EMS Kazpost, up to 10–12% of all parcels will be delivered soon through the postamats in our country.
By the way, Kazakhstan business already showed an interest in automatic postal stations. For example, they are already used by one of the oldest online retailers Flip.kz. Alexander Sokolov, the Company’s Director, shared that it is too early to talk about any results because the cooperation of Kazpost with the business community began to develop recently. However, he was quite optimistic.
Moreover, Kazpost JSC now offers the remote traders to use quite a large range of services: mailing of advertising materials (catalogues, leaflets, inserts), shipping and delivery of parcels on a pre-paid basis and otherwise. In addition, the post offices provide the financial services, in particular, to ensure the payments and transfers.
Among other innovations in the company’s operations is a service of sms-notifications for the parcels, which is now being introduced in the post offices across the country, running a hybrid electronic mail (a mix of e-mail and paper correspondence), equipping the postmen with the mobile postmen (special devices for payment and issuing the fiscal payment confirmations). Currently there are 465 such devices already functioning.
Great opportunities for collaboration with remote companies is provided due to the fact that the national operator has a banking license, working with a number of second tier banks under the agent agreements. For example, a project, implemented by Kazpost JSC in cooperation with the network of home appliances and electronics shop Mechta and Bank Home Credit Kazakhstan was recognized as a highly successful one. It was created to sell the goods with a credit through catalogues with delivery through Kazpost network. The citizen could formalize such a loan in any post office throughout the Republic. 202 item of goods were sold and 173 credit agreement signed for the amount of 7.8 million KZT only for 2 months. The Bank noted the high activity of rural residents, which accounted for 95% of all the purchases.
According to Maria Emelyanova, representative of the Home Credit Kazakhstan, the delivery terms were "quite comfortable" even for the residents of the most remote regions in Kazakhstan, given that all the goods were sent from a warehouse in Astana. Therefore, 43% of the parcels were delivered in 5–9 days, 26% – in 2–4 days, and 11% – in 10 days. At the same time, we should keep in mind that 30% of recipients are located up to 900 km far from the warehouse, 55%-up to 1000–2000 km and 15% – for more than 2000 km. In the future it is planned that the project will focus on the Internet audience.
Cash Payments Rule
More detailed statistics on the development of e-commerce in our country was provided by Konstantin Gorozhankin, President of the Association of Internet Business and Mobile Commerce (AIBMC). According to him, presently 55% of all electronic purchases are made by residents of Almaty, 17% – in Astana and 11% – in Karaganda. Among the positive trends the speaker highlighted the growth of purchases in local e-shops. If, in 2012 they occupied only 10 per cent of the total volume, then in 2014 this figure was already 29%. However, the average bill in the e-commerce segment is relatively small and equals only to $57. This figure was taken by Processing.kz, based on the data from the companies, banks and payment processors. Despite this, according to Mr. Gorozhankin, the e-commerce market in Kazakhstan reached $600 million as of end of 2013, and the number of Internet users is 9.2 million people, of which about 2 million are classified as active ones.
Primbetov Yermek, Deputy Chairman of the Board in the Scientific and Research Holding Zerde shared the household survey results as of 2013, ensured by the Committee on Statistics. They are quite clearly illustrate the main reasons, impeding people from greater use of electronic services. The majority of interviewees (66.5%) refer to the low level of awareness or lack of need as the reasons for the lack of interest in these services. The lack of experience was cited by 8.5%, lack of confidence in the online service – 3.3% and the threat of divulging the personal banking data – 1%. 20% of the respondents mentioned other reasons, such as loyalty to stores, reliability of goods delivery, unavailability of a payment card and etc.
Nurlan Zhagiparov, Managing Director of Kazkommertsbank JSC raised another aspect, related to the development of e-commerce, quoting the statistics in terms of card payments in local and foreign Internet shops. It turned out that the first gain about $10 million monthly and the latter get 4 times more. However, this applies only to the card payments. Such modest rates in the Republic were explained by the speaker as a consequence of cash dominance, which is still preferred by 63 percent of the respondents. Therefore, one can not say about a total outflow of money to the foreign shops. While it is possible that knowing the specific features of local retailers, many users prefer to play it safe and to examine the goods before paying for it.
At the same time, Nurlan Zhagiparov said that in 2014, the growth of card payments amounted to almost 50% in Kazakhstan’s internet segment. According to the information of the press-service of Kazkommertsbank JSC, last year ePay system ensured the payment processing at 22.3 billion KZT, which is 48.6% higher than previous year, when it amounted to 15 billion. "More and more people like to pay online, and now they do it via mobile phones. This is one of the main trends, and the businessmen should consider it while receiving the payments in online shops ".
By the way, for today 80% of all card payments in local e-shops are going through the ePay system, created by Kazkommertsbank JSC back in 2000. This allows to project the trends in the customer behavior and bank customers in the entire market payments with a small percentage of error.
According to ePay statistics, presently the majority of transactions (48%) are ensured by Kazkom cards. This is followed by Halyk bank card transactions (18%), BTA Bank (12%) Sberbank (3 %), Altyn Bank (3 %), Centercredit (2 %), ATF Bank (2%) and Eurasian Bank (slightly higher than 1%). The cards from other local and international banks together account for 14%.
Barriers to Development
Great interest of participants of the Conference was attracted by the experience of going to the Kazakhstan e-commerce market, shared by Mikhail Gritsenko, Business Development Director of the Russian Internet shop Ozon.ru. According to him, the company did not expect to face a very low percentage of payment cards. In addition, lack of buyers, the fear of losing money and low technological literacy of users are still the barriers to growth.
Way out of the situation, according to Mr. Gritsenko, will be the introduction of cash on delivery. By the way, the courier companies have expressed a willingness to provide such services. However, many domestic online shops do not considered this option.
Another option is to stimulate people to make the online shopping was suggested by Gennady Vovk, Representative of the Ukrainian postal service. According to him, it should be possible to pay in credit for the goods, when making the online purchases. “This possibility is implemented already in Ukraine”. In Kazakhstan, however, it still only under consideration. According to Konstantin Gorozhankin, work on this project is already underway, but there are some "documentary" obstacles.
Another issue which has caused an active discussion is how to convince the users to shop in the domestic e-shops. So, in the view of some market players, it is necessary to reduce the price threshold for the duty-free cost of incoming foreign parcels.
However, this view is not accepted by all. For example, representatives of foreign companies noted that to attract the buyers, the domestic shops must work pro-actively and to improve the level of service, because the artificial restrictions will not help in the competition for purchasing preferences.
In turn, Ramil Mukhoryapov, Director of Chocofamily Holding stressed out that online shopping in Kazakhstan do not need preferences, but the conditions for the business development-a well-defined certification, arranged logistics and so on.
With regard to the positive market factors, the Forum delegates emphasized, firstly, the transit potential of the country, and secondly, the relatively high level of Internet penetration among the population and, thirdly, a good purchasing power in Kazakhstan.
These factors are already having a positive impact on the development of the domestic market of electronic services, shared Alisher Yelikbayev. According to his data, the online payments for the purchases in recent years increased by more than 500%.
Meanwhile, Sarmantay Kassenov, Director of 1 C-Bitrix Kazakhstan warned that e-commerce should be prepared for the increase of smartphone number. At the same time he recommended to monitor the e-commerce trends in Russia, followed by Kazakhstan “with 3-5 years lagging”.
Looking Back to Neighbours
The topic of cross-border e-commerce was highlighted in detail by Tatyana Lyubimova, CEO of DHL e-commerce Russia. She forecasts that by 2018, the volume of international e-commerce will increase by 24%. It is expected that China will have 50% of the total revenue from providing e-commerce services between the countries.
Next, Ms. Lyubimova presented the results of online poll of the Shop the World consumers, covering more than 11 thousand respondents in 20 countries around the world. According to the study, about 45% of Internet users have experience of ordering the goods abroad. The number of e-shoppers in emerging economies turned out to be much lower than in developed countries. Main countries-exporters of e-commerce became the United States, United Kingdom, Germany and China.
According to the survey, about 84% of global Internet users make the distant purchases. The main reasons for the ordering of goods abroad are the same- their unavailability in the home country and a lower price. It is interesting that the people in developing countries name the best quality and protection against counterfeiting as the main incentives.
Comparing with other CIS countries, Ms. Lyubimova stated that the average number of orders per person through e-commerce in Russia (6.8) is smaller than that of the other major countries in the world, and in Kazakhstan, this figure is even lower.
Igor Zubov, Chairman of Postal Logistics, National Association of Distance Trading of Russian Federation, provided some different data. According to him, Russia accounts only for online purchase per citizen, Kazakhstan – 0.3, whereas, for example, in China this number is 7.
The reason for this Mr. Zubov explained by poorly developed logistics management, which remains expensive and longboth in Russia and in Kazakhstan". In addition, the development of online trading in both countries prevented low parcel market competition and the annual growth of prices for these services.
Speaking about the success of the PRC, the speaker mentioned the key advantage of the availability of alternative logistical options. "On average, shipping costs $2 in China and it takes 2 days, while in Kazakhstan it will take $6 and 6 days, and in the Russian Federation – $8–9 and 12–14 days respectively.
At the moment only 20% of the Chinese population make the online purchases, while e-commerce growth in overall terms is 40% a year. "This is despite the fact that Internet penetration in China is 15% less than in Russia. This is because most people need another book, rather than two iPhones. The public consumer goods are required". As predicted, after two years in China may be the lack of couriers. Now their number is already more than 2 million.
According to the expert, the reason for the success of the service policy is the Chinese Alibaba, which focused on the regions of China with low competition. As a result, the system has about 2 million online shops, while in Russia, they number is only about 40 thousand.
Interestingly enough, that the private company Alibaba became a driver of growth in China, while the federal post played the same role in Germany. Igor Zubov expressed his hope that both Russia and Kazakhstan will be able to reproduce the German experience, as the prospects are very favourable for the development of e-commerce in our region.