5 insights driving cross-border e-commerce in UAE
The e-commerce industry in the UAE is on the verge of a pivotal shift. E-commerce is becoming a reality, reinventing consumers' path to purchase, forming new customer experiences, disrupting business models, and creating growth opportunities for large and small retailers as well as for a new generation of e-commerce players.
E-commerce (B2C) in the UAE is a $9 billion market, and it is expanding at an annual growth rate of 24%.
Limited access to a broad and deep selection of products has been one of the main challenges hindering the development of UAE e-commerce.
A small to medium-sized enterprise (SME) marketplace model has been the backbone of product expansion in most markets. In the US, half of all items purchased on Amazon come from more than a million SMEs. In China, Alibaba managed to enroll SMEs in its marketplace, offering consumers a wide array of online shopping choices. This has not been the case in UAE.
While SMEs constitute around 90% of registered companies in the region, they only make up 15% to 30% of UAE’s GDP, which contrasts with the 50% share typically seen in developed markets. They have also been slow to move online.
This demand-supply imbalance in the region has created an opportunity for cross-border e-commerce, with non-UAE-based e-commerce players capturing a significant share of the rising consumer interest in online shopping. As of 2019, cross-border e-commerce represented nearly 30% of the market in the UAE vs. less than 14% in the UK and 6% in the US.
What is Cross Border E-commerce?
It’s simply the process of selling products or services via an e-commerce website to buyers overseas. You can be a traditional brick-and-mortar store or purely an online business – what matters is that you’re reaching international customers in the international markets.?
According to a report by Zion Research, the total value of all global cross-border e-commerce hit $562.1 billion in 2018 and is expected to reach over $4 trillion by 2027 – increasing at a CAGR (compound annual growth rate) of 27.4%.
What’s driving this extraordinary growth?
The creation of both the China Free Trade Area and European Free Trade Agreement – combined with new Ecommerce technologies making cross-border trade easier and cheaper – have certainly played key roles.
Here are the 5 insights driving cross-border e-commerce (B2C) in UAE
Insight-1 Cross Border e-commerce continues a downward trend in UAE, dropping to 25% in 2021
As many as 11% of all UAE deals were made in the eCommerce sector in 2018, headlined by Amazon’s acquisition of Souq.com for $580 million. These acquisitions provided foreign players with a firm footing in the UAE e-commerce market.
With the growth of the local e-commerce players like Amazon, Noon, and innovation in the digital payment facilities, the share of the Cross-border e-commerce sales as a percentage of total e-commerce sales has dropped from 40% in 2016 to 25% in 2021.
This is still higher when we compare to countries such as the US (6%) and the UK (13%).
Insight-2 US, India, China and UK top the cross border shopping countries
American websites were the most visited e-commerce platforms in 2020 followed by Indian, Chinese, and UK websites.
Insight-3 A 3 day delivery time has a similar weight to a 30% cheaper price tag
Delivery times play a huge role in consumers’ decisions to purchase. Mostly they prefer faster deliveries, but timing can be mitigated by offering a lower price.
A three-day delivery time has a similar weight to a 30% cheaper price tag.?
Offering a faster shipping date than your business can provide may help attract the customer to make an initial purchase, but will drastically decrease the chances of them becoming a repeat customers if you over-promise on delivery dates and don’t follow through.?
Emirates with "Emirates Delivers" and Aramex with "shop and Ship" services that allow shoppers in UAE to place orders with US Shopping and then have them delivered to their homes
Insight-4 Purchasing goods through international e-commerce websites in the UAE currency will cost the customers more due to higher processing fees.
In 2018, Emirates NBD introduced fees of 1.15% on all foreign currency transactions. This is in addition to the currency conversion fees of 1% charged by the payment processors (Visa/Mastercard)on the foreign currency transactions.
Let’s say a customer from UAE uses a credit card to purchase through an international e-commerce website for AED 500 and is given the option to be charged in U.S. dollars or UAE Dirhams. If that customer chooses UAE Dirhams, then the customer will end up paying AED 10.75 more on the account of foreign exchange and currency conversion fees. This is in addition to the exchange rate conversions and associated fees which are charged separately.?
The banks advise customers to make payments in the local currency during transactions on international e-commerce websites
International e-commerce websites usually offer the facility to make payments for the purchase directly in AED instead of the local currency. While paying in AED seems convenient, you might actually be paying more!
Insight-5 Buying from an overseas site would still be cheaper by 20 to 30 percent depending on the category
Even with the longer delivery times, higher shipping costs, and?Fees for the foreign currency transactions buying from the overseas sites would still be cheaper by 20 to 30% depending on the category.
A country’s cross-border shopping correlates with the country’s average price of goods. The higher a country’s price level index, the higher the opportunity for online shoppers to find retail items cheaper outside their domestic market.?
In 2020, The price level index for UAE was 106.73 as against 71 for China and 34 for India.
It would be weeks before the latest fashion collections or trending accessories get listed on local online portals or arrive at the physical stores.?There’s a big consumer base in the UAE that will not wait that long.
Conclusion
In summary, the commercial benefits of cross-border e-commerce in the UAE are significant provided the Cross-border e-commerce platform overcomes the challenges such as??
Source - Statista, Thinkwithgoogle