Investors eye booming Saudi e-commerce market
Riyadh, November 25, 2012
International investors have set their sights on the Middle East’s young but booming e-commerce industry, and particularly on the promising opportunity in the Saudi Arabian market, said an expert at a key industry event held in Riyadh.
“Being able to capture the Saudi Arabian market is a critical success factor for e-commerce ventures in the Arab region,“ remarked Hassan Mikail, the regional manager for E-Commerce at Aramex, which was the e-commerce partner for ArabNet Riyadh, the largest gathering of digital executives and entrepreneurs in Saudi Arabia, held recently in the Saudi capital.
Hassan Mikail said Saudi was the top destination for all these e-commerce businesses as it ranked second in e-commerce sales in the GCC region, and more importantly represented the biggest retail sector in the region, with the promise of huge growth in e-commerce in the near future.
Paypal had announced the launch of its Middle East operations on November 14, and three of the Middle East’s largest online retailers, Namshi, Souq.com and MarkaVIP have all raised rounds of funding this year for major expansion, the official stated.
Namshi, a UAE-based online retailer focusing on fashion and footwear, has secured $20 million from JP Morgan Chase and Blakeney Management; Marka VIP, the Middle East’s largest flash sales site focusing on luxury goods, raised $10 million from multiple international venture capital firms; and Souq.com, the region’s largest online retailer with a customer base of 8 million, secured $45 million end of last monthfrom Naspers, a South African media company, and Tiger Global, a New York hedge fund.
“All eyes are on Riyadh, where the next phase of rapid growth will be in this sector,” remarked Hassan Mikail.
However, there are some major challenges of building an e-commerce business in Saudi Arabia such as payment and logistics, said experts at ArabNet Riyadh forum hosted by the Badir Program for Technology Incubators, part of the King Abdulaziz City for Science and Technology, and supported by the Communications and Information Technology Commission of Saudi Arabia.
More than 70 per cent of online buyers in the region choose cash on delivery as their preferred mode of payment, straining the cash flow of e-commerce startups, they pointed out.
Cash on delivery purchases are 7 times more likely to be returned, according to Aramex, and this puts e-commerce companies at the risk of incurring extra shipping costs as well, they added.
Paypal’s recent entrance to the market could help alleviate some of these issues and stimulate rapid growth in the sector.
Elias Ghanem, PayPals new managing director for Mena said, “PayPal has big ambitions to help millions of internet users to shop conveniently and safely online within the Mena region.”
Beyond online retail, there are also tremendous opportunities for companies that can help existing offline businesses transition to the digital realm. Over 85 per cent of businesses in the GCC have no online presence according to Google; these businesses are losing out on the 66 per cent of Mena Internet users who use the web to search for products and services.
Companies like Jeeran, a business reviews site, and Fursaty, a group-buying site, are stepping in to fill the gap and providing merchants with their first glimpse of the benefits of going online and raising consumer awareness, further driving e-commerce in the region, said experts.
E-commerce markets in the Mena are evolving and the online customer base is rapidly expanding, they added.
Hosam Arab, the co-founder and managing director of Namshi.com said, "Middle East is finally ripe for e-commerce as governments ease curbs on regional trade, logistics providers scramble to improve services to e-commerce retailers and customers, and investment funds pour into the sector after emergence of a number of exciting regional success stories."-TradeArabia News Service