E-commerce offers a gateway to worldwide sales for companies of all sizes, including SMEs. But there are, of course, challenges for SMEs to make sure they access the right tools to make their e-commerce platform a success. Charles Anyanwu, Managing Director/CEO of Bostocke Close Investment, outlines the challenges which SMEs face in Europe, the Middle East and Africa (EMEA) and how to overcome them.
The promise of e-commerce for SMEs
We could argue that the emergence of e-commerce has somewhat levelled the playing field or is at least bridging the gap, allowing retail-focused SMEs in less advanced countries within the EMEA region to compete fairly with one another by improving access to customers worldwide. For most retail SMEs however, e-commerce now offers a gateway to expand their reach far beyond their operational limitations and/or macroeconomic forces. Platforms such as Shopify, Jumia and Noon have significantly simplified the process of setting up an online storefront, making it both accessible and affordable.
In Nigeria, for instance, more retail-focused SMEs are adopting digital channels to improve market access nationwide. Similarly, in the UAE, some SMEs are thriving by leveraging government-backed partnerships with platforms like Amazon, while their counterparts across Europe are adopting innovative payment and operational tools offered by the likes of SumUp, thus, empowering even more micro enterprises to engage in e-commerce.
Nevertheless, SMEs still have significant challenges to surmount if they hope to remain successful.
The challenges SMEs face
- Access to finance:
Accessing capital to launch or scale any business poses a major challenge for most SMEs. This challenge is exacerbated for e-commerce businesses, which require significant investments in technology, inventory and marketing. Typically, conventional financial institutions and lenders classify these small businesses as high-risk. Thus, there is a tendency to underfund or blacklist them altogether.
According to the Nigerian Economic Summit Group, only about 6% of SMEs have formal access to credit, and this disconnect resonates across EMEA in mixed degrees. However, in Europe, where FinTech solutions such as SumUp, among others, offer credit-based payments, SMEs tend to have a source of quick and relatively affordable financing. - Digital literacy and skills:
E-commerce, however, requires not just funding but technology. Most SMEs have reported challenges not just with setting up and managing their online presence but also with utilising digital marketing tools and analysing data. The International Finance Corporation’s Digital Technologies Are a Useful Yet Underutilized Tool for African Microenterprises report published in April 2023 indicates that 60% of SMEs in Africa and the Middle East cited digital skills shortages as their top challenges. - Infrastructure and logistics:
The global e-commerce ecosystem requires infrastructure like secure payment gateways, deep Internet penetration and extensive logistics networks to succeed. While these systems may be somewhat ubiquitous in Europe, they are fraught with inefficiencies in the Middle East and Africa. This is evidenced by the World Bank’s Logistics Performance Index, which indicates that countries such as Nigeria lack delivery efficiency, which creates additional barriers for these SMEs.
Case studies: Lessons from Nigeria, UAE and Europe
Moniepoint, Nigeria:
Moniepoint, a Nigerian FinTech company, has been a gamechanger for Nigerian enterprises through affordable loans and payment systems. By providing the means to acquire working capital and payment processing tools, Moniepoint has facilitated the funding of inventory, upgrades to digital shops and focused advertisements. This strategy is consistent with wider developments in the FinTech sector where growth in SMEs is often growth financed.
Dubai SME, UAE:
In the UAE, we can demonstrate the influence of policy-driven support in fast-tracking the adoption of e-commerce. A government-backed initiative, Dubai SME, offers training, financial support and access to online platforms like Amazon and Noon. The 2022 Dubai Economy and Tourism report indicates that 45% of SMEs in the region grew their income by approximately 30% after adopting these e-commerce solutions. This further strengthens the role of the public sector in driving e-commerce adoption.
SumUp, Europe:
As for the west where consumer credit systems are more mature, SumUp assists the SMEs by offering integrated payment systems together with allowing payments in shops and e-commerce. Nevertheless, for micro SMEs like sole proprietors and mom-and-pop shops, SumUp facilitates automation by enabling them to issue invoices and undertake sales analysis. Many small retailers who operate on the SumUp platform have improved sales and efficiency of their operations as the system allows them to accept payments from clients at the counter and remotely. Such flexibility has been very important for companies that are transitioning to new hybrid models of retailing.
Practical steps for small business entrepreneurs
SMEs need a definite roadmap to succeed in e-commerce. Here are a few applicable actionable steps:
1. Leverage FinTech solutions:
Affordable financial tools tailored to small businesses are offered by FinTech platforms like Moniepoint (Nigeria), Tala (Kenya) and SumUp (Europe). Examples that aid SME growth include platforms that provide payment solutions, loans and business analytics.
2. Embrace scalable e-commerce tools:
The secret is to start small and scale slowly. Services such as Shopify make it quick to build an online shop, WhatsApp Business facilitates direct contact with customers and Zoho Inventory helps monitor stock and sales metrics.
3. Build digital skills:
Educate yourself on e-commerce platforms and digital marketing; invest time in training. Websites such as Coursera and Udemy offer inexpensive classes. There are government initiatives (e.g., Dubai SME) that could serve as a great resource as well.
4. Focus on customer engagement:
The success of any e-commerce business hinges on engagement and understanding of its customer base. Customer loyalty is built through gimmicks such as targeted advertising, personalised offers and proactive customer service. Consider tools like Mailchimp and HubSpot to help optimise and automate customer interactions.
5. Strengthen logistics:
Reliable last-mile delivery is crucial. Consider partnering with established logistics providers like DHL or explore localised options such as GIG Logistics in Nigeria or Aramex in the Middle East.
Recommendations for financiers and policymakers
For financiers:
- Create a Digital Transformation loan product that covers the cost of website development, infrastructure upgrades, inventory enhancement, etc.
- Partner with FinTech companies to expand access to funding by lowering credit risk.
For policymakers:
- Relax regulatory bottlenecks for micro, small, and medium enterprises (MSMEs) entering the e-commerce space.
- Offer tax breaks on investments in Digital Transformation like software subscriptions or logistics collaborations
- Fastrack policies that facilitate Internet infrastructure penetration and logistics networks, particularly in underserved areas.
The call to action
For entrepreneurs driving SMEs:
There is no better time to act than now. Leverage digital tools, actively seek out FinTech solutions and build requisite skills to thrive in e-commerce. While challenges persist, the rewards of a thriving e-commerce business far outweigh any apparent risk.
For policymakers and financiers:
Your role is critical. You can empower SMEs to unlock their potential by creating an enabling environment and tailored financial solutions. Supporting Digital Transformation across the EMEA region goes way beyond an economic imperative, it is a chance to foster inclusive growth.
Finally, e-commerce is the future of SME growth and not just a trend. The EMEA region can lead the way in building a robust and inclusive digital economy by embracing digital tools and fostering collaboration among policymakers, SMEs and FinTech.