E-Commerce Trading away Middlemen – Ethiopian Business Review

9 mins read

No person or thing seems to have been blamed for continuous price hikes in the Ethiopian economy like middlemen. Whether gas or groceries inflation, both current and past administrations have a way of blaming these players for their failed attempts to establish a strong and resilient market structure. Even though various factors may contribute to the failure to sufficiently tackle price increases, middlemen have indeed had their fair contribution to the problem. Over the past few years, electronic commerce platforms have been popping up, helping counterbalance their negative effect. Despite the impact of these attempts being on the smaller end, there is enough evidence worldwide to argue that e-commerce can indeed help in curbing the counterproductive effect of these trade players in the middle. In this article, starting with the story of a recent entrant in the e-commerce business, EBR’s Addisu Deresse analyzes the impact, considerations, and challenges of e-commerce platforms in an economy.

Daniel Bekele, a young man in his mid-30s has given himself the ambitious goal of launching the biggest electronic commerce platform in Ethiopia. Born in Shoa Robit in the State of Amhara from a farming family, Daniel was not new to traditional local trade activities in his hometown. As a teenager, he abandoned school to trade in vegetables and cereals by the hundreds of thousands allying with local traders who would then sell them elsewhere. To the dislike of his father, Daniel continued and developed the business as a means to take his fair share of the transaction.

In 2015, he realized that making small profits off of local trade transactions to just buy a car and house should not be the ultimate goal of his life.
“I remember reading online how Facebook acquired WhatsApp for USD16 billion,” Daniel shares his story with EBR. “I have never heard of that much money in a transaction of any kind.”
Using that simple article as a moment of awakening, he continued to dig deeper on how to go bigger in his business life. No matter how hard he tried, he couldn’t find a way around education. He thus went on to study software development in a local private college. That was not enough; he took out his savings and set off for Kenya, where he studied digital marketing, e-commerce, and other relevant courses.

“While in Kenya, I developed an app that generated leads for salespeople as well as a dating app.” Daniel shares a story of how Ethiopians in Kenya were not able to find compatriot dates—his inspiration for the later app.

Having built the skills necessary for his long-term goals, he recalls how an old friend had once approached him with this sample e-commerce platform which he had developed. It was instilled in him the idea of how they can use the platform and make millions by facilitating the trade of cars in Ethiopia. Daniel wanted to do just that, but a lot bigger and a lot more comprehensive than just brokering cars.

Having decided to pursue that line of business, Daniel would set up a team and begin to study the e-commerce landscape in Ethiopia. Their study would come up with dozens of e-commerce platforms—more than 80 by their count—operating during the time of their study. These telegram bots, Facebook marketplace operations, and web platforms were all working to take advantage of the untapped e-commerce landscape. Their study found out more.

All the available e-commerce platforms were dealing with a series of challenges. Some dealt with the lack of ambition on the part of the developers, while others are related to the lack of financing to get the projects off the ground. Still others more were too small to even matter. The lack of consumer credit and sufficient payment modalities and infrastructure also made the entire idea seem nearly impossible.

“No matter how significant the challenges were, I only saw an opportunity in the conclusion of our study,” said Daniel as he exudes his passion for the line of business.
Having learnt to make money as a middleman trader himself, he stood up to the challenge of developing the biggest e-commerce platform—a tech-based trading system that eventually helps in minimizing the role of his old business practice. He developed ashewa.com and launched it late 2021.

Daniel and his colleagues did not wait until all challenges were resolved at the policy level. They had the platform registered and began floating shares—first to friends and family—and then to the general public. By the time EBR visited Daniel’s office in early May, Ashewa Technology Solutions had sold 80,000 share units to 1,500 people, amassing ETB150 million in raised capital. The goal is to raise ETB200 million. Most of the shareholders are members of the Ethiopian diaspora—would-be aspirers of a business journey not dissimilar to the likes of Amazon and Alibaba, two of the biggest global e-commerce platforms—according to Daniel.

Ashewa is developed in a B2B and B2C model—paying due attention to businesses who sell to businesses or directly to customers. During EBR’s interview with Daniel, Ashewa was hosting more than 5,000 products, connecting more than 1,000 vendors with tens of thousands of customers in just five months.

Daniel estimates the platform is witnessing a monthly transaction volume of more than ETB100,000. “After selecting their chosen product, customers opt to call the business directly rather than buying directly on the platform, making it difficult to track the entire transacted volume.”

Ashewa has also launched Ants—an application tasked to facilitate the logistics and delivery of goods sold on the platform—announcing the planned import of trucks and establishment of 1,100 system support offices nationwide. A network of these offices and small delivery modalities will be tasked to create awareness for more farmers and businesses to join the platform while also facilitating the delivery of sold goods.

“After five years, we want to represent 17Pct of the transaction in the trade of locally manufactured goods,” Daniel seems to be keen on abolishing the middlemen who continue to be powerful in the Ethiopian economy.

Middlemen, who have been blamed for market failure by both administrations and citizens in Ethiopia, can indeed have negative effects on businesses and economies. Their most obvious negative effect is that they increase the cost of goods and services as they add another layer of bureaucracy to the transaction process. Of course, this increases costs for both buyers and sellers. In some cases, middlemen even take a cut of the profits from sales, reducing the amount that businesses earn on each transaction.

Another major downside of middlemen is their tendency to stifle innovation and creativity. By serving as gatekeepers between buyers and sellers, they can limit opportunities for new businesses to emerge or for existing businesses to expand into new markets. This ultimately hurts economic growth and limits job creation potential.

Finally, middlemen can also be responsible for the creation of market distortions that lead to inefficient allocation of resources within an economy. For example, if a middleman controls access to a certain good or service, he may be able to charge inflated prices or sell it in short supply. This can lead producers away from more productive activities, causing them to waste time and resources chasing after unproductive ventures.

According to a 2016 study by Gumataw K. Abebe of American University in Beirut and his colleagues, some socio-economic variables, especially age, education, farm size, wealth, ethnic and religious affiliations, location and other social network variables influence farmers’ choice of selling methods. A survey based on data from 345 farmers in Ethiopia found that unmediated farmers’ gross profits were 225Pct higher, as they have access to better quality inputs, contract specifications, and higher prices for their products. Nevertheless, the majority of farmers continue to trade through intermediaries. The explanations have to do with wholesalers seemingly preferring to work with intermediaries to guarantee minimum order quantities and reduce quality measurement costs. The other factor is personal relationships forcing smallholders to trade through intermediaries, regardless of loss of income. Third, trade through intermediaries can improve the commercialization of smallholders by connecting resource-poor farmers to traders and end markets. However, dealing directly with wholesalers seemed to benefit relatively fortunate farmers.

E-commerce is revolutionizing the way businesses operate. By cutting out the middleman, businesses can save money and pass those savings on to their customers. This is good for both consumers and businesses. For consumers, e-commerce offers lower prices and a wider selection of products than traditional retail stores. Businesses can sell their products directly to consumers without paying high commissions to middlemen, allowing them to keep more of the profits, which they can then use to lower prices or improve the quality of their products.

Beyond cutting out middlemen, e-commerce has revolutionized how businesses operate by providing a new way to conduct transactions with customers. There are many more benefits to e-commerce, such as convenience, lower costs, and increased sales.

Convenience is one of the biggest advantages of e-commerce. Customers can buy what they want from anywhere in the world without having to leave their homes. This eliminates the need to go out shopping. In addition, customers can shop at any time of day or night without having to worry about store hours.

E-commerce also has environmental benefits. It reduces shipping costs as goods can be shipped from locations found nearer to the customer. The elimination of brick-and-mortar stores, which require a lot of energy and resources to build and maintain, is another positive.

Despite these benefits, there are some drawbacks to e-commerce that should be considered before implementing this type of business model. The first disadvantage of e-commerce is that it can be difficult to build trust with customers online. Since buyers cannot see or touch the product before purchasing, they may be hesitant to buy from unknown sellers. Additionally, there are many scams online that can take advantage of unsuspecting consumers. Therefore, businesses must take steps to ensure that their website is credible and trustworthy in order to encourage buyers to make purchases.

Another downside of e-commerce is that it can be difficult for small businesses to compete against large corporations that have more resources available online. These large companies often have more visibility on search engines due to their greater marketing budgets, which makes it harder for smaller businesses to get noticed by potential customers browsing the web for products or services. To overcome this challenge, small businesses need to invest in search engine optimization (SEO) techniques in order improve their ranking on online searches.

Finally, one last consideration when deciding if e-commerce is right for a business model is infrastructure costs associated with setting up an effective online storefront versus building out a physical retail space.

There are many different types of e-commerce models, and each has its own benefits and drawbacks. The most common type is business-to-consumer (B2C), where a company sells products or services to individual consumers. B2C e-commerce is less expensive than traditional retail, since the seller doesn’t have to pay for a physical storefront or hire sales staff.

Another common type of e-commerce is business-to-business (B2B). In this model, businesses sell products or services to other businesses rather than consumers. B2B transactions often involve larger quantities of goods and are therefore more lucrative for the seller. However, they can also be more complicated, since both parties need to agree on terms like pricing and delivery schedule.

A newer form of e-commerce is consumer-to-consumer (C2C), which allows individuals to buy and sell products directly with one another online. This model has become popular thanks to websites like eBay and Craigslist, which make it easy for buyers and sellers to find each other online. C2C e-commerce can be risky because there’s no guarantee that the buyer will receive what they ordered or that the seller will actually receive payment from the buyer. However, it offers buyers lower prices due in part to the lack of middlemen fees.

Some believe that e-commerce first started to take off in the late 1990s or early 2000s. This was largely due to increased internet usage and the growing acceptance of online transactions. In addition, there were also a number of major players who entered the market during this time period, such as Amazon and eBay. Consequently, this helped to fuel wider adoption and cement e-commerce’s place in the global economy

There are a number of different e-commerce platforms in the world, but the three largest ones are Amazon, eBay, and Alibaba. All three have their own strengths and weaknesses.
Amazon is the largest e-commerce platform in the world by revenue. It has a huge selection of products and a very user-friendly website. However, its prices can be quite high compared to other platforms. Amazon has an annual transaction volume of more than USD400 billion, which is more than twice that of its next-largest competitor.

Alibaba is the third-largest e-commerce platform in the world by revenue. Alibaba’s annual revenue reached more than USD120 billion in 2021. It specializes in selling Chinese products to international buyers, which gives it an advantage over Amazon and eBay when it comes to finding unique or hard-to-find items.”

eBay, a company that started out as a way to auction off items but has since turned into a full-blown e-commerce site, is the other large e-commerce platform in the world by revenue. It has a wide range of products available at cheaper prices than Amazon. Its 2021 annual revenue was USD10 billion.

Daniel has his eyes on one of these platforms and seems to be taking one step at a time to get there. “It is challenging, but if not now, then when? If not us, then who?” he argues passionately.EBR

10th Year • May 2022 • No. 107

Source link