WINDOWS OF OPPORTUNITIES

Obviously, the COVID-19 pandemic and the ensuing quarantine restrictions had a tremendous negative impact on the world economy and social sphere. Experts predict a protracted restoration of world trade and economic ties, with multi-billion losses for passenger aviation, tourism, food service, entertainment, etc. At the same time, as the events of recent months have shown, the crisis triggered an unprecedented rise in electronic commerce, involving more and more new segments of the economy. This global trend is also observed in Azerbaijan, where the development of electronic platforms has accelerated, and business has increasingly begun to master the mechanisms of e-commerce.

Growth during the crisis

The global e-commerce market was quite alright even before the coronavirus pandemic and was growing. According to the Internet Retailer research, the global e-commerce market in 2019 was estimated at $3.46 trillion. Expert analyses showed that the volume of online retail sales in 2016-2019 increased by an average of 20% per year, while retail sales in the segment of traditional sales through stores increased by only 3.5% per year. This indicates that online commerce today is becoming the main driver of development of the trade sector.

At the same time, according to the United Nations Conference on Trade and Development, the sales of goods and services between companies, B2B (Business-to-Business), are still dominating here in terms of sales. Only 12% of trade occurs between companies and private consumers - B2C (Business-to-Consumer), where China, the USA, Turkey, Great Britain, Germany and the UAE play the leading role as trading platforms and suppliers of goods, as well as a number of other countries in Europe and Southeast Asia.

Nevertheless, online retail demonstrates very decent growth dynamics, increasing from 10.5% in 2016 to 16.4% in 2019. Cross-border trade plays a crucial role here. For example, the 1,000 largest online stores in the US and Canada sell $143 billion worth of goods to customers outside their home countries. At the same time, the share of the largest American corporation, Amazon, in these international sales reaches 44%. By the way, by April of this year, Amazon is showing phenomenal performance in terms of capitalization, which reached $1.14 trillion. In just one day, in mid-April, market assets increased by an additional $6 billion amid record-high stock prices.

Yet another e-commerce giant, Alibaba, is doing good and is no less successful: by the end of last year, the capitalization of the Chinese Internet company reached $570 billion, making it the largest corporation in Asia.

Other participants in the global Internet trade also noticeably increased, given the increasing demand amid the coronavirus pandemic. And most importantly, the quarantine measures played an instrumental role of a catalyst, forming qualitatively new trends in e-commerce. During the pandemic, customers, especially in Russia and other post-Soviet countries, began to order food products (including baby food), as well as processed food, medical equipment and health products, hygiene items, household chemicals, etc. More recently, the share of these groups of products reached only a few percent in the total volume of online retail trade. Traditionally, sales of electronics, IT gadgets, tools, watches, clothes, shoes, cosmetics and other durable goods dominated here. The most noticeable results are in the food and catering segment - food and food delivery services, which citizens who are on self-isolation have begun to use actively. Experts believe that the quarantine promotes the habit of online food purchases, ordering food in public catering, etc. It is possible that even after lifting the restrictions, people’s behavioral patterns and accumulated positive experience will remain.

The trend of growing online purchases of food and essential goods was observed in a number of countries even before the start of the COVID-19 pandemic. In particular, in recent years, the number of visitors to the leading retail chains in the USA - Carrefour, Casino, Walmart, Sears Holdings Corp, Toys R Us, who are forced to reduce their retail space and close hypermarkets due to their inability to compete with online trading, has significantly decreased.

Growth dynamics

Remarkably, the above global trends are also observed in Azerbaijan, although the sphere of e-commerce in our country is still in its infancy, with volumes of sales absolutely incomparable with the turnover in leading countries of the world. According to the Ministry of Transport, Communications and High Technologies, e-commerce in Azerbaijan accounts for approximately 14% of the total trade. The Central Bank of Azerbaijan believes that over the three quarters of last year, the growth dynamics of electronic commerce in Azerbaijan reached 91%, or ₼2.2 billion. According to statistics, 4/5 of purchases (in monetary terms) are provided by corporate customers, with over 90% of the local market turnover accounted for non-food items. The available format of e-commerce in Azerbaijan is B2B, which maintains its dominant position in the country.

As for the B2C segment, although the growth rate of electronic retail in Azerbaijan has increased several times in recent years, its share in the total retail turnover is insignificant - about 1-2%. This is partly due to the fact that turnover about online stores available in Azerbaijan is relatively insignificant. More than 90% of Azerbaijani consumers prefer the purchase goods and services outside the country on such large global trading platforms as Ebay, Amazon, Alibaba, Aliexpress, etc. And this is not surprising, given that the vast majority of goods in demand are produced abroad. Local delivery stores bear the costs of transportation, payment of customs tariffs, internal warehouse logistics, etc. In addition, unlike a number of neighboring countries, in Azerbaijan, electronic commerce is subject to VAT. Proposals for its abolition are fraught with a number of problems, since they put in an unequal position traditional trade, taxed with value added tax. All of these factors deprive local e-commerce of the opportunity to compete with foreign giants of online commerce - both in terms of price and range. Nevertheless, Azerbaijani online stores have found their market niche, selling mainly certain types of food, alcohol, textiles, perfumes, carpets, national souvenirs and jewelry mainly on the foreign market.

Development incentive

The force majeure caused by the pandemic also influenced the domestic e-commerce segment, stimulating the development of services and expanding the supply of goods. So, according to the recommendations of the Operational Headquarters under the Cabinet of Ministers, during the quarantine period, each person and organization should give preference to the use of electronic commerce. This promise was picked up by a number of food chain supermarkets, which began to deliver goods through online orders. True, this trend didn’t become widespread, due to the failure to develop technologies and AI solutions - the so-called chat bots, which significantly accelerate the process of communication with customers, in a timely manner. At the same time, local supermarkets were not ready for a new reality - a tangible increase in orders for food and consumer goods during the lockdown. In a short time, chain stores would need to create a logistics infrastructure, open new darkstores, and establish delivery services.

However, the first steps in this direction have already been taken. On the initiative of the Agency for the Development of Small and Medium-Sized Businesses and with the participation of companies specializing in the supply, retail and logistics sectors, an online supermarket was created using the special BakuMart Supply application. This application is available for users of Android and iOS devices and allows you to make online orders and quickly deliver food to your home.

A similarly designed website evdeqal.az was launched jointly by the Ministry of Transport, Communications and High Technologies and UNDP. The resource provides users with online services in the categories of education, delivery, medicine, food and entertainment.

A local company Cubics, based on Brandonline technology, offers a localized product for Azerbaijani users to create and launch simple and functional online stores with the ability to quickly adapt traditional trade to electronic.

The above examples are only the first steps on the big path that local retail sector has to go through in order to fully exploit the capabilities of the B2C segment. In the future, it is planned to use the main advantage in Azerbaijan - a geographical factor that allows the country to become a leading transit hub and a logistics base for electronic retail trade.

So, for the third year already, the postal operator Azerpoct LLC, in cooperation with the Azerbaijani cargo carrier Silkway West Airlines, has been working on a project to create its own e-commerce platform, as well as create logistics hubs mainly with a focus on transit of goods. Azerbaijan is supposed to organize storage of a certain amount of small-sized goods, for which there is the greatest demand in third countries. As a guideline, the countries with the highest demand for the small-sized goods and, accordingly, upon receipt of the order, the consumer does not have to wait several weeks for delivery. The ultimate goal of the project is to turn Azerbaijan into a regional transit hub of e-commerce, for which negotiations are underway with express transportation companies from China, South Korea and Singapore.

As to the reliability of the transit system for the transportation of mail items from Azerbaijan, despite the epidemic Silkway West Airlines has maintained a schedule of flights to China and several other countries. In turn, after monthly quarantine restrictions, from April 15, Azerpoct resumed receiving international mail to 18 countries of the world and it is planned to gradually expand this list.

New projects

At the same time, Azerbaijan is also developing the B2B sector, which involves the establishment of wholesale deliveries of goods electronically. According to experts, the setup of a large wholesale transport and logistics system of e-commerce can turn Azerbaijan into a regional transit hub of e-commerce, as well as contribute to the expansion of exports.

The leading body in this field is the state portal Azexport (azexport.az) established under the presidential decree On creating a unified database of goods produced in Azerbaijan, dated September 21, 2016. For three and a half years, the new structure has confirmed the high efficiency of wholesale e-commerce: from January 2017 to the end of February 2019, the volume of export deliveries through Azexport exceeded $1.7 billion.

Actually, the activities of Azexport, as well as orders for imported equipment and goods of large corporate structures operating in Azerbaijan, have become the key base that has provided the bulk of the turnover in e-commerce in recent years.

The portal system is integrated with 15 international e-commerce platforms, including Amazon, Alibaba, All.biz and Go4worldbusiness. At the same time, Azexport export activities cover 141 countries of the world, more than 3,000 registered suppliers can conduct free market research using the Google Market Finder and get marketing information on popular products. Currently, the portal contains more than 10,000 names of products - mainly food, alcohol and tobacco products, cosmetics, textiles, furniture, paints and varnishes, etc.

Work to expand the number of B2B segment participants in Azerbaijan continues. Recently, the Azexport.az portal, together with the My Broker customs office and the Worldef Business School representative in Azerbaijan, launched a new project: Amazon - distance learning of electronic commerce. The goal is to train local export entrepreneurs in the basics of working on the Amazon portal, including the rules for opening details and processing documents, searching for contractors and buyers, warehouse logistics mechanisms, customs procedures, certification requirements, etc.

One should take a note that our neighbouring countries - Turkey, Kazakhstan and Georgia - are also working on similar long-term plans. Today the main thing is not to miss the window of opportunities, which is accelerating the process of establishing a digital trading hub in Baku.