The adoption of e-commerce in the Kingdom has been hampered by specific social and cultural business traits specific to Saudi Arabia, leadership priorities and the political structure in the country’s public and private sectors, according to a report on online retailing in the country.
While the focus on innovation tends to be geared toward oil, energy, construction, small and medium enterprises (SMEs) and entrepreneurship, the retail sector is an important economic contributor and should not be ignored, it said.
Currently, as this sector is strong, retail seems to sustain a profitable growth by itself, without giving much more thought on creating new solutions to enhance its economic value and competitiveness, claimed the study.
The report, titled “E-Commerce in Saudi Arabia: Driving the evolution, adaption and growth of e-commerce in the retail industry,” also highlights the steps that need to be taken to support the adoption and diffusion of the e-commerce model in Saudi Arabia.
Alexandra de Kerros Boudkov Orloff, author of the study and CEO and founder of Sacha Orloff Consulting Group that conducted the study: “Saudi Arabia has the biggest retail market in the GCC, contributing to 17 percent of GDP.
“Saudi Arabia is ripe for e-commerce as long as brands build trust.
“It is predicted to hit SR 250 billion ($ 66.7 billion) in 2012 and by 2014 alone.
“Overall IT spending is expected to reach $ 5.7 billion, comprising over 50 percent of total ICT investments throughout the GCC. SMEs in the Kingdom have a 52 percent Internet penetration rate.”
The study identifies two distinctive sets of challenges facing e-commerce in Saudi Arabia that apply in the first instance to retailers and consumers in the Kingdom.
Some of the key inhibitors to the widespread adoption of e-commerce for Saudi retailers include minimal options to gateway payment systems and a slow banking performance, resistance to change where there is no real benefit in shifting the organizational culture and structure of mature organization, retail strategy that dispels investments in e-commerce should they have no immediate monetary returns, few ICT professionals who are able to design an e-commerce platform for businesses, limited homogeneity between English and Arabic online content, fear of risk-taking and failure as e-commerce remains a new business model in the region, and traditional marketing techniques.
About 67 percent of online consumers in Saudi Arabia are under 35 years old, most of whom made their first purchase five or more years ago.
The study lists the key challenges to online purchasing among Saudi consumers. They include the fact the Internet is still regarded by Saudi consumers as a tool to access data and information rather than an opportunity to access physical goods; minimal options and reliability of delivery services, a preference for face-to-face business deals that affects trust in online purchasing, sociocultural habits and culture where consuming is part of the lifestyle and shopping an experience to share; minimal online payment options other than credit cards; and poor customer service and after-sales follow-up to online purchases.
To overcome the challenges, the report proposes a proper gateway payment system that would enable secure and easy purchasing within the Kingdom and in neighboring Arab countries, as the core of any e-commerce activity are transactions and payments.
“E-commerce, more than any other sales mechanism, requires an in-depth understanding of market segmentation among retailers. It is essential for retailers to remember that due to Saudi Arabia’s young demographic, today’s youth segment will be tomorrow’s clientele, and fostering product loyalty is critical,” said Orloff, whose consulting group specializes in the service and retail industry of the GCC and Middle Eastern markets.
The study recommends strict governmental regulations to enable the development of a commercial strategic framework of e-commerce taxation laws, ownership and IP protection.
The report adds: “A consensus should be implemented over proper business conduct and process with competitive pricing equal to physical shop prices.
“Retailers should also consider generating a true Arab brand identity that is recognizable and different from Western ‘copy and paste’ models, and localize the development amongst Saudi professionals, rather than outsourcing ICT and platform designs, which brings the problem of continuous training and talent sourcing.”
Retail organizations will have to take calculated risks to become ‘click and mortar’ businesses, where both regular retail and new e-retail will have to cohabit within two different forces to find an appropriate balance and both business models can be recognized to be of equal in importance and operational excellence, the report said.
It added this business model requires an open mindset, strong leadership, and assesses the risk of failure.
“The added value of e-commerce market opportunities in Saudi Arabia among the whole value chain of the retail sector directly and indirectly contributes economically to generating job creation opportunities, new commercial offerings as well as opportunities to enhance and support economic diversification effort and improve the competitiveness of SMEs,” said Orloff.
The study was released on June 16 and is relevant to the Kingdom’s retail industry, family-owned businesses, larger organizations, and SMEs, particularly in light of the changes being undertaken in the retail sector and to ensure the positioning of the Kingdom as the largest market in the GCC.