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eCommerce in South Africa 2020

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eCommerce in South Africa 2020

June 27, 2020

The online and ecommerce industry continues to grow in South Africa, with increased industrialization and an exponential boom in technology and internet-based companies and stores. Yet with a largely diverse and unemployed population, as well as cultural and individualistic aspects of a divided society at play – there exists many limitations and obstacles in place that hinder or prevent the ultimate growth and prosperity of the nation’s online economy and eCommerce.

With more and more South Africans now having access to reliable and cheap technology, citizens spend on average 8 hours and 23 minutes with technology daily and around 3 hours and 30 minutes on the web. This however, only represents a 54% internet penetration rate – with the rest of the population experiencing high levels of unemployment, poverty and no access to internet or technology. The internet is still very new to many people – specifically online shopping. This is, however, expected to dramatically increase in the coming years with an expected year on year growth of 9.9% within the industry and estimated market value of US$4,817m by 2023 (Statistica, 2019). Furthermore, users are able to pay with various methods, namely – credit and cheque cards (powered through a gateway like PayFast, PayGate or PayU), direct transfers, cash on delivery or alternative methods like BitCoin, SnapScan and Zapper.

The introduction and use of Content Management Systems (CMS) has also allowed many users and vendors to build and manage their ecommerce stores easily and at a significantly lower cost. With CMS’ like Shopify, Wix and Wordpress all offering affordable bundles for development. Together with affordability, they offer functionality in which a vendor is able to fully customize and personalize their online store, create virtual products and sell physical products as well as offer additional functionality like custom development through their advanced API documentation and open source nature as well as offering third party integration through additional add-ons or ‘plugins’ that allow the store to expand in its functionality and purpose.

User penetration is to rise to 74.9% by 2023, as the GDP per capita rises along with national wealth and internet infrastructure expands. South Africa has also recently introduced an Internet of Things Industry Council, which convened for the first time on the 15 of March 2019 – representing any and all who make use of or intend to make use of the internet of things, helping aid Internet Adoption within the country. The internet of things forms part of what is known as the Fourth Industrial Revolution or the Digital Industrial Revolution (DIR). The department of Trade elaborates on the DIR; “the scale, scope and complexity of this new technological revolution will bring experiences unknown to humankind in the form of Cyber-Physical Systems (CPS) where computers, networks and physical processes are integrated. In particular, when compared to the previous industrial revolutions, the DIR is occurring at an exponential pace”. (DTI, 2019). This fourth industrial revolution will present many opportunities and challenges as it is adopted and continues to be applied in all sectors of the economy.

The DIR can be seen to have a context in which there is an expanding youth workforce, a fast-growing continental middle class and access to global value chains as technology suppliers and the chance for Small and Medium Enterprises to capitalise on new technologies. Although only placing between 46th and 75th  on a variety of metrics termed 'Readiness for the 4th Industrial Revolution'; the most important aspects of the internet of things (like big data, artificial intelligence, automation, robotics, new processes and materials, additive manufacturing, logistics, marketing techniques and sales channels) will essentially challenge and put pressure on stakeholders in key areas of the South African economy. Whereby education and more advanced skills and knowledge is needed and most importantly – the adoption and expansion of internet infrastructure will be key in succeeding. (DTI, 2019).

Internet adoption, while lucratively offering a way to increase global customer reach and potential profits, is ultimately greatly influenced by cultural differences and disparities that exist within our society at large (Lim et al., 2014, p. 545). “Online shopping rates have to do with a context of a mixture of factors: national wealth, education levels, as well as cultural things: Individualism and Collectivism”. It is these factors and interpersonal aspects of a society that help explain people’s willingness to accept possible risks associated with online shopping. Trust is deeply associated with risk perception and (in online environments) is based on beliefs in the trustworthiness of a trustee, which is composed of three distinct dimensions - integrity, ability, and benevolence (Gefen et al. 2008, p. 276).  There are many risks that exist, both tangible and intangible, that ecommerce vendors need to address and overcome and address in order to grow – that is, to provide assurances that decrease consumers risk perceptions.

There exists three different categories of risk perception that need to be addressed by vendors, (1) consumers' belief that functionalities offered by an Internet site to facilitate or enhance the primary service of the site might require too much time, too much effort, or too much money; (2) consumers' belief that in- formation revealed in the course of an e-commerce transaction might be misused; and (3) consumers' belief that something purchased on the Web may not deliver the expected benefits. (Gefen et al. 2008, p. 278).  These can be addressed, according to Gefen, with the use of tools and devices like customer reviews, testimonials, security seals of approval, refund and returns policies, delivery estimates, use of widely accepted payment methods and trusted merchants.

User/customer ratings are an effective way to diminish perceived risks and associated trust factor that exists between the vendor and user. Although there exists a threat of displeased users leaving negative reviews or perhaps competitors fabricating false reviews that are aimed at damaging a vendor’s reputation; it is the vendors interaction with these users, their response and their attitude towards the ratings and user interaction that will ultimately make the difference in a consumer choosing to purchase from an online store with a review or without (Melnik et al, 2002, p. 338).

As the economy grows and so too does the infrastructure surrounding the internet of things, individualistic cultures will play a large role in online shopping as they have significantly higher internet adoption rates and what is known as a lower uncertainty avoidance. Uncertainty avoidance refers to the willingness of a consumer to expose him/herself to the possibility of loss during an Internet shopping transaction, based on the expectation that the merchant will engage in generally acceptable practices and will be able to deliver the promised products or services. Cultures and individualistic societies with high uncertainty avoidance tendencies will have a lower tolerance for uncertainty and thus less likely to shop online.

Individualistic culture allows for individual goals to be placed over the collective goals, whilst collective societies demand collective goals to take precedence over individual goals. In trying to understand Individualism and collectivism within the context of ecommerce, it is easily distinguishable to the fact that “economic development is impeded by collectivism and facilitated by individualism.” (Ball, 2001, p. 58). With South Africa having an incredibly diverse society with a wide array of needs and desires for the future, it can be harmful to ecommerce development in attempting to find a niche or society that values what a vendor sells or promises. It can too, however, be boosting and beneficial as a gap is introduced as unfilled niches that may have been previously out of reach for interested peoples can now be made accessible at their fingertips. Once the convenience of online shopping is realized, and trust is created, there is near infinite potential.

With 11 different official languages and a plethora of niche communities and societies – there is a huge opportunity for online reach and revenue to extend far beyond the basics of just everyday household items and the typical convenience of Takealot.com or OneDayOnly. Currently Electronics & Media account for the largest portion of daily spend online (accounting for roughly $964.2 Million of market share), with Furniture & Appliances in close second (accounting for $553.7 Million of market share). This is all expected to increase by 2021, as other industries like Fashion, Food & Personal Care and Toys follow. The below figure represents the expected increase in revenue and market share of the main online industries within South Africa, from 2015 to 2021.

This idea, however, is predicated on the fact that those who do not have access to internet or technology, will eventually have access. Plagued by leaders that have very different ideas of what progress and development looks like, South Africa is a high-growth, high-tech economy, in effort to play “catch-up” in development and industrialization. This can only be achieved with increased infrastructure specific to the Internet of Things and internet adoption, a declining unemployment rate, increased education and adoption of advanced skills as well as a decline in the inherent wealth gap present since the end of apartheid. This wealth gap has ultimately brought with it, a problem of separated economies. One that is ‘well developed’ and competitive and another that is underdeveloped and survivalist in nature (Satgar, 2012, p. 35). “The crucial challenge in the "two-economies discourse" is to deracialise the first economy while also creating a pathway or ladder from the second economy into the first economy.”

In attempting to bridge the gap between these two economies, there is an attempt to improve the infrastructure and context of the country and ultimately allow for greater internet adoption and DIR compliance. There already exists several fiscal policies and efforts made by this government in achieving a collusion of the two, aforementioned, separate economies. Namely the promotion of Small Medium Enterprises as a way to launch and promote ‘latent entrepreneurs’ into the first economy. Micro-interventions have also helped link the first economy to the second; the Accelerated Shared Growth Initiative for South Africa (ASGISA) was set up to is to bring down the "costs of doing business in South Africa" by highlighting conditions for the first economy to be globally competitive particularly through state-led infrastructure spending. Furthermore, in an effort to deracialise monopoly capitalism the introduction of the BEE framework is paramount in colluding the two economies (Satgar, 2012, p. 55).

The two-economies discourse, ultimately stems from the issue income inequality, whereby there are different aspects of capital accumulation; profit-earners accumulate their capital, while “wage-earners consume all their incomes”. (Malikani, 2010, p. 188). Within the aforementioned discourse, the survivalist economy consumes all their incomes whilst the developed economy accumulates more capital from profits obtained from the survivalist economy. As national wealth is a large factor in influencing internet adoption and online spend – it will be beneficial to continue, if not enhance, the current fiscal efforts in place to decrease this gap and collude the two separate economies. It is clear that those within the survivalist economy will not have the means or extra resources to purchase items and products online – a factor that greatly affects national income and expenditure.  “As a result of the rising tide of unemployment, workers became increasingly incapable in defending their share in national income and so, income distribution worsened.” (Malikani, 2010, p. 198).

It is, ultimately, the wealth of a nation – as well as the distribution and equality of such wealth – that determines the internet adoption, usage and prosperity of the industry and revenue share. If the nation continues to be rife with corruption, remain unclear on development goals and maintains this current level of unemployment – the limitations of the ecommerce industry will be great, in that the industry will be cornered into only servicing the developed side of the two-economy discourse. However, if our wealth and GDP grow and the country is clear on its developmental goals and fiscal policies and the results expected – there is huge room for improvement; both in the national wealth levels and the internet adoption rate.

More so, it is valuable to assess the impact the internet and aspects of the DIR can have on the current economical discourse and survivalist economy. As an example, in addressing the unemployment crises – it can be argued that there is a need for an efficient and effective mechanism to link and connect those that are disconnected to the existing labour market. Although job seeking internet-based portals exist, there is a need for a centralized ‘agency’ site to connect job seekers to employers in all sectors of the economy. As well as at all levels of skill. The contingency theory is an important way of understanding internet adoption and the challenges that arise or are apparent in bringing it about. Using Singapore as a case study, contingency theory, first introduced by Lawrence and Lorsch and later expanded by Kast and Rosenzweig, states that “there is no single best way to achieve the necessary fit among organizational factors and the environment to attain good performance for an organization”. (Teo et al, 1998, p. 96).

This model broadly examines the organisational, environmental and technological factors that would influence the internet adoption of the nation. Adopting such a model would be beneficial to the South African government in effectively addressing challenges associated with internet adoption. “The organizational component includes the factors of technology policy, top management support, and management risk position. The technological component includes compatibility and relative advantage. The environmental component includes competitive intensity, information intensity and government support. A total of eight contingency factors are studied.” (Teo et al, 1998, p. 96). The figure below represents the overall weight and scope of the model.

The importance of the model is emphasised in the need to march information processing requirements (outlined within environmental and organisational factors) with information-processing capabilities, allowing the fit between the characteristics of the technology and the characteristics of the task. In other words, the more fitting or compatible the characteristics of the technology are with the work requirements, the more likely that particular technology will be adopted. This, thus, ties in with the idea outlined earlier of how aspects of the internet can be leveraged to ease the survivalist economy into internet adoption by making use of the labour mismatching example. The fit between the tsk characteristics and technology characteristics influenced both the use of the technology and the perceptions of the performance outcomes. (Teo et al, 1998, p. 96).

Resources

Is Ecommerce Boundary-Less? Effects of Individualism-Collectivism and Uncertainty Avoidance on Internet Shopping

Kai H. Lim, Kwok Leung, Choon Ling Sia and Matthew K. O. Lee

Journal of International Business Studies

Vol. 35, No. 6 (Nov., 2004), pp. 545-559 (15 pages)

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Individualism, Collectivism, and Economic Development

Author(s): Richard Ball

Source: The Annals of the American Academy of Political and Social Science, Vol. 573, Culture and Development: International Perspectives (Jan., 2001), pp. 57-84

Published by: Sage Publications, Inc. in association with the American Academy of Political and Social Science

Stable URL: https://www.jstor.org/stable/1049015

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Does a Seller's Ecommerce Reputation Matter? Evidence from eBay Auctions Author(s): Mikhail I. Melnik and James Alm

Source: The Journal of Industrial Economics, Vol. 50, No. 3 (Sep., 2002), pp. 337-349 Published by: Wiley

Stable URL: https://www.jstor.org/stable/3569809

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Author(s): Christopher Malikane

Source: The Journal of Developing Areas, Vol. 44, No. 1 (Fall 2010), pp. 187-199 Published by: College of Business, Tennessee State University

Stable URL: https://www.jstor.org/stable/41428200

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Beyond Marikana: The Post-Apartheid South African State

Author(s): Vishwas Satgar

Source: Africa Spectrum, Vol. 47, No. 2/3 (2012), pp. 33-62

Published by: Institute of African Affairs at GIGA, Hamburg/Germany Stable URL: https://www.jstor.org/stable/23350450

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South Africa's Key Challenges: Tough Choices and New Directions Author(s): ANN BERNSTEIN Source: The Annals of the American Academy of Political and Social Science, Vol. 652, Strengthening Governance in South Africa: Building on Mandela's Legacy (March 2014), pp. 20-47 Published by: Sage Publications, Inc. in association with the American Academy of Political and Social Science Stable URL: https://www.jstor.org/stable/24541715 Accessed: 07-04-2019 13:09 UTC

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A Research Agenda for Trust in Online Environments Author(s): David Gefen, Izak Benbasat and Paul A. Pavlou Source: Journal of Management Information Systems, Vol. 24, No. 4, Trust in Online Environments (Spring, 2008), pp. 275-286 Published by: Taylor & Francis, Ltd. Stable URL: https://www.jstor.org/stable/40398920 Accessed: 07-04-2019 13:19 UTC

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Connecting African Activism with Global Networks: ICTs and South African Social Movements Author(s): Herman Wasserman Source: Africa Development / Afrique et Développement, Vol. 30, No. 1/2 (2005), pp. 163- 182 Published by: CODESRIA Stable URL: https://www.jstor.org/stable/24484607 Accessed: 07-04-2019 13:58 UTC

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Chapter Title: MOST COUNTRIES OF SUB-SAHARAN AFRICA WILL FALL FURTHER BEHIND IN THE INFORMATION REVOLUTION Book Title: The Global Course of the Information Revolution Book Subtitle: Recurring Themes and Regional Variations Book Author(s): Richard O. Hundley, Robert H. Anderson, Tora K. Bikson and C. Richard Neu Published by: RAND Corporation. (2003) Stable URL: https://www.jstor.org/stable/10.7249/mr1680nic.20

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The Promise and challenge of E-Commerce Author(s): Patricia Buckley and Sabrina Montes Source: Georgetown Journal of International Affairs, Vol. 1, No. 2 (Summer/Fall 2000), pp. 29-35 Published by: Georgetown University Press Stable URL: https://www.jstor.org/stable/43133404 Accessed: 07-04-2019 14:18 UTC

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A Contingency Model of Internet Adoption in Singapore Author(s): Thompson S. H. Teo, Margaret Tan and Wong Kok Buk Source: International Journal of Electronic Commerce, Vol. 2, No. 2 (Winter, 1997/1998), pp. 95-118 Published by: Taylor & Francis, Ltd. Stable URL: https://www.jstor.org/stable/27750849 Accessed: 10-04-2019 08:36 UTC

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