Lessons from China E-commerce transactions in Nigeria: Stark Legal Solicitors

APRIL 2018

  E-commerce transactions in Nigeria:
  Lessons from China
  The Nigerian e-Commerce space is in an emergent state. However, the recent
  turn of events in the sector from the asset purchase of Dealdey Limited 1, exit of
  Efritin.com2, and acquisition of Konga Online Limited (Konga”), one of Nigeria’s
  e-commerce giant3 , to the recent shutdown of OLX4 offices5 have led to
  unending speculations and analysis as to what lies ahead in the industry.

  To illustrate the plunge in the sector, Konga’s investors lost about 93% of their
  investment in the company which was once valued at over $300 million, and

subsequently purchased for a reported sum of $10 million.6 However, the acquisition
comes with a glimmer of hope due to the extensive experience of Zinox Group in
navigating the e-commerce sector.7 Also, the acquisition is viewed by many industry
analysts as a major development for the e-commerce sector in Nigeria which could
finally unlock the massive potential in this industry.8

The state of E-commerce in Nigeria
The rise of e-commerce has taken Nigeria by storm and currently growing at a rapid
rate; with its current market opportunity slated at over N255 billion annually at an
exponential growth rate of 25 percent per year.9 In 2017, retail e-commerce sales
worldwide amounted to about 2.829 trillion US dollars while e-retail revenues are
projected to grow to 4.48 trillion US dollars in 2021 .10

The statistics provides immense hope for the future of e-commerce industry in
Nigeria. The National Bureau of Statistics (NBS) predicts that the e-commerce sector
is expected to contribute about 10 per cent of a projected N10 trillion, to the nation’s
Gross Domestic Product (GDP) this year11 . However, challenges such as inadequate
funding, lack of infrastructure, payment trust, bureaucracy and digital literacy have
continued to threaten the operations of e-commerce companies in the country.12 In
this article, we shall examine the Alibaba’s business model as a template for the
e-commerce industry in Nigeria 13.

The Alibaba Template
It is well known that the e-commerce market grants visibility to buyers and sellers all
over the world. As such, various countries have adopted different approaches to the
online markets and have managed to match the pace of the sub-sector and reaped its
benefits14 . The People’s Republic of China is currently at the top of the list in the
e-commerce space with an annual e-commerce sale slated at about $370 billion 15.

The Alibaba Group, is paving the way as one of the fastest growing e-commerce
market in the world. The Chinese company has blossomed into one of the diverse and
valuable corporations in the world. It is presently competing on a global scale in terms
of revenue and brand. Alibaba’s success story is more fascinating with its world
prominence within a relative short period. One major factor was Alibaba’s benefit

1. DealDey is Nigeria's number one daily deals website on products and services.
2. a classified advertisement website.
3. 3 possible reasons Leo-Stan Ekeh bought Konga, https://techpoint.ng/2018/02/05/leo-stan-ekeh-zinox-yudala/ accessed on February 20, 2018.
4. an online marketplace owned by Naspers
5. Confirmed: OLX shuts down office in Nigeria, https://techpoint.ng/2018/02/06/naspers-shuts-down-olx-ghana-nigeria-kenya/ accessed February 20,2018
6. Ibid (n 1)
7. This Day Report, https://www.thisdaylive.com/index.php/2018/02/03/zinox-acquires-konga-in-landmark- industry deal/ accessed on February 20, 2018.
8. Ibid
9. http://nigerianlawtoday.com/e-commerce-evolution-in-nigeria-opportunities-and-threats/ accessed on February 20, 2018
10. Ibid
11. Ibid
12. Investing in African Start-ups: The good, the bad and the hopeful, https://techpoint.ng/2018/02/08/investing-african-startups/ accessed February 21, 2018
13. Alibaba Group is an e-commerce company in China.

from the strict internet-controlling policies in China. At the time, the Chinese
government created an entrepreneurial local content ecosystem which constrained
foreign entities from capturing the market at the expense of local companies. China
also set up an immense internet filtering and censorship engine which crippled the
operations of tech giants like Google, Yahoo! and eBay. These restrictions allowed
Alibaba to gain popularity in China16 . The Company has more than 500 million
customers using its shopping apps every month and has leveraged same to scale up
its operations beyond China.

The success of Alibaba has led to the launch of many more ventures such as: (i) an
online e-commerce education programme; (ii) an online marketplace for third party
branded products and; (iii) an online marketing platform.17 The company celebrated
its 10th anniversary in 2009 by establishing Alibaba Cloud and acquiring China’s
leading IP provider.18 In 2016, Alibaba was recognised as the world’s largest and most
valuable retailer19 . It has shown the world that China is a force to contend with. It is
necessary to track and learn from the success of this growing global player. The
company has successfully gone from start-up to multinational in just 15 years
reflecting the swift economic rise of China itself20 .

Lessons for Nigeria
In other for Nigerian e-commerce companies to reach their full potential in the sector,
the following key issues adopted by Alibaba should be critically considered:

       1. Platform: The platform to ensure easy entry and cost sensitive mechanisms for
          trading on e-commerce platforms must be clear; providing a transparent
          relationship between the seller and buyer.

       2. Conducive Ecosystem: Alibaba’s unique business focuses on the productive
          forces of small enterprises and offer more diversified consumption choices for
          consumers. Nigerian stakeholders must provide a comfortable purchasing
          environment and positive online customer experience.

       3. Trust and Security: There is a burning need to address the problem of trust and
          security in Nigeria’s cyber space by creating a state of the art, secure and
          responsive online payment system. It is important that proper “know your
          customer” parameters are observed and identities are adequately verified to
          ensure consumers are not defrauded. Nigerian e-commerce companies need
          to adopt transparent policies and systems to guarantee customer satisfaction.
          China’s e-commerce market could not have developed quickly without Alipay, a
          secure platform, which overcame the challenges of trust in the domestic
          market.

14. https://www.primaseller.com/blog/emerging-ecommerce-markets-world/
15. Confirmed: OLX shuts down office in Nigeria, https://techpoint.ng/2018/02/06/naspers-shuts-down-olx-ghana-nigeria-kenya/ accessed February 20,2018
16. https://yourstory.com/2018/02/the-story-behind-the-alibaba-group/ accessed February 22, 2018
17. Ibid
18. Ibid
19. https://medium.com/@mersolluo/the-key-to-success-in-china-the-alibaba-story-4091e2961dad accessed February 22, 2018
20. https://medium.com/@mersolluo/the-key-to-success-in-china-the-alibaba-story-4091e2961dad accessed February 22, 2018

4. Scale: In order to attract a large number of vendors and customers and make
            profit, there is a need to develop a logistics network which will further
            contribute to the company’s dominance in relation to lower costs, less time
            and faster service.

         5. Service: Good Customer service relations is key. The need to deliver highly
            responsive customer-oriented service at relatively low cost has allowed
            Alibaba and similar brands to stand out. Nigerian companies should offer a
            convenient way to use their platform, in order to avoid losing customers and
            gain new ones. 21

Conclusion
As the world continues its drive to become a virtual global village, there is a need for
synergy between stakeholders and the government to create a comprehensive
structure for e-commerce transactions to boost the Nigerian economy in order to
bring it in line with global best practices. Fortunately, on the regulatory and financial
side, the introduction of Pioneer Status incentive for e-commerce businesses which
gives investors an initial three-year tax-free period upon commencement of business
will lift the tax burden on potential investors.

21. https://www.digitalcommerce360.com/2016/07/27/seven-reasons-alibabas-success/ accessed February 22, 2018

Contacts:

        Ayobamidele Akande
        Partner
        aakande@starklegalng.com

        Manuela Omoteso
        Associate
        momoteso@starklegalng.com

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