The Potential of E-Commerce for SMEs in Bangladesh: Challenges and Opportunities

In a fast-paced modern business world, e-commerce is seen as one of the most significant instruments for successful operations. This instrument is associated with numerous benefits allowing businesses to break the barriers between them and customers. Implementation of e-commerce is particularly relevant for emerging markets which are known for their cheap labor and high productivity.

Bangladesh stands out among emerging markets due to rapid economic growth, export orientation and large domestic consumer market. The country includes more than 700 active e-commerce retail businesses and the clear majority of them are Small and Medium-sized Enterprises (SMEs). SMEs are seen as the engine of the economy contributing up to 25% of GDP and employing 80% of the skilled workforce.

Owing to the specificity of the country, many SMEs are operating in the retail sector. However, despite the obvious benefits e-commerce provides for retail SMEs, the clear majority of them have not fully integrated e-commerce in their operation. Therefore, there is a clear need to understand what might be the challenge to adopt e-commerce and what are the potential opportunities of this adaptation.

In the following discussion, we will extract from the findings of Ilmee Mim’s MBA thesis entitled  "Factors Influencing Adoption of E-Commerce in the Retail Sector in Bangladesh." The research would shed light on the specific factors and barriers that are shaping e-commerce adoption among SMEs. Further, we aim to explain why some businesses thrive online while others hesitate and propose a practical pathway for change.

E-Commerce and SMEs – a Way to Break Free

The traditional limitations of retail businesses in emerging markets include the complexity of reaching customers. However, e-commerce offers SMEs a chance to break free from this limitation. By using digital platforms, businesses can access wider markets and offer customers greater convenience. The particular benefits which Bangladeshi SMEs would enjoy include flourishing in the digital global economy, ease of reaching rural customers and increased competitiveness. These benefits might help to overcome infrastructural and cultural barriers usually associated with Bangladesh.

Key Findings of the Research

Based on the quantitative analysis of 139 SMEs in Dhaka, Bangladesh, the research reveals six factors influencing e-commerce adoption in the region.

1. Customer Demand: The Primary Driver

Urban consumers are increasingly using online shopping mainly because of convenience and variety. 62% of the respondents stressed the high e-commerce adoption in their operation.  Most SMEs believe that customer demand has the highest level of influence in terms of adoption of e-commerce for Bangladeshi SMEs. Also, rural areas face a significant gap mainly because of low internet penetration along with limited digital literacy. Optimization of these aspects would be beneficial for e-commerce adoption in Bangladesh.

2. Supply Chain Adaptation: A Major Hurdle

Efficient logistics and supply chain optimization are significant aspects for e-commerce success. While urban SMEs use several services for affordable deliveries, rural SMEs face unreliable networks along with higher delivery costs. Further, businesses which have optimized their supply chains are more capable of implementing e-commerce. For SMEs to scale their operations, a solid supply chain system is required.

3. Technology Costs: No Longer a Major Barrier

Contrary to common perceptions and previous existing literature, the cost of technology is no longer a major barrier. Affordable platforms (incl. Shopify and WooCommerce) along with the growing IT expertise in Bangladesh have made it easier for SMEs to digitize their operations. However, many businesses are still lacking the confidence to take the risk even if it portends only minimal expenditures.

4. Security Concerns: A Trust Issue

Past scams that occurred during the COVID-19 pandemic have negatively influenced customer perceptions of online transactions. Although SMEs have made a tremendous effort to improve security measures, the lion’s share of customers remains skeptical about online transactions. Most customers still prefer cash on delivery which limits the efficiency of e-commerce platforms.

5. Government Support: Limited and Misaligned

Initiatives like the “Digital Bangladesh” campaign have improved ICT infrastructure but SMEs believe that more targeted support is needed. Policies must address specific challenges. They should be related to cybersecurity along with rural internet access as well as tax incentives for digital transformation.

6. Market competition: Fact to consider?

Although the activities of competitors often drive the need for SMEs to adopt e-commerce, this was not the case in this research. Instead, the motivation to adopt e-commerce stems more from internal factors (e.g., customer demand and supply chain availability). Further, this may reflect the early stage of e-commerce adoption in the Bangladeshi retail sector, where competitive forces are less pronounced.

Barriers and Opportunities

Based on the findings of this research, the following barriers and opportunities should be considered for the e-commerce retail sector in Bangladesh (Table 1).

Table 1. Barriers and Opportunities for E-commerce Adoption in Retail Sector of Bangladesh

The majority of SMEs along with rural consumers, lack the skills necessary to navigate online platforms confidently. This creates a problem in terms of large-scale adoption. Shopping in Bangladesh is often a social interaction reflecting a cultural preference for in-person communication which along with physical inspections of products slows the shift to digital transactions. Inefficiencies in delivery, along with higher costs, significantly impact SMEs outside of urban centers. This is becoming a big barrier for the improvement of e-commerce operations. Fraud and poor online shopping experiences have made many consumers hesitant, which, in turn, has reduced the potential of digital platforms.

However, with fairly easy implementation plans, these barriers can be overcome properly. SMEs can enhance overall e-commerce potential in Bangladesh in multiple ways. First, the provision of good internet connection and affordable delivery services to rural areas should intensify the desire of customers to use e-commerce services. Second, increasing the adoption of online payment services (e.g., bKash and Nagad) among SMEs should intensify customers’ willingness to use them as well which would reduce the need for cash-on-delivery. Further, clear return policies coupled with reliable customer service and strong cybersecurity measures are required in gaining the trust of customers in e-commerce platforms. Also, SMEs can benefit from partnerships related to established delivery services which should lead to cost-effective and efficient shipping options.

Conclusion

E-commerce has the potential to become the next goldmine for SMEs in the fast-growing economy of Bangladesh. If the challenges are addressed and opportunities are utilized, SMEs can succeed in this digital economy. As Bangladesh moves closer to becoming a middle-income country, SMEs need to accept or adopt e-commerce not just as a trend but as a necessity for long-term success.

For Further Reading

Al-Amin, M., Habibur Rahman, M., & Nazrul Islam, S. (2020). Investigating the factors influencing customers towards e-commerce shopping in Bangladesh. Journal of Noakhali Science and Technology University 4(2), 39-47. doi: 10.13140/RG.2.2.11666.89289

Hasan Emon, Md. M., & Hoque Nahid, M. (2023). Factors Affecting Sustainable E-commerce Adoption: Empirical Evidence from Bangladeshi SMES. Corporate Sustainable Management Journal, 1(1), 32–36. doi: 10.18844/GJIT.V0I0.109

Md., Monirul, Islam., Harunur, Rashid. & Md., Golam, Rabiul, Alam. (2015). Secure Electronic Payment: Proposed method for the growth of E-commerce in Bangladesh. Asian business review, 5(2), 89-96. doi: 10.18034/ABR.V5I2.59

Short biography:

Ilmee Hossain Mim. is a passionate fashion designer with more than five years of experience in Bangladesh's vibrant apparel sector. She received B.Sc. in Fashion Design and Technology from BUFT in 2017. Her approach to design and product development includes combining creativity with a deep sense of responsibility. Her work in the apparel industry seamlessly integrates with business dynamics, blending creativity with calculated planning approaches to foster progress and achieve excellence.

Roman Filenko holds a D.Sc. (Econ. and Bus. Admin) from University of Vaasa, Finland. His current research interests cover foreign divestment, internationalization, financial value creation and international joint venture strategies. Dr. Roman Filenko is an active member of the research community and the output of his research has been communicated to different audiences through conference presentations at the Academy of International Business, European International Business Academy, American Marketing Association and Vaasa International Business (IB) Conferences.Dr. Roman Filenko is also working as part-time lecturer and thesis supervisor at Novia University of Applied Sciences.

The blog post has been reviewed by Novia's editorial board and accepted for publication on 16.12.2024.