The State of E-Commerce in the UAE and Challenges Facing E-Commerce Start-Ups - Literature review Example

Thе Stаtе of Е-Соmmеrсе in thе UАЕ and thе Сhаllеngеs Fасing Е-Соmmеrсе Start-ups Name Subject Professor Date Thе Stаtе of Е-Соmmеrсе in thе UАЕ and thе Сhаllеngеs Fасing Е-Соmmеrсе Start-ups Introduction Today, technology advancement and adoption in different industries is inevitable. The business sector is not left behind. Business organizations ought to embrace technology as a way of enhancing their performance, productivity as well as profitability. E-commerce entails buying or selling online. Some of the technologies that are utilized in electronic commerce include online transaction processing, mobile commerce, internet marketing, electronic funds transfer, supply chain management, automated data collection systems, inventory management systems and World Wide Web electronic data interchange among others. E-commerce has its fair share of benefits and drawbacks and businesses should be aware of this. The advantages and disadvantages are felt differently in different nations and levels of organizations. Despite the fact that the UAE is well placed when it comes to technology and connectivity, e-commerce in the UAE is not well established since businesses especially start-ups and SMEs faced some challenges in this sector. The challenges could be best understood by examining them from the consumer as well as from the start-ups or small scale business organizations. Nonetheless, there is hope that e-commerce will do better in the near future even for the start-ups, small and medium sized businesses. This piece of work will give a critical and in depth discussion of the state of E-commerce in UAE as well as the challenges that facing E-commerce start-ups in the region. Some recommendations to deal with the identified challenges will also be highlighted. The problem for adopting e-commerce in the UAE and the Gulf Region According to Grandón, Nasco and Mykytyn (2011, p.225), e-commerce businesses apply various strategies on a day to day basis as they undertake their operations. Some of them include business-to-business buying and selling, online financial exchanges for trading or currency exchanges purposes, online marketing and online shopping web sites meant for retail sales direct to customers. There could also be business-to business electronic data interchange, participating in online marketplaces and gathering and making use of demographic data through social media and web contacts and engaging in pretail for launching new goods and services among others. Each of these strategies is in a position to fulfil various business needs and contribute to the overall success of a business organization. The problem associated with adoption of e-commerce in the UAE and the Gulf region is a good starting point towards the understanding of the state of e-commerce in the areas. Abdullah and Jaleel (2014, p.18) assert that despite the fact that UAE is a highly connected region, not all is smooth when it comes to the adoption of technologies in different sectors and e-commerce in particular. It could be expected that since UAE has well-established infrastructure and environment, e-commerce start-ups and SMEs do not have challenges. However, they still face considerable barriers and challenges to operate on an online basis. Some of the environmental challenges involved include logistics and internet infrastructure. Barriers could be in terms of behavioural challenges such as privacy, security and trust. There could also be some legal issues such as a nation’s laws and regulations. According to Indivirtual (2017), asserts that technology and it effects are highly felt in different sectors and industries. Individuals, groups and organizations have embraced various forms of technology for various purposes. Evolution of technology is even felt more when it comes to the e-commerce retailing sector. For a long period of time, the UAE and the Gulf region has been lagging behind when it comes to the adoption and implementation of e-commerce especially among the start-ups and SMEs. Nonetheless, the potential has always been seen and it is slowly being realized. In the Middle East, online shopping is swiftly evolving and has grown by about 1500 percent over the last ten years. The dynamic and young population that characterize the region and a high global per capita in terms of internet penetration levels had greatly enhanced online spending potential. In the recent past, e-commerce in UAE has also been leading in online sales. E-commerce is growing at a rate of over 20 percent each year. More than 80 percent of the population in UAE are internet users, with about 15 percent of this do online shopping. Approximately 10 percent use their mobile devices to do online shopping (Indivirtual, 2017). Although this is not exiting enough, it is clear that there is good progress compared to past years where only the potential was there but was hardly exploited. The future of e-commerce in the UAE and the entire Middle East is bright since there is increased eagerness to exploit the power of online commerce by the population. Bitar (2015) argues that e-commerce across GCC is expected to grow by 40 percent in 2012, with the UAE leading the growth with 53 percent of the market shares. This is drawn from the fact that the potential of e-commerce in UAE and the Gulf region is extremely high and thus e-commerce sales will rise to more than $40 billion, a figure that will be one of the highest growths across the industry globally. This is interesting and will be beneficial not only to the industry but also the economy of the entire region. The challenges/difficulties faced by E-Commerce SMEs (Small-Medium Enterprises) or start-ups in the UAE There are various challenges faced by E-Commerce SMEs or start-ups in the UAE. The challenges could either be consumer-oriented or originating from the businesses themselves. Some of the common challenges that e-commerce SMEs and start-ups in UAE and the Gulf region experience include the following. Payment options are a major challenge that influences online buying and selling in these areas. According to Abdeldayem (2010, p.242), internet users in the Middle East are not comfortable with making online payments as they panic from fraud and fear that they may end up losing the deal. Lack of trust in the available payment methods makes the people shun from participating in e-commerce. Another barrier to e-commerce is the availability of payment options that are deemed unsuitable for one reason or the other. A good example is PayPal, which does not support making payments in local currencies. Despite the fact that the payment platform collaborates with almost all e-commerce websites in the UAE and the gulf region, it does not account for many users as it would be expected as a result of fear and lack of trust on the payment methods. Reliance on cash on delivery is a major challenge facing e-commerce in the Arab region. Use of cash is preferred by many and it is a practice that is not expected to go away any time soon. This is more so since the community deems paying in cash as part of its culture. When examined deeply, cash on delivery kind of payment is tricky and costly for both the consumer and the seller. It is however widely used because of lack of trust of the consumer when it comes to using their credit cards on the internet (Singh and Sharma, 2010, p. 6). Addressing systems is also a challenge faced by consumers as they engage in online shopping. Dehkordi, Shahnazari and Noroozi, 2011, p.46) assert that there are various instances of misleading and poorly structured addresses. This therefore requires that the consumers have to verify their addresses before delivery is done. To a great extent, this challenge works as a discouragement for the internet users with regard to shopping online as a result of the undependable delivery that is as a result of confusion in the addressing systems. There is also the problem of not having the freedom to countercheck a product before making an informed decision with regard to purchasing it. This brings in the fear of not being in a position to either return or exchange a product in case they change their minds or the product does not meet the expected needs or is faulty. They therefore prefer physical shopping whereby one is in a position to check on the product and purchase what they exactly need and not an illusion. User interface is also a challenge that is faced by e-commerce start-ups and SMEs in the UAE and the gulf region. In a direct way, the quality of the user interface or how they interact with the systems greatly influence the customer satisfaction. It is also worth noting that the product or service information quality translates to the perception of the customer on the quality of information regarding the good or service that is offered by the website. Effective user interface that allows for proper interaction and feedback promotes e-commerce as the customers feel that they are part of what is going on in the business. This enhances loyalty in a great way (Kassim and Asiah Abdullah, 2010, 362). Logistical and legal problems are also a concern for the start-ups and SMEs in the UAE and the gulf region. There are high costs associated with various logistical elements such as taxes, customs and shipping and importation of goods. These make e-commerce quite tough and costly. Governmental legislations could be a problem for the start-ups and small and medium sized business organizations. A good example is whereby in UAE, a license from the department of economic development or other pertinent free zone authority is required to form a web-based company. In addition, apart from having an online presence, it is mandatory to set up a physical office since all UAE companies ought to have a physical office space in the country to be considered lawful (Ghandour, 2015, p.16). This is a requirement that adds considerable overhead costs for a person or group that wants to establish an online business. Privacy and security are other issues that are much of a concern for the consumers when it comes to online shopping. This is more so with respect to perceptions associated with the dependability of the payment methods used as well as the techniques used for data storage and transmission. Security issues as perceived by the e-commerce consumers depict a high risk and major obstacle to not only start-ups of e-commerce but also their development (Amer, Abdulrahim, Juma, and Rajan, and Ahamed, 2013, p.158). To a large extent, trust in the internet and the processes carried out therein is influenced by the privacy and security perceived by the consumers with respect to the manner in which their private data is handled. Recommendations on how to overcome these challenges It is apparent that the adoption of E-commerce and the technologies contained therein is an aspect that is surrounded by some difficulties especially when it comes to SMEs or start-ups in the UAE. Nonetheless, all is not lost and there are some strategies or measures that could be taken as a way of making the situation better. Some of the recommendations on how to overcome these challenges include the following; According to Grandón, Nasco and Mykytyn (2011, p.296), the E-commerce industry in the UAE has a bright future and will be a promising business particularly for small and medium scale business start-ups. For instance, with enhanced education and awareness on the concept of e-commerce as well as improvement of services to build on trust and loyalty, there is no doubt that there will be a change in the public and consumer attitudes. In turn, this will make it easier to do online business. For example, it will be easy to change from cash on delivery to the use of various credit card options, an aspect that will create more room for the businesses to invest more into technology, customer service and user experience among other essential business elements. There is need to educate the public and enhance awareness of e-commerce and various aspects associated with it. As usual, it is expected that resistance to change is experienced as people try to move from the traditional or physical mode of carrying out business to online business. The fear and lack of trust especially on payment options should be handled and the public assured that everything is safe. This can however happen when cases of fraud that are related to payment options reduce such that the public is assured of safety. Education and awareness acts as a way of empowering people with information (Kassim and Asiah Abdullah, 2010, p.360). It may work by changing their attitudes towards various aspects associated with e-commerce. Apart from lack of trust on the payment options available for e-commerce transactions, it is also apparent that the consumers have privacy and security concerns and fears when it comes to general online shopping and the platforms involved. A good measure to curb this challenge is making it a priority for websites to enhance customer trust through the reduction of environmental risks and reinforcing of the security measures. There is no doubt that privacy is a fundamental factor when it comes to the acquisition of potential online customers as well as retaining the existing ones. For this reasons, measures that are aimed at enhancing security and allowing for a high level of privacy with regard to personal customer data and information will go a long way allowing people to have trust and confidence towards online shopping and e-commerce in general. This is more so since trust promotes online purchasing and influence customer attitudes towards buying from e-vendors. In addition, loyalty contributes to the on-going process of progressing and maintaining an esteemed relationship that come as a result of trust (Bitar, 2015). Loyal customers in e-commerce are quite significant and hence the need for e-retailers to invest heavily on the process of building and maintaining customer loyalty as a way of enhancing their productivity and overall success. User interface should also be enhanced as a way of increasing customer satisfaction. Effective websites that allow for interaction and feedback could greatly allow for satisfaction and hence promote e-commerce. This is more so since better user interface enhances customer loyalty, an aspect that is largely desired by any business organization. Some of the interface design factors that ought to be looked into include credibility of information, ease of navigation and visual designs among others. A look at the logistic and legal frameworks that surround start-ups and SMEs and making relevant changes would also make the situation better for start-ups and SMEs in the UAE and the Gulf region. For instance, partnership between shipping and payment providing companies will provide a one-stop shop for start-ups and SMEs that desire to have a plug-and-play e-commerce platform as a way of minimizing inconveniences and costs. The implementation of the above and other recommendations will go a long way in enhancing the E-commerce industry in the UAE and the Gulf region. Conclusion From the above discussion, it is clear that the concept of e-commerce is relatively wide. It has been embraced widely as it is deemed to be associated with bringing about enhanced productivity and profitability of a business organization. E-commerce has both benefits and drawbacks. It is however worth noting that the process of adoption and implementation of E-commerce practices is not easy but one that is associated with challenges as discussed above. The benefits tend to outweigh the drawbacks and it is therefore important for businesses to embrace and implement the recommendations highlighted above. The benefits ought to be reinforced while at the same time handling the drawbacks in an effective manner. References Abdallah, S. and Jaleel, B., 2014. Online Shopping in the United Arab Emirates: User Web Experience. International Journal of Web Portals (IJWP), 6(1), pp.1-20. Abdeldayem, M.M., 2010. A study of customer satisfaction with online shopping: evidence from the UAE. International Journal of Advanced Media and Communication, 4(3), pp.235-257. 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