Daraz Bangladesh and Bangladesh E-Commerce Industry

The Company

Alibaba owned ecommerce giant Daraz Bangladesh has turned five this month. Daraz was
founded in 2012 by Rocket Internet. The company started its operation in Bangladesh as Daraz
Bangladesh in 2014. Currently, Daraz has operations in Pakistan, Myanmar, Bangladesh, Sri
Lanka, and Nepal. Last year, Chinese tech giant Alibaba bought Daraz in an undisclosed deal.

Since the acquisition, Daraz has expanded its growth push in Bangladesh. The company says it
currently has hubs in 33 districts in the country. It has built the largest sorting center of the
country in Dhaka and collection points across the country. The company claims to have over 5
million products and 15,000 sellers on its platform.

Over the past five years, Daraz Bangladesh went through many changes. When it was first
started operations in Bangladesh in 2014, the company’s primary focus was on big brand and
authentic products. First few years of Daraz was relatively low key and slow and steady in
nature.
In 2017, Daraz merged with another Rocket ecommerce entity Kaymu and expanded its platform
to non-brand small sellers. Daraz Bangladesh has since expanded and evolved both in terms of
coverage of products and types of services.

Over the past two years, the company has pushed growth through a combination of the expansion
of its coverage and a torrent of relentless offers, vouchers, and discounts. As a result, it has been
able to achieve growth numbers that are greater than almost all other ecommerce players in the
market. While the continuous push of offers and discounts helped Daraz to grow its numbers, the
company suffers from a lack of reputation in the market. Complaints against product and service
quality are rampant.

To address these challenges, Daraz has introduced DarazMall, a category on its marketplace for
which the company provides product quality, service guarantee, faster delivery, and better return

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policy. It has also been investing in improving its overall service quality through various
measures. The company introduced its logistics operation Daraz Express in 2018 in order to
bring greater control over its logistics and customer experience. Daraz plans to move to 100% in-
house logistics and has already started working towards that goal.

Daraz sees an opportunity in Bangladesh. Rightly so. Ecommerce is still in its early days in this
South Asian country. There is not much competition in the space. It is not that there are not
enough ecommerce companies. There is a long list of ecommerce players in Dhaka but a lack of
proper venture capital ecosystem makes it harder for local players to raise investment and
compete against deep-pocket competitors such as Daraz which is now owned by Alibaba.
Alibaba has also bought a minority stake at local MFS giant bKash in 2018. Many digital
entrepreneurs complain about a lack of clear policy guidelines in the space and fear a
competitive disadvantage in the long run. They are pushing technology policies favorable to
local initiatives, at least for time being when local players gain enough muscle. There is the other
camp of entrepreneurs who think that when international players come into the country they
bring in knowledge and expertise. They are in favor of progressive policies and in favor of
international players coming into Dhaka. At the same time, they propose policies that would help
create a level playing field for all players and limit the undue advantage of international players.

However, it does not seem like customers or the regulators care about these issues, not at least in
the short-run. Over the past years, Daraz has managed to build a user base and it continues to
grow. Today, the company is the most dominant player in Dahak’s ecommerce space. That being
said, competition is likely to intensify in the coming days as companies like Ajkerdeal, Chaldal,
Deligram, Evaly raise more money and invest more for market dominance. Since the ecommerce
adoption remains relatively low across the country, the room for multiple players remains open.
Any regulatory challenge is unlikely for Daraz, at least in the short-run. The real challenge will
remain more or less the same: ensuring superior customer experience as well as rapidly growing
the ecommerce adoption across the country.

The deep pocket plus years of insight into building ecommerce across markets of Alibaba puts
Daraz in a different league in Dhaka’s ecommerce space. However, the advantage comes with its

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limitations as well. The more progressive policy push in the digital space that has happened in
markets like India to ensure a level playing field for everyone and limit the undue advantage of
multinational players could prove a challenge for Daraz in the long-run. The competition in the
ecommerce space is also slowly growing. Unique consumer behavior of Bangladeshi shoppers
remain a puzzle that ecommerce players are yet to solve. However, for now, Daraz is in a unique
position and is likely to continue to dominate Dhaka’s ecommerce space.

The Industry

E-commerce involves buying and selling of products and services by businesses and consumers
through an electronic medium. Broadly, e-commerce is classified into four categories: business
to business or B2B (Cisco), business to consumer or B2C (Amazon), consumer to consumer or
C2C (eBay) and Business-to-Government (B2G). Business-to-business e-commerce involves
agreements between the businesses and businesses. Distribution management, inventory
management, channel management, supplier management and payment management are some of
the areas in which B2B applications are widely used. In Bangladesh, bgmea.com.bd,
bizbangladesh.com are examples of B2B platforms. B2C commerce involves e-commerce
between businesses and the consumers. This form of e-commerce involves the purchase of books
or any form of consumer goods. It also includes purchase of software, e-books, games, songs as
well as e-banking. ajkerdeal.com, bdbazar.com, daraz.com, bajna.com are some examples of
B2C. Advantages of B2C platforms to companies are reduced operating costs, bigger outreach,
globalization, customer convenience and knowledge management. Consumer-to-consumer e-
commerce involves transactions between individual consumers. For instance, online auction,
peer-to-peer system for money or file exchange can be classified as forms of C2C e-commerce.
In Bangladesh bikroy.com, clickbd.com are examples of C2C platforms. B2G is usually used for
licensing process, public purchasing and other government operations. B2G e-commerce is
rather insignificant when compared to the other three forms. However, B2G can be one of the
driving forces for running the public sector known as e-governance.

A wide range of technologies is used in e-commerce that includes electronic data interchange
(EDI), electronic mail (e-mail), electronic funds transfer (EFT). In case of Electronic Data
Interchange (EDI) there needs to be an agreement between trading partners. EDI is a standard

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method for exchanging business data. E-mail and fax are also forms of EDI. In Bangladesh
small, medium and big enterprises have taken up e-business platforms. When compared to
developed countries, developing countries have a higher potential for improving the business
structure and raise productivity by using e-commerce as a medium. M-Commerce (Mobile
Commerce) and F-Commerce (Facebook Commerce) are very popular in today's e-business
world. Over the years, the number of online transactions has been on the rise. According to
BTRC officials the number of internet subscribers in Bangladesh had crossed 80 million in 2017.
At present there are approximately 2,000 e-commerce sites and 50,000 Facebook-based outlets
delivering almost 30,000 products a day. Currently, 80 per cent of the online sales are taking
place in Dhaka, Chattogram and Gazipur.

Online transactions in Bangladesh have been increasing over the years. Improvements in
standard of living coupled with advancement in livelihood, shopping behavior has experienced a
significant shift. In Bangladesh the e-commerce industry set sail in the late 90s but was unable to
expand immediately. Gradually, over the years, banking, logistics communications and payment
methods have improved creating opportunities for the e-business sector to develop. A number of
sectors including the banking sector are now using the internet payment system. As consumers
can avail credit, debit card services and digital wallet, the cash-on-delivery system is now more
accessible.

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The local e-commerce industry in Bangladesh began evolving as a proper ecosystem from the
year 2012. This was facilitated by expanded internet connections along with the gradual
legalization and approval of online payment by the Bangladesh Bank. Initially, several banks did
not support the online payment gateway system.

Over the last few years, internet connections have improved and the number of people who have
access to the web has increased thus making way for e-commerce business to flourish. In 2016,
$50 million was invested in the e-commerce sector in Bangladesh. Out of which $10 million was
from Foreign Direct Investment. In 2017, the B2C e-commerce business market measure equaled
USD 110-115 million (around BDT 9.0 billion) compared to BDT 1335.71 billion made by the
retail market. The outreach of the e-commerce business market exceeded Tk 17.0 billion in 2017
from Tk 4.0 billion in 2016, as revealed from the findings by e-Commerce Association of
Bangladesh (e-CAB). The market measure for e-commerce is expected to equal Tk 70 billion by
2021.

In Bangladesh retail e-commerce is growing at 72 per cent a month. At present, more than
35,000 individuals and above 25,000 small and medium enterprises (SMEs) are part of this
sector. Till 2018, the number of e-commerce business sites and e-commerce pages equaled 2,500
and 150,000 respectively. It was estimated that the number of deliveries per day added up to
about 15,000 to 20,000 at the retail level.

Before 2013, the government had placed restrictions on the purchase and sale of goods and
online services through international credit cards (export.gov, 2017). In the first three quarters of
2016, the e-commerce industry achieved 67 per cent growth whereas, the country's e-commerce
transaction reached BDT 3.59 (Xinhua, 2016).

According to Bangladesh telecommunication regulatory commission (BTRC) in 2016, internet

penetration rate was recorded at 13.2 per cent, and the number of internet users was 66.6 million.
In 2017, the number of internet users reached 80.6 million along with an increase in the
penetration rate to 48.4 per cent. In 2018 the number of internet users further increased to 91.3
million and the penetration rate was 52.77 per cent. Currently the number of internet subscribers

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has reached 96.199 Million (June, 2019). According to market analysts Bangladesh's e-
commerce business market will reach USD 20 billion by 2020. According to June 2019 statistics
of BRTC, 90.4 million users subscribe to the mobile internet, 0.06 million subscribe to WiMAX,
and 5.73 million to ISP + PSTN connections.

Although the e-commerce sector has grown over the years, there remain a number of obstacles.
Some of the key challenges are net neutrality, high-speed net, parcel delivery logistics and
assurance of quality products. Foreign players also pose competition and risk to local start-ups.
The sector suffers from lack of logistics and sound transportation system that restrict e-
commerce trading to expand. Transportation system affects the delivery of products. Challenges
also persist in the logistics sector. A large chunk of almost 65 per cent of the operations of the e-
commerce companies takes place in the capital and Chattogram. The e-commerce companies fail
to reach all parts of the country, including of course the rural areas, due to poor infrastructure
and inability to access remote areas for lack of adequate transport facilities.

In Bangladesh, in majority of the cases payment is made upon delivery. 80 per cent of the
payments are done through cash-on-delivery method, whereas only 15-20 per cent are done
through mobile payment gateways. Cash-on-delivery leads to the risk of tax evasion and also
results in lack of transparency in transactions. This is largely due to a lack of trust and the
absence of a reliable and safe payment system. In addition, the number of credit and debit card
users in the country is low, as a result many customers are unable to make online payments. The
e-wallet system is expected to overcome this problem to some extent. bKash has partnered with
the e-commerce ventures in the country and in addition, if banks also follow suit, it will be
beneficial.

The e-commerce industry in Bangladesh is an emerging industry. This sector is steadily growing
and attaining competitiveness. The local e-commerce companies which have been in the market
since inception of the e-commerce industry should be given protection. Simultaneously, foreign
investments are required in this sector. The payment procedures offered by e-commerce sites
need to be made more secure. Low-cost, high-speed internet needs to be ensured in the rural
areas. The e-commerce industry needs to put more emphasis on delivery logistics and customer

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service. Immediate action to ensuring consumers' rights needs to be taken since a regulatory
authority is not present to prevent consumers from being cheated and given low quality or date-
expired products.

Despite the obstacles, the sector has a lot of potential and in the next few years, contribution of e-
commerce to the country's GDP is likely to be significant. The government should be more
forthcoming in supporting this sector as part of its Digital Bangladesh initiative.

E-commerce business is booming in Bangladesh recently. With better access, inclusion and a
consistently developing web population, the prospect for e-Commerce is splendidly growing for
the last couple of years.

Presently utilization of technology in every single part has been exceptionally common. In this
time of globalization, we can barely discover any part working without utilizing technology. A
new horizon has been opened up for business, to be specific electronic commerce (E-commerce)
by none other than one and only internet. E-commerce business involves the utilization of the
Internet in the marketing, identification, payment, and delivery of product and services all are
finished by e-commerce utilizing the web. In Bangladesh a population of 165 million with 33%
mobile internet user, the E-commerce market is by all means considerably potential in up and
coming days. Close by, e-commerce is being largely aligned to the Mobile Financial Service
(MFS) as it’s mode of payment, which complements each other and demonstrates incredible
guarantee to develop.

Question
1. Which stage of life cycle is Bangladesh E-Commerce industry in? Justify your answer.
2. Which Business level strategy is Daraz using? How is it evident?
3. Which strategy do you recommend for Daraz in line with the industry life cycle? Why?
4. Which type of corporate level strategy Daraz is using / thinking of using?

[The case information is used for academic purpose only]

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