Ecuador MSME ecommerce | Alliance for eTrade

How to Accelerate MSME Ecommerce in Ecuador?

Erica Vambell and Kati Suominen, Nextrade Group

Ecommerce – the sale and purchase of goods and services online – is booming in Ecuador and its key export markets, opening new opportunities for Ecuadorian micro, small, and medium-sized enterprises (MSMEs) to grow their sales, export, diversify their markets, and create new jobs.

However, to date, little is known about how Ecuadorian MSMEs engage in ecommerce, what barriers they face, and how public and private sector leaders can support MSMEs’ ecommerce, especially for export. The purpose of this new report is to help bridge these knowledge gaps. The study leverages the eTrade Alliance’s survey data on over 400 Ecuadorian firms, the Alliance’s policy analytics, and the Alliance’s Digital Trade Dialogue with Ecuador to explore how Ecuadorian MSMEs in different sectors and regions are leveraging ecommerce to export and grow, what challenges they face, and how Ecuador can build on its ongoing work to adopt policy and technology solutions for enabling MSME ecommerce growth.

The survey data yield a number of conclusions about the state, challenges, and opportunities for Ecuadorian firms in ecommerce:

Survey data shows that firms’ engagement in ecommerce varies by their size and geolocation. Micro and small firms are likely to be social sellers that market their goods and services primarily on social media platforms and interact with customers using WhatsApp and other messaging tools. Larger firms are more likely to sell via their own online stores and on marketplaces. Firms in big cities are more likely to sell on marketplaces, while small firms in rural areas are more likely to sell exclusively on social media, and are less likely to export and import.

Firms of all sizes that have an online presence are much more likely to export compared to offline firms, and young firms tend to be “born digital." Online seller-exporters are also likelier to export to many markets and to extra-regional markets and sell many different products than social sellers. Over a third of the firms formed in the past two years have their own online stores and use marketplaces.

Marketplace sellers and sellers with their own online store report strong gains from ecommerce and grow faster than firms that use analogue or social channels. Marketplace sellers and sellers with their own online stores report particularly strong gains from ecommerce, in terms of new domestic and international customers, revenues and profitability, reduction in operating costs, and export opportunities.

Comparable women-led firms and men-led firms perform similarly in ecommerce. Women-led and men-led firms in the same geographies and of the same size use online channels in a similar manner and export and sell online at similar intensities.

Ecuadorian online sellers of all sizes report some of the same main challenges to doing ecommerce. These include maintaining a strong online presence, addressing cybersecurity challenges, doing digital marketing, dealing with taxes, and accessing capital for digital transformation. Customs procedures, delays, and delivery costs are also a challenge for firms that are exporting and importing.

COVID-19 has cemented Ecuadorian firms’ interest in building online capabilities. Over one-half of all firms look to invest in better Internet connections, digital marketing capabilities, and finding better suppliers. Over 40 percent seek to invest in ecommerce capabilities in 2021-22. Top desired capabilities include a need for knowledge on how to do ecommerce, enhanced digital marketing capabilities especially internationally, better presence on marketplaces, and higher quality products and services.

Path forward: policy and technology solutions to promote Ecuadorian MSMEs’ ecommerce

Our comparative policy mapping of the adoption of 100 policies in 10 major policy domains across 52 emerging markets and developing countries places Ecuador in the top half of countries with policies conducive to MSME ecommerce, along with other Latin American economies such as Argentina, Brazil, and Peru. Ecuador’s place in the mapping is evidence of the work done in the past several years to develop policies, programs and laws that enable ecommerce, such as National Ecommerce Strategy in 2021, which aims to build the capacity of the various players in the ecommerce ecosystem, and Digital Ecuador plan of 2019, which aims to transform and direct the country towards a digital economy.

As Ecuador continues working to promote MSME ecommerce, it can grow both its extensive and intensive margins – increase the number of MSMEs engaged in ecommerce, especially via regional and global marketplaces that connect MSMEs to hundreds of millions of buyers around the world; and grow existing online seller MSMEs’ ecommerce sales and exports. To attain these objectives, Ecuador can consider next generation policies and good practices adopted by other countries. For example:

Provide scalable online capacity-building and financing for social sellers to build online stores and onboard to marketplaces, which could enable them to scale their customer bases and reach buyers beyond borders.

Enable B2B sellers to adopt direct-to-consumer business models, using ecommerce to reach consumers directly instead of selling via distributors, and grow their margins.

Support MSMEs’ digital transformation and use of new technologies through partnerships with local and global technology companies that can help MSMEs learn about, test, and acquire technologies and new solutions, and through co-financing firms’ digital transformation initiatives.

Utilize technology such as blockchain and artificial intelligence to accelerate border clearance and improve traceability for ecommerce shipments.

Fuel interoperability among various players in the ecommerce logistics supply chains, including document exchanges and payment transactions.

Leverage fintechs and fintech loan guarantees to provide more opportunities for MSMEs to access working capital.

Promote and expand access to digital payments.

Bridge economic and gender disparities through digitization by increasing digital capabilities and skills and tools in rural areas and for women-led firms.

To build trust in the online economy, Ecuador can also foster cybersecurity, adopt a corporate digital identity, promote orderly data transfer, simplify and incentivize business formalization for MSMEs, and advance digital trade integration through trade agreements.

An equally critical question as to “what” to do to enable MSMEs in ecommerce is “how” to do it. Ecuador can support its enabling environment for ecommerce through public-private partnerships that support MSMEs’ digital transformation such as with marketplaces and digital marketing, fintech, logistics, and payment providers, and through engagement with state and local governments in ecommerce development, helping to build capacity for digital transformation and entrepreneurship, bridging regional disparities and supporting women-led firms.

The authors' views do not necessarily reflect the views of the United States Agency for International Development or the United States Government or any of the eTrade Alliance members.