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E-Commerce Industry in Pakistan

Article · June 2016

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Farhan Zafar
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Sector in Focus
E-Commerce Industry in Pakistan
Farhan Zafar*
E-commerce has emerged as a revolutionary contributor
to the Information Technology Sector. The term E-
commerce conjures up in mind a litany of axiomatic
words and colloquial terminologies one can recall from
the basic jargon etched in our brains. Keeping the general
lexicon aside, the term E-Commerce has substantially
expanded world over and has been expounded to include
a host of ventures and businesses like online shopping
websites, Technological Startups, IT companies, etc.
Pakistan is the sixth most populous country in the world
(approximately 200 million people) and the nascent E-
commerce industry in Pakistan has exponential room for
growth. There have been a bevy of entrants in the industry
as more and more people are making robust forays in the
E-commerce industry.
now overtly recognize the gargantuan potential it holds.
The economic and financial indicators augur a
tremendous surge in investment and business potential in
the said sector in Pakistan. There is an array of factors
that vividly illustrate how this untapped industry is bound
to propel and further galvanize support for entrepreneurs
and small and medium enterprises to usher forth in the
viable economic market arena.
There is a direct link between the internet users and E-
commerce industry. As the internet subscribers increase
in Pakistan, the chance of more E-commerce activity
increases. Figure 1 shows the number of people utilizing
internet services in Pakistan and that only 14% of the
population is linked to the internet.
Actual
Figure 1: Internet Users in Pakistan Future
35
Internet Users (per 100 people)

30
Not only have the online shopping businesses flourished
but a plethora of E-commerce companies pertaining to 25

real estate, the culinary world, transportation and 20

commuting, sale and purchase of vehicles, hotel 15

booking, etc. have sprung up given the auspicious 10
economic environment. Infect, the number of startups 5
and businesses in the sector are predicted to increase
0
significantly in the near future. E-commerce in the west
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10

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and globally is ubiquitous as it is an ever expanding Year

industry worth billions. Innovation and advancement in Source: World Bank (Actual) and Author’s Calculation (Future)
technology has enabled the world to enter the epoch of Around 28 million people were using the internet till 2014,
smar t homes and cities which currently is an however, growth rate of internet users has been
unfathomable phenomenon for Pakistan but it is exponential. The number of users utilizing internet
happening nonetheless. services increased by 26% from 2013 to 2014. Based on
the average of the last four years (according to Figure 1) it
The interminable utility of E-commerce has finally caught can be predicted that by the year 2020 the internet users
up with the Pakistani entrepreneurs and investors who will increase to 32% of the whole population.
* Mr. Farhan Zafar is currently working as Assistant Manager in the Policy and Planning Division, SMEDA

SME Observer
8
The figures mentioned above show that given the
population of Pakistan only a miniscule portion has direct
access to the internet, from which we can extrapolate and
further narrow down the number of people who are
amenable to using online applications, who visit online
websites, those people who apply through online job
searching websites, etc. Perhaps a small proportion to
begin with, however, this is an extremely encouraging
precursor since there is massive room for growth as the
market is virtually untapped. Widespread access of the
internet will mean a greater propensity of the masses to
use it. Moreover, Internet Penetration is a vital factor
which can augment the number of potential users of
online businesses' and can ultimately increase customer
traffic on such websites.
Mobile Commerce: A Market Driver
In the future a significant chunk of the E-commerce activity
in Pakistan will be supplemented through mobile phone
usage. The reason is that there is insufficient fixed line
infrastructure in Pakistan and wireless technology is more
affordable and accessible. Availability of inexpensive smart
phones in the market has given a chance to the common
man to gain access to the internet. Smartphones have the
ability to provide an option of interacting with people all over
the world and give access to unlimited information. This
opens a window of opportunity for the retail industry, and
consequently, countless ecommerce companies have
sprung up in hope of making a mark in this sector.
With the emergence of ultra-fast Mobile Internet
subscriptions, internet access in the urban metropolitan
centers has become omnipresent, while in far flung places
internet access has been introduced only recently and is
gradually gaining traction.
Figure 2: Facebook Users in Pakistan
70%
22%
8%
Desktop Mobile and Mobile
Users Desktop Users
Users
1
GSMA – GroupeSpeciale Mobile Association, Building digital societies in Asia: Making COMMERCE smarter (2015). GSMA represents the interests of
mobile operators worldwide, uniting nearly 800 operators with more than 250 companies globally.
2
Gfk–German Scientific Institute for Market Research. Gfk is a source of relevant market and consumer information.
January - June 2016
The awarding of 3G/4G licenses to telecom companies in
mid-2014 has also fueled growth of the internet. According
to a report by GSMA1, there has been exponential growth of
3G and 4G connections since their introduction in Pakistan.
The growth has been 33% in the third quarter of 2015, due to
this great response by the public, 3G coverage is expected
to reach 90% of Pakistan by 2020. It was also noted in the
study that there are approximately 60 million people who
have access to mobile phones in Pakistan.
According to the Social Networking Website, Facebook,
there are 20 to 25 million active Facebook users in Pakistan.
Figure 2 shows that 70% of users access Facebook through
a mobile device.
A 2015 study by the German Scientific Institute of Market
Research GfK2 found that around 40% of consumers
surveyed in 23 countries use their mobile phones to
compare prices of products when visiting a store. A recent
survey by Google revealed that 76% of the visitors used a
mobile device. Similarly, 63% of the visitors accessed
Daraz.pk (Pakistani E-commerce website) via mobile, this
number was at 30% just about a year ago and has increased
significantly. Shayaan Tahir (Founder and CEO) of
Homeshopping.pk told The Express Tribune recently that
50% of their traffic is now coming from mobile phones. All
these reasons indicate that mobile commerce will be the
market driver in a dynamic market like Pakistan.
Social Media: A Tremendous Potential for E-
commerce
Social media and its variants intensify internet usage as it
cajoles people to explore areas and venues which as a
customer one is not acquainted with or is introduced to for
the first time.
The rapid expansion of E-commerce hinges on certain
external elements. In today's globalized world of social
media information and its access is intertwined and woven
with all subsequent social media outlets. Facebook, a
popular Social Networking Website in turn plays a crucial
role not only in connecting the multitudes but is also a direct
and indirect source of marketing. Most organizations,
companies and businesses have their respective pages on
Facebook and the number of likes a company garners
discerns the popularity and following of the particular brand,
business or organization. A lot of online businesses and
domestic businesses market their ventures via their
Facebook pages and the indirect paid marketing platform
which increases visibility of the particular brand. What this
accomplishes is that scores of users can also order directly
from Facebook and can furthermore interact with particular
online businesses with personal feedback in the form of
written testimonials, pictures, personal experiences with the
9
product(s), emoticons, Facebook shares, etc. Since the Figure 3: Strategic Framework

number of Facebook users in Pakistan is exceedingly low Phases for Developing a National Eight Policy Areas for
there is tremendous potential and room for the industry to Strategy E-commerce Growth

grow as the masses indeed show the penchant for adopting E Procurement

and accepting the online system. Assessment

(or Reassessment)
ICT
Logistics
and
Trade
Infrastructure Facilitation

Review for Policy

Strategy
Spillover Benefits linked to E-commerce Results based
Outcome
Formulation
Skills
Development
areas for
e-commerce
Legal
Framework

There are many other industries which are bound to flourish Raising
E Payments
Awareness
as a result of E-commerce growth in Pakistan. In a Study by Monitoring Implementation E-commerece

MGI3 on China, it was illustrated that E-commerce boom has

Platforms

stimulated growth in the supporting industries such as

Source: UNCTAD Report: Unlocking the potential of E-commerce for Developing
warehousing, express delivery, online payment systems, Countries (2015)
and online marketing and advertising.

The government should create an atmosphere which

Payment Method
incentivizes the E-commerce industry and includes all
A key component of E-commerce is the payment method
stakeholders so the industry can contribute to the
used by customers for online shopping. Approximately 95%
development of the economy. A report by UNCTAD4 has
of the customers like to pay Cash on Delivery (CoD), the
identified that the internet retail sales as a share of store-
logical reason behind this payment method is that people
based retail sales are less than 0.2% as shown in Figure 4.
are not willing to pay before the product arrives at their door
An enabling environment is necessary for new companies
step. Reliability is an extremely important factor as most of
willing to invest in the E-commerce industry. The UNCTAD
the E-commerce websites operating in Pakistan are not
report has ranked 130 countries using a B2C E-commerce
registered companies. Other payment methods used in
index value which has been calculated using the internet
Pakistan for online shopping are online bank transfer, credit
users as a percentage of population, credit card holders
card, Easy Paisa, Timepey, Mobicash, etc. Branchless
percentage, share of population having mail delivered at
banking is enabling the masses to venture into E-
home and secure servers (per 1 million people). Pakistan
commerce, though the ways to make it more convenient for
ranks 86 out of 130 countries on this index which
customers are surely evolving and expanding but this surely
summarizes Pakistan's underlying capability of carrying out
will lure in an influx of consumers who will slowly become
B2C E-commerce. The index is strongly positively
ardent online shoppers and users of technological
correlated to the variation in the share of individuals who
applications and the advantages the E-commerce industry
shop online.
has to offer.
The government has incorporated E-commerce (with
Paying cash on delivery is not a problem in itself but it
introduction of efficient payment methods) in its vision 2025
perpetuates a shadow economy and hampers the process
which shows that government is completely aware of the
of financial inclusion. The solution is branchless banking
potential of E-commerce in Pakistan.
which has already started in Pakistan and a high growth rate
is expected in the future. However, it is important to note that
So far the E-commerce industry has been doing rather well
Cash on Delivery has enabled people to repose trust in the
in Pakistan and holds great opportunity for startups and
delivery system which acknowledges a fool proof logistic
investors. A report by PBIT 5 highlights that the retail sales in
arrangement which people trust. Online modes of payment
2015 were $133 billion and according to UNCTAD,
have given massive impetus to the masses and have
Pakistan's E-commerce market is currently a mere $30
encouraged them to resort to online buying because now
million in size but it is estimated to surpass several hundred
they are not perturbed by the idea of paying through
million dollars by 2020.
intangible methods of payment
To better gauge and delineate the scope of E-Commerce
Government Incentives and Ease of Doing industry it is pertinent that we take into account parameters
Business in Pakistan which directly have a bearing on the development and
The government has to play a crucial role in developing the penetration of E- commerce. Given the young population of
E-commerce industry in Pakistan. As the concept of E- the country, the vast majority are acquiescent to trying
commerce is relatively new, consequently it has a weak online shopping and do have an affinity for exploring
legal and regulatory framework. Figure 3 shows a strategic technological outlets. Therefore, with the vast majority of
framework for promoting E-commerce. our population being under 30, we should scrupulously

3
MGI – McKinsey Global Institute (MGI) is a subsidiary of McKinsey& Company which is a global management consulting firm that serves leading
businesses, governments, non governmental organizations. The Future of Japan: Reigniting Productivity and Growth (2015).
4
UNCTAD – United Nations Conference on Trade and Development, Unlocking the potential of E-commerce for Developing Countries (2015)
5
PBIT – Punjab Board of Investment and Trade, Retail Sector Report (2015)

SME Observer
10
 Figure 4: Internet Retail Sales as a share of store based Retail Sales in Selected Countries

18

16

14

12

10

Venezuela

Vietnam

Egypt
Republic Of Korea
United Kiongdom.
Denmark
Finland
China
Brazil
Ukraine
Singapore

Guatemala
Russian
Argentina
Dominican
Ecuador
Chile

Belarus
Mexico
Uae
Costa Rica
Thailand

Columbia

Serbia
India
Malaysia
Uruguay
Croatia

Nigeria
Morocco

Peru

Bolivia

Phillippines
South Africa

Indonesia

Kazakhistan

Tunisia
Algeria
Pakistan
Uzbekistan
Source: UNCTAD Report: Unlocking the potential of E-commerece for Developing Countries (2015)

study the demographic profile of the country and see how
one can take advantage of the massive potential we have in
terms of a younger population not averse to assimilating the
new mediums of shopping and the E-commerce industry.
The tacit utility of E-commerce is unanimously accepted by
all, so to better comprehend it; it is prudent that we should
ascertain the thought process and mindset of the customer
population with regards to their buying behavior, their affinity
with technology, their openness to shop online, their ability
to use cash less banking, etc.
The scale, scope and speed of the rise of E-commerce
industry in India is astounding. It has brought forth
investment worth billions and India as an example does
show the vast scale of progress and advantages we can
reap by focusing more on how to expand and develop the E-
commerce industry in Pakistan.
According to a joint study by ASSOCHAM & Forrester 6,
“being driven by a young demographic profile, increasing
internet penetration and relatively better economic
performance, India's E-commerce revenue is expected to
jump from $30 billion in 2016 to $120 billion in 2020, growing
at an annual rate of 51%, the highest in the world. While in
terms of base, India may be lower than China and other
giants like Japan but it is way ahead of others. Against
India's annual expansion of 51%, China's E-commerce is
growing at 18%, Japan 11% and South Korea 10%.”
The confluence of all the opportunities shows that time and
energy should be devoted to establish and regulate the
industry. Since it is in its infancy there should be widespread
government support to ameliorate and aid how E-
commerce can develop and expand in Pakistan. There are
platforms existing in the country like government
organization 'Plan 9' which funds, aids and gives free
working space to emerging technology startups and also
provides training and helps in developing them as robust
startups through their startup accelerating and incubating
programs. Similarly, 'Plan X' which is also a government
organization helps mid-stage technology startups by giving
access to numerous funding networks, dedicated advisors
and international exposure to launch and establish
businesses.
Studies and research on the viability and longevity of a
bourgeoning E-commerce Industry are unanimous and
endorsed across the board. The population still needs to get
properly acquainted with the virtual internet interface. Once
the masses comprehend the utility of the internet and once
its application and usage gets conspicuous, the positive
externalities and utility of greater dissemination and use of
the internet will spill over into various avenues of E-
commerce and technological enterprises.
There is tremendous potential and room for growth since the
figures do show the infancy of an emerging industry but with
the vast majority of the potential customers showing
willingness by realizing how convenient it is to shop online
and how the shipment system suits their particular
demands, this indeed is a positive prelude to a very
rewarding prospect.
We are on the trajectory of success but with great zeal,
alacrity and systematic dedication can we tread on the road
to becoming a force to be reckoned with in the E-commerce
sector and can be commensurate to India in terms of
growth.

6
ASSOCHAM – The Associated Chambers of Commerce and Industry India, Forrester –A research and advisory firm.

January - June 2016

11

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