A cargo ship in transit. PHOTO: GETTY
In my previous articles I have deliberated upon the various aspects which define an effective e-commerce policy and have also discussed the strategies which can be used in order to encourage micro to small to medium enterprises (MSMEs) to sell their products internationally using digital channels, similar to the manner in which they sell locally. The three main components of the e-commerce framework, namely marketing, payments and logistics, are each important factors. However, since marketing and payments have been digitised to a great extent, the logistics and supply chain scenario is where the online world actually touches base with the offline world. E-commerce logistics experts are currently lacking in the local market, hence making it a niche specialisation.
In light of this, this piece will outline an agenda for MSMEs to help them export their products at a minimum logistical cost. The marketing budget is something which can be controlled since the digital marketing industry in Pakistan is flourishing, with several local software houses doing lead generation for international markets. Hence, a conventional business-person with a bit of technical knowledge in Pakistan can engage in digital work since it can be done completely online. This is the path which India has followed, because of which the IT Industry there is flourishing on the backbone of a large, thriving community of IT freelancers and software development houses. This scheme of things is very simple and leads to the developing of IT products at a small cost and charging a premium amount for it. This removes the need to send physical products abroad through logistical services. Naturally, not everyone in Pakistan can afford to have a software house which contains lead-generation experts and a product development team. Instead, IT freelancers can participate on the requisite websites to develop and deliver such projects.
However, the fact of the matter is that exporting physical products through MSMEs would be much more cost and time effective. It will also lead to the building of an inventory of life long customers. Many businesses also choose to not export low-cost products through MSMEs because it is easier and cheaper to just import these products from China and sell them locally. This is not the case in Pakistan since Pakistan’s Express Mail Service (EMS) can charge MSMEs around Rs3000/kg. As a result, this drives up the cost of logistics for MSMEs, and hence the price of the product. One may argue that a minimum order quantity can be set for each international customer interested in purchasing the products provided by an MSME. For instance, if someone wants to buy a pashmina shawl then they will need to purchase at least five of these items to be able to avail a set ‘reasonable’ price. But since MSME products are bought by individual customers in individual quantities, it is imperative that the logistics support these dynamics.
Over the past week, I have been researching for this article and have been talking to different logistics companies and reading up on the mechanisms which underpin this sector. It appears that it is still possible to send a product weighing 1 kg to the United Kingdom for approximately Rs650 (inclusive of doorstep delivery charges). But how is this possible given that the Pakistan Post and DHL are charging Rs3000/kg? The answer is – consolidation.
The logistics business achieves economies of scale through consolidation. Instead of having minimum order quantities for individual customers, what is being proposed here is that a larger lead time is provided for the product to be delivered to a certain customer. This lead time for the international markets may be 10 days, thus allowing MSMEs to gather enough orders for a certain international city so as to avail economies of scale, and hence be able to book a space with a Pakistani freight forwarder or logistics partner in their lose container load (LCL) bound for a certain international destination. There are a number of logistics partners which would be willing to deliver products at the doorstep of an international customer as long as the consignment meets a certain load requirement.
The next question is how does an MSME consolidate? The answer is relatively simple. All an MSME has to do is choose a specific city it would like to sell in and focus its social media campaigns towards that city. Once the business starts receiving orders from that city, the consolidation work starts, and with in a maximum of four days, depending on marketing budget and popularity of the MSME, the threshold for a low cost shipment through a logistics provider can be reached.
As per my research, these logistics providers will ensure complete documentation of the work they do, and there are no untoward practices which currently plague the system. The logistics partner will usually work with an MSME as long as proper documentation is available and will also help with the required information related to the product. Therefore, I would highly encourage those who import products from China to instead sell those products locally and to try exporting local products from Pakistan using this practice.
Kashif R Nagi
The writer is an Assistant Professor at SZABIST Karachi, an SMEDA Trainer, and a StartUp Consultant. He has completed his MSc in Advanced Marketing from Lancaster University (www.linkedin.com/in/krnagi).
The views expressed by the writer and the reader comments do not necessarily reflect the views and policies of The Express Tribune.
