Investors who focus on the domestic side of the online retail industry are just beginning to learn about social commerce, or the marriage of social media and online retail.
Key to Social Media in Emerging Markets Online Retail
While social trading is still a nascent investment concept, it is also relevant for online retailers in developing economies, confirming that there are implications for exchange-traded funds such as the Emerging markets Internet and e-commerce ETFs (EMQQ ) and the Next Frontier Internet and e-commerce ETFs (FMQQ).
“Small sellers have taken advantage of online marketplace platforms to capitalize on the ongoing digital shift and reach more buyers in new markets. Yet 40% of these agile, market-native companies believe that these platforms will not ultimately determine their future success,” Remarks PYMNES.
Although this data point is not specific to developing economies, it underscores the idea that, as is the case in the United States, there is significant potential in emerging markets as consumers in these regions continue embrace online media and social media.
Specific to EMQQ, several of this ETF’s flagship geographic exposures are countries where large swaths of the population are avid online shoppers and users of social media platforms. For example, China, India and South Korea together account for nearly three-quarters of the fund’s weighting. While China blocks many social media platforms in the United States, it is home to many domestic equivalents that can cross paths with online retailers. That’s important as coronavirus restrictions remain tight in the world’s second-largest economy.
“The pandemic certainly didn’t create online shopping, but it has clearly fueled its growth, as 61% of businesses surveyed say they have increased their use of marketplaces over the past year. We found that 68% of large multi-product merchants increased their marketplace usage over the past year, as did 68% of businesses that earn more than $100 million per year,” according to PYMNES.
China is also relevant in the conversation about emerging market social commerce, as one of the problems of the Chinese Communist Party (CCP) which its regulatory crackdown on consumer internet companies focused on allowed sellers to operate across multiple platforms – something some EMQQ previously prohibited assets. Western sellers don’t have to express their devotion to any particular e-commerce platform, and as more and more developing economies follow suit, EMQQ member companies could benefit from it.
“Only 7% of companies surveyed operate through a single market, and most companies try to diversify far more than just using a second one. Of the companies we surveyed, 42% operate through four or more markets,” concludes PYMNES.
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