Transformation Strategy: Navigating from Physical Market to Digital Platform, Skipping the Traditional Retail Medium
Nikolay Seleznev, holding the positions of Chief Strategy and Business Development Officer, leads Uzum. This company is prominent in the global market competition, not just in technology and e-commerce, but also in countries like the United States, China, U.K., EU nations, India, Japan, UAE, and numerous others. Chinese Alibaba extends its presence in Southeast Asia, Brazil, and Europe, targeting markets that may be underserved due to complexity in regulations or customs.
Smaller developing nations often miss out on the attention of these global e-commerce titans. These markets may have limited potential in terms of size but pose challenges due to local policies or cultural intricacies.
Cultural Gap
Uzbekistan, a Central Asian country filled with a population of around 36.6 million people and a GDP of approximately $110.37 billion in 2024, is one such example. Until 2017, it was not welcoming to foreign investors and foreign e-commerce giants like Amazon and Alibaba were absent.
The concept of bazaars has been an essential aspect of Uzbek consumer culture. These bustling marketplaces provide a variety of goods, spanning from everyday necessities to affordable clothing, giving shoppers the option to test products prior to purchasing. Beyond a mere place of commerce, these bazaars act as a social scene that allows for negotiations on prices and connecting with familiar faces. Cash transactions are the norm, reflecting a tradition of direct and personal exchanges.
Establishing e-commerce in Uzbekistan required a revamp of consumer habits across an entire nation, and faced numerous challenges. Here's how we approached it and what you should consider if you find a similar opportunity.
Expanding Opportunities
The initial challenge was attracting customers away from bazaars and offering them both a broader selection of products and competitive price points, combined with quick delivery, multiple payment options, and the chance to examine and try on products themselves. Additionally, we sought to bring entrepreneurs onto our platform, who were already selling in bazaars or on social media. With our approach, we convinced these individuals that utilizing our marketplace would lead to increased income. We have built a network of more than 12,000 sellers and over 1,000,000 product listings (SKUs) on our platform.
KPMG forecasts indicate that retail sales in Uzbekistan through digital channels will reach 3% of the total trade volume by 2024. In comparison, the percentage of retail sales in the U.S. and China through digital channels is 22% and 37%, respectively.
A Logistics Breakthrough
Uzbekistan lacks modern warehousing space and logistics infrastructure. Delivery times for local online stores average 6-10 days, with the national postal service being the primary means of transport. In response, a distribution center spanning 1.2 million square feet was constructed, trucks were purchased, and a network of more than 800 pickup points in over 200 communities was developed across Uzbekistan.
The absence of modern logistics infrastructure is a contributing factor to relatively high delivery times in Uzbekistan. The government and private entities have addressed this by investing in new transportation routes, including the China-Kyrgyzstan-Uzbekistan railway and the modernization of highways, which will foster export growth.
Pickup points, consisting of small spaces providing customers with the ability to retrieve their orders at a convenient time, are a popular option in CIS countries. Fitting rooms are also available for customers to test and return clothing, as Uzbek women frequently order multiple sizes.
Access to financial services remains a key obstacle in the development of e-commerce in Uzbekistan.
In order to overcome this challenge, we launched a buy-now-pay-later (BNPL) service, which has emerged as a significant catalyst for change in the Uzbek e-commerce industry. Currently, more than 50% of sales on our marketplace are made using installment plans.
Another important initiative for us was the introduction of a Visa bank card, which grants users discounts on orders from the Uzum marketplace and when ordering meals from cafes and restaurants through our fast-delivery service.
Establishing E-Commerce in a New Market: Lessons from Uzbekistan
Picking Your Strategy: Asset-Heavy vs. Asset-Light
One of the first decisions to be made when entering a new market is whether to adopt an asset-heavy or asset-light approach. While the latter is more straightforward and less demanding on resources, it may not always succeed in emerging markets. Infrastructure-scarce regions could especially benefit from an asset-heavy strategy to efficiently scale operations. However, if constructing one's own infrastructure is not feasible due to resource or capacity constraints, strategic partnerships can be an invaluable asset.
Selecting Your Partners
Partnerships with companies that share a common competitor can prove to be extremely beneficial. In Uzbekistan, for instance, Uzum Market has established partnerships with numerous retailers to bolster their sales. This approach is also employed by some e-commerce platforms, which rely on the logistical networks of well-established retailers to streamline their operations.
Assessing an area's potential goes beyond just looking at logistics. You should also consider factors like internet usage, smartphone penetration, and user growth rates. These figures can provide a clear understanding of your potential market size. For instance, Uzbekistan boasts approximately 29.52 million internet users (as mentioned in the KPMG report), with an average mobile internet cost of just $0.30 per GB. Concentrating on such metrics can greatly influence your strategy when entering a fresh market.
The Future of Online Commerce in Uzbekistan
The success of Uzum demonstrates the potential of adapting global e-commerce models to local circumstances, even in tricky markets. Rapid digitization, the promotion of innovative logistics solutions, and the development of easy-to-use financial services have enabled Uzbekistan to move from traditional bazaars to a contemporary online marketplace, skipping the retail network stage altogether.
Thanks to the increasing popularity of e-commerce and the potential of digital services tailored for the local population, Uzbekistan has the potential to serve as a new hub for e-commerce growth in Central Asia. As stated in the "Uzbekistan-2030" strategy, the government aims to raise GDP to $160 billion and per capita income to $4,000. Achieving this lofty objective calls for substantial growth in investments in crucial sectors, including technology, finance, logistics, and e-commerce.
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Nikolay Seleznev, being the Chief Strategy and Business Development Officer of Uzum, plays a crucial role in expanding Uzum's presence in various global markets. His strategies have helped Uzum establish e-commerce in countries like Uzbekistan, where traditional marketing methods like bazaars were prevalent.
Despite being invited to join the Council for Business Website Development, Nikolay Seleznev may not be eligible due to his current position and commitments with Uzum.
