By Imesh Ranasinghe  E-commerce in Sri Lanka has grown by leaps and bounds over the last few years with the increased use of the internet and smart devices and this growth has accelerated with the spread of Covid-19 in the country.  Research done by Kantar Sri Lanka in 2020 showed that the e-consumer basket increased from $ 11 to $ 38 during the initial lockdown between March and June 2020 in Sri Lanka.  The increase has been driven by increased utilisation of e-payment, e-banking, online medical consultation, and e-sports, which are some of the methods that are part of the modern lifestyle in Sri Lanka. E-commerce ecosystems will pose a significant change post-Covid and the private sector must change its business model. Moreover, a study conducted by Daraz.lk in 2020 indicates a 1.5X YoY growth of active users with a 2.5X growth in the number of orders compared to 2019. It showed that the Western Province owns the largest online order share with 50% whilst Central and North Western Provinces follow with 10% and 9% order shares respectively. Colombo and Gampaha lead the district wise order share with 31% in the former and 15% in the latter.  Barriers to growth despite boom Despite the boom, e-commerce in Sri Lanka is facing many barriers to growth. According to a study conducted by the Department of Computer Science and Engineering of the University of Moratuwa in 2020, a lack of knowledge about technology is a key technical barrier. Digital infrastructure was not much of a concern, as there are many means to access e-commerce in Sri Lanka. Behaviour norms are not considered as being highly relevant to e-commerce adoption. One of the key recommendations given by the study is that stakeholders should be looking into smoothing the product delivery process. This includes decreasing delivery time, having convenient delivery policies, and having multiple options or multiple centres to deliver island-wide while the Government could also take initiatives to motivate people to move to online transactions by reducing traditional transaction methods such as bill payments and bank transactions.  The Sunday Morning Business decided to talk to some of the leaders in e-commerce in Sri Lanka to find out their concerns about the future of e-commerce in the country. Local authorities have done nothing to protect local e-commerce Speaking to us, PickMe Founder and Chief Executive Officer (CEO) Jiffry Zulfer said that start-ups on a digital platform such as e-commerce were unique ideas made into digital modules that created opportunities for investors to explore the economies of scale to earn profits. He noted that there were barriers and environments that could be created by lawmakers and policymakers which could hinder their progress. One of the factors the world is battling at the moment, he said, was how to manage digital companies which encroach into a country’s local economy through porous cyber borders and exploit their resources without paying for them according to the systems in with which that country operates. According to Zulfer, this means that digital companies are operating off the grid and don’t pay taxes to the host countries whose resources they exploit. This creates an unfair environment for local operators in those respective countries, who, even though they operate on a similar digital platform, are terrestrial by nature, with registered offices in their country of origin. “These companies are bound by taxation and business laws of their country.  This is an issue we face in Sri Lanka, as a local app-based company operating on a digital platform,” he added. Further, he noted that it was not that local authorities were unaware of the fact that out of the leading app-based transportation companies operating here in Sri Lanka, one was an entirely local entity and the other was an international operator registered in the Netherlands. One pays taxes, the other doesn’t. “So how do you think that plays out?” he asked. In fact, he stressed that the Central Bank pointed out this issue in its 2019 report, which noted that gig platforms, which operate worldwide despite being based in a particular country, were difficult to be controlled by the host country’s regulatory environment and taxation system in the absence of local business registration.  In contrast, the report said that the local platforms were under regulatory scrutiny and were liable for local taxes. The report went on to state that such differences in the applicability of regulation would not ensure a level playing field for local operators. “But what is unfortunate is that even after the Central Bank said this in 2019, authorities are still struggling to bring this foreign operator under the regulatory net of the country,” Zulfer said. Moreover, he pointed out due to this failure by the local authorities there were many unfortunate things that were happening; for example, when Sri Lanka is facing a dire situation like the dollar crisis, millions of dollars are being siphoned out of the Sri Lankan economy, merely on the basis that this company ends all transactions abroad. “This means if a consumer buys a simple rice and curry for his lunch via their app, the country loses that money in dollars and we cannot do anything about it,” he added. Therefore, Zulfer said the lack of proper regulation to control international digital entities from creating an unfair playing field for local operators would be a deterrent for start-ups. Need to create a brand before selling big time  We also spoke to Kapruka.com Founder and Chairman Dulith Herath, who said that Sri Lanka had a supportive environment for the e-commerce businesses to grow because e-commerce was less than 1% of retail in Sri Lanka, which meant 99% of people were still going to regular shops, which also meant there was opportunity to convert them to online. “So the runway is huge for e-commerce,” he added.  He said that there were no barriers for the e-commerce businesses, as the recent import restrictions had led many people to look for items online as the physical shops had less choice when compared to pre-pandemic. “So you have an advantage actually these days due to the restrictions,” Herath said. Further, he said that a person could not start an e-commerce business today all of a sudden by just launching a website and starting to sell through it without creating a brand in the first place. “One of the entryways for this would be to start selling things on social media like Facebook and Instagram and create a small brand for yourself and then go from there,” he said. Current macroeconomic conditions hard for e-commerce  Speaking to The Sunday Morning Business, Takas.lk Co-founder Lahiru Pathmalal said that there was no supportive environment for businesses in Sri Lanka at the moment due to the economic crisis the country was currently going through.  He said that doing business, let alone e-commerce, was very hard at the moment because the macroeconomic conditions were not managed well. Pathmalal said that in his 10 years of doing business in Sri Lanka this had been the worst period he had experienced in terms of macroeconomic conditions  He added that doing business, especially in the e-commerce sector, was nearly impossible due to the lack of foreign exchange and the lack of transparency in terms of the US Dollar rate which differs in the market and the bank. Pathmalal also said that the momentum e-commerce businesses had from the Covid-19 pandemic had slowed down as there were no lockdowns anymore which had provided the people with the choice of buying from the physical shops rather than online. “The Covid environment was a push factor towards people getting online,” he said.  Moreover, he said inflation and the shortage of products in the market in Sri Lanka at the moment had hampered the e-commerce businesses. “Prior to Covid-19, most businesses in Sri Lanka never believed in e-commerce; that’s why it was run by independent entities – they never saw the future,” he said. He noted that when the pandemic hit, businesses were forced to deal with online businesses although they didn’t believe in it. “Businesses like Keells, when they launched their website to order food items, the site crashed due to the heavy number of users as those businesses did not understand the technology and never invested enough in it,” he explained. According to him, one of the main reasons for e-commerce businesses to fail was that those businesses were not able to attract growth capital and other investments to keep on doing business. He added that e-commerce was a low-margin game, so it was hard for businesses to adopt that model without attracting proper investments. He pointed out that e-commerce businesses in Sri Lanka that survived this phase were now doing relatively better. One player cannot grow alone in e-commerce  Zigzag.lk Founder and CEO Dinindu Nawarathna said that prior to the Covid-19 pandemic, there was certain friction for customer acquisition especially for e-commerce businesses because e-commerce businesses needed to convince the customers through campaigns which resulted in a higher cost of acquisition.  But he added that after the pandemic, that friction was mostly eliminated and the cost of acquisition for e-commerce had gone down drastically as customers had no choice but to order online.  Moreover, he said certain customers may have gone back to offline shopping after the borders were open in the country while some have stayed hybrid after finding it convenient to order online. Nawarathna also said that for e-commerce businesses to grow in a small country like Sri Lanka, logistics had to be improved significantly. He said even though there were logistics players in Sri Lanka, the infrastructure had to be further developed. “The key components of the e-commerce ecosystem have to be developed drastically,” he said. However, he pointed out that the payment ecosystem for e-commerce was developing very well with different payment mechanisms, such as wallets and equated monthly instalments. He added that one player could not grow alone in e-commerce as it had to grow like an ecosystem. Further, he noted that during the past five years certain e-commerce businesses were shut down or were acquired by other businesses mainly because there were no Unique Selling Propositions (USP) in some of the domains in e-commerce such as electronics, lifestyle, etc. However, he noted that he did not see that happening to the fashion domain because multiple brands and multiple players could exist at the same time in the fashion domain due to the USP of different brands. For example, he said when certain e-commerce players were only competing on price with no big service differentiation, then a big player could come in and suddenly pump money and do deep discounting for a certain period where business could be taken away from other players. “But for fashion, if you have built that USP and that uniqueness such as mastering in workwear or something else, you have unique play there and it is hard for a bigger player to disturb your business,” he said. Moreover, he added that after Covid, fashion e-commerce had boomed in Sri Lanka as the big-time retailers were identifying the need to go online.