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The Rapid Rise of India’s Food Tech
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The Rapid Rise of India’s Food Tech: Yet Another Tech Bubble?

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In the past few years, food tech (online food delivery) industry in India has seen substantial growth in terms of daily order volumes (DOVs), revenue, and funding. While the business is growing for all players, they are still posting losses. A closer look into their financials and business models reveals that the current operating margins are very thin, and much of the recent rapid growth has been on the back of heavy discounting offered by players to attract customers. At present, the growth strategy is loud and clear: to acquire new customers, enter new markets, and expand current market share at any cost. This has raised a question whether such a model is sustainable in the long run or is it another tech bubble just waiting to burst?

Less than five years ago, the way Indians consumed food was completely different. Eating out was predominantly occasion-driven, while ordering food was limited to calling local restaurants or ordering a pizza from Dominos or Pizza Hut through their own websites. Online food ordering through apps was not at all a part of consumers’ culinary vocabulary.

However, this has been transforming over the past few years. There is a growing trend among Indians to order their food online via food aggregation apps. Today, Indian consumers, especially in metro and larger cities, are ordering food online more often than before. As a result of this, food tech has become one of the fastest growing internet sectors in India with an astonishing triple-digit growth rate in gross merchandize value (GMV) and DOVs in 2017 and 2018.

Huge potential waiting to materialize

After an initial hype among entrepreneurs and investors in 2015, the food tech industry saw a slump and market consolidation in 2016 and 2017. Yet in 2018, India’s food tech industry rekindled investors’ appetite for the sector with huge spending spree. Driven primarily by rising disposable income, rapidly growing internet and smart-phone penetration, urbanization, and a young and working-class consumer base, India’s food tech industry stood at around US$700 million in 2017 and is expected to reach US$4 billion by 2020. In 2018, DOVs went up to 1.7 million orders from 0.2 million in 2016. The current market consists of four key players. Leaders Swiggy and Zomato currently hold a combined market share of ~70%.

The Rapid Rise of India's Food Tech

The market still in its infancy

While order volumes have gone up significantly in the last 12-18 months, the industry is still in its infancy considering its outreach and adoption rates across the nation. At present, online food ordering is available in just over 200 cities across India and contributes to merely around 5% of the total food delivery business.

Further, India’s US$1.7 billion food tech market is pretty small compared to US$10.5 billion in the USA and US$36 billion in neighboring China. Out of the 90 meals consumed each month, Indians eat out or get their food delivered less than five times a month as compared to around 40-50 meals in countries such as Singapore, China, and the USA. In a nutshell, food aggregators have just begun to scratch the surface in India and there is a long road ahead for the industry to develop and grow further.

Growth driven by deep discounts

While the recent growth numbers draw a compelling picture of the industry, it should be noted that much of the current growth is driven primarily by deep discounts that are offered by the players to attract customers onto their platforms. With the recent funding boom, all players are deep-pocketed. In a fierce battle for market share, companies are spending heavily on advertising, low-cost and complimentary deliveries, and discounts as their primary growth strategy. Given the huge potential of the internet economy, even investors are willing to throw in money and keep the incentives going. However, recent history in India as well as similar experiences from other internet companies globally reveal that while this can be a good strategy to attract customers and penetrate markets, it is unlikely to be sustainable.

The recent growth is not entirely organic. A significant part of it is inorganic, pushed by discounts and offers, as players focus more towards acquiring new customers, increasing their order frequency, and entering new geographies.
– Satish Meena, Senior Analyst, Forrester

Again, customer loyalty is very hard to come by in the food tech industry. With India being a price-sensitive market, consumers will often flock to the platform that offers the best deal. Just like in India’s cab aggregation industry, it will be interesting to see how the food aggregators find their revenue and DOVs impacted once these offers will start to disappear.

Penetration beyond tier-II cities

Till 2018, orders were highly concentrated among top ten cities of India. These markets accounted for around three-fourths of the total business for all players. In order to move away from these gradually saturating markets, and to scale up their outreach across India, food tech players are pushing to capture the untapped potential in tier-III cities and smaller towns with first-mover advantage. While they consider these markets to be lucrative with improving demand appetite, rising spending power, and profitability, these cities are very different from metros in terms of size and customer preferences. E-commerce adoption rates as well as user base in these cities are relatively small, and therefore it will be challenging for food aggregators to create demand here, as consumers are not acquainted to online food ordering.

On the demand side, it will be difficult for aggregators to generate order volumes from smaller cities in India. Considering that Indians are very price sensitive, once these offers are gone, the drop-out rates will be much higher in these markets as compared to metros. –
Satish Meena, Senior Analyst, Forrester

Back in 2016, Zomato tested the potential in smaller cities and had to shut down its business in four cities including Lucknow, Coimbatore, and Indore due to poor demand. Similarly, Grofers, an online grocery delivery platform expanded into several tier-II and tier-III cities. But they also had to suspend operations in nine cities, citing the same reason. While the advent of Jio (an Indian mobile network operator) and its cheap internet data packages are proving to be a boon for e-commerce players, the question still remains how food aggregators will be able to create a sustainable demand in cities where population prefers to cook its food every day.

In addition, unorganized players dominate food delivery in these markets. It will be tough for aggregators to compete with them, especially in terms of pricing, since the local players operate with very low overhead costs without the need to worry too much about hygiene, safety, and other quality standards.

Weaker financials and unit economics

With the ongoing discounts and offers, the cost of customer acquisition is very high at present. A closer look at the financials of Zomato and Swiggy reveals that their monthly cash burn has increased five times within 2018, as they resort to aggressive discounting to grow further across the country. At present, all players are posting losses. This is very common even in the global food tech industry where most players are still operating with losses. For example, China’s Meituan-Dianping and ele.me are still far from reaching the break-even point, even after 10 years in the business. The story is the same even in developed markets such as USA and the UK. The aggressive cash burn model requires food aggregators to keep raising funds at regular intervals in order to further scale up and grow. This is a major concern raised by many industry experts.

Look at China! The top two players have still not managed to turn profitable even with far superior market penetration and order volume rates as compared to India. – Former Executive, Swiggy

Another major challenge faced by all the players are the inefficiencies in their operations, a fact that has a direct impact on their unit economics and thereby profitability. Although food delivery logistics is slowly getting better, it still constitutes a major chunk of the overall cost. Players are in a dire need to leverage innovative technologies and processes to streamline their logistics operations and make the most out of their logistics infrastructure and assets.

In order to improve their unit economics and operational margins, everyone is trying to streamline their logistics operations and to make the most out of their current infrastructure and assets. –
Vaibhav Arora, Former Associate General Manager,
RedSeer Consulting

Playing by the same playbook?

For the Indian market, food tech industry’s current growth story may seem to be a flashback from the ride-hailing industry, which really took off in the early days. On the back of heavy discounts and attractive offers, it looked like a win-win situation for all. In recent years, when cab aggregators slowly started to move away from discounts, at the same time increased fares for customers on one hand, while reducing incentives for drivers on the other, they started to witness challenges on both demand and supply sides of their business.

Strategies such as surge pricing, hike in fares, cutting-down driver salaries and incentives, etc., have impacted their businesses and resulted in unhappy customers and driver partners, unreliability in services, and a tussle with local associations. Cab aggregators in India have still not found the right balance to continue to grow without leaking money.

Many industry experts believe that food aggregators will also face the same set of challenges in the coming years, as players will start moving away from discounts along with hike in delivery charges and restaurant commission in order to improve their operating margins. This is already becoming evident as delivery partners from Swiggy in Chennai went on a strike for wage-related demands in December 2018, while UberEats faced a similar situation in April 2019 in Ahmedabad.

You can connect the dots with cab aggregation business and foresee similar challenges coming up for the food tech sector. In the long run, they will start charging higher delivery fees from customers and higher commissions from partner restaurants. –
Vaibhav Arora, Former Associate General Manager,
RedSeer Consulting

EOS Perspective

In recent years, food aggregators in India have definitely created a market for themselves by inculcating consumers with online food ordering concept. There is no doubt that the Indian food tech market is still developing and has a huge potential. But it is also a difficult one to crack. As seen in the past few years, many start-ups folded up early on. Similarly to India’s cab aggregators and e-tailers, food tech companies have started to believe that discounts are the way to a customer’s heart and eventually increasing their market shares.

None of the major players within the Indian internet sector is profitable yet. Even for Indian food tech players, profitability looks elusive, at least in the short to medium term. They will require massive funding injected regularly to finance their aggressive growth strategies. Uber in its recent initial public offering (IPO) prospectus made a bold statement admitting that if may never be profitable. This is one of the deepest concerns across the industry, and many industry experts are not sure whether sustainable growth can be achieved with the present business models.

In India, it looks like a certainty that both Swiggy and Zomato will be still posting losses for at least the next two to three years. –
Former Executive, Swiggy

There are many areas which are not streamlined enough, and therefore a significant amount of money is lost there. In order to grow, players will have to address the fundamental issues around unit economics and operational efficiencies. Companies will have to find multiple ways to improve their operational efficiencies such as looking at alternative revenue streams, monetizing their fleets, building other businesses, etc. Therefore, Swiggy has ventured into hyperlocal business by starting deliveries of groceries and medicines to further optimize its current delivery fleet. Similarly, Zomato has started Hyperpure, a service wherein they deliver food products to restaurant partners in order to grow further.

On the one hand, the above mentioned strategies seem to be logical for food aggregators and the way forward to scale up their businesses. On the other hand, this approach also raises concerns whether they are trying to juggle too many balls with just one pair of hands. Are players diversifying too early and rapidly, considering that they have not yet mastered the trade of online food delivery? Will these diversifications shift their focus away from the core business? Do they have the bandwidth as well as the expertise to manage these new businesses?

Furthermore, it will be also difficult for players to continue their current growth momentum beyond 2019, since they have penetrated all metros as well as tier-I and tier-II cities in India. Growing in smaller cities with low e-commerce penetration will be a daunting task, especially without the discounts. All these challenges are likely to cause the industry growth to slow down. To continue the growth momentum, food aggregators will also have to customize their strategies for smaller towns in India. Since availability of cuisines and quality of food is the biggest pain-point in these markets, players will have to compete by offering more choices with higher quality standards. Variety and quality of food will be one of the key differentiators for them to succeed in these markets.

In order to succeed in the long run, players will have to leverage the vast consumption pattern data at their disposal, and convert them into insights. By harnessing technologies, they can smartly identify the demand-supply gaps in each market, and address them by launching relevant products and services. For example, aggregators can assess and identify particular cuisines, dishes, order time-slots, etc. that are trending in each market, based on which they can either collaborate with restaurants and push them to expand their offerings and outreach to meet the increasing demand, or themselves start to move up the value chain by setting up own cloud kitchens (delivery-only kitchens) to fill such gaps, and thus further improve their profitability.

Additionally, players will have to further innovate their offerings. For instance, since migrant workers and students are the prime target, introducing subscription based meals in this segment could allow players to gain customer loyalty as well as earn steady stream of revenue. Similarly in the B2B (business-to-business) space, they can forge partnerships with small and medium enterprises (e.g. Indian Railways) to supply meals to their employees and customers. This is another market segment with huge latent demand where variety and quality of food is the need of the hour.

While these are early days to comment on the long-term growth potential of the industry, we can expect the market and current players evolve over the next few years. Considering that no one in the Indian aggregation space is profitable yet, and the fact that the path followed by food aggregators closely resembles to the one followed by cab aggregators in India, who have found it to be bumpy, unless players can build a solid business model with a clear path to profitability, for now, the rapid rise of food tech sector looks like another tech buzz that will eventually slowly down over the years to come.

Europe Fights Back to Curb China’s Dominance
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Europe Fights Back to Curb China’s Dominance

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Given the swiftness of China’s economic development in the past three decades, transitioning from an impoverished and insular country to one of the formidable economic powers of the world, it has taken some time for Europe to accept China’s growing power and influence. Not only does China sit on largest currency reserves worldwide, but it has also become a significant provider of foreign investments, including in EU nations. This has recently strengthened China’s influence over the EU, which has created a sense of caution amidst European policymakers.

How is Europe benefiting from China’s growing investments?

Europe-bound Chinese investments were six times higher than Chinese investments in the USA – in H1 2018, Chinese investments in Europe stood at US$ 12 billion as compared to US$ 2 billion in the USA. For some of the economically struggling EU countries, Chinese investments are critical for developing and upgrading infrastructure, including energy plants, railways, motorways, and airports.

China’s Belt and Road initiative, under which cross-border infrastructure will be developed, will reduce transportation costs across Europe and China, creating an opportunity to facilitate trade expansion, regional integration, and attract foreign investments.

Besides infrastructure development, the investments are likely to create job opportunities and enhance economic competitiveness across Europe.

Then why is China’s growing influence alarming Europe?

Europe now sees a range of threats that China’s rising dominance in the region could bring along. Recently, the European Commission labelled China as economic competitor seeking technological leadership and systemic rival encouraging alternative models of governance. Europe realizes that China pursuits to shape globalization to suit its own interests.

The EU is deeply concerned regarding China exercising divide and rule tactics to strengthen its relationship with individual member countries that are susceptible to pressure, which could eventually harm the European cohesion. Recently, Italy signed the Belt and Road initiative, a landmark move against the counsel of western European nations, such as France and Germany, thus, raising questions on cohesion of EU countries.

The other concern is China’s rising influence over key governments of EU nations, thus, empowering itself with political leverage across the continent. China has already yielded political returns by wearying EU unity, particularly, when it is related to European policy on international law and human rights. In 2017, Hungary broke EU’s consensus by refusing to sign letter on human right violation against China. During the same year, Greece blocked an EU statement, which condemned China’s human rights record, at the UN human rights council.

Besides politics, China has also spread wings across key sectors of economy such as infrastructure, high-end manufacturing (including critical segments such as electronics, semiconductors, automotive, etc.), and consumer services, among others – growing dominance of China across these sectors is another cause of worry for the EU.

Europe also condemns China’s discrimination against foreign businesses, rendering limited market access to European firms and employing a non-transparent bidding processes. European firms operating in China face several trade and investment barriers such as joint venture obligations and discriminatory technical requirements that entail forced data localization and technology transfers. On the other, European markets have been open to foreign investments leading to massive Chinese FDI. However, lack of reciprocity harms European interest and could lead to unfulfilled EU-China trade ties.

The EU also criticizes China’s Belt and Road project for its lack of respect for labor, environment, and human rights standards. Other concerns include non-transparent procurement procedures with majority of contracts being awarded to Chinese companies without issuing public tenders, meagre use of domestic labor and limited contractor participation from host country, and use of construction materials from China – all of which undermine Europe’s interests.

Europe Fights Back to Curb China’s Dominance

How is Europe responding to China’s actions?

Europe is adopting strategies to limit China’s influence and reach across Europe and beyond, in African and Pacific countries.

Development of EU-Asia Connectivity Strategy

The EU’s new initiative, EU-Asia Connectivity Strategy, is an implicit response to China’s Belt and Road initiative, signifying a crucial first step to promoting European priorities and interests in terms of connectivity. The initiative aims to improve connectivity between Europe and Asia through transport, digital, and energy networks, and simultaneously promote environmental and labor standards.

The EU’s initiative emphasizes sustainability, respect for labor rights, and not creating political or financial dependencies for the countries.

Robust FDI screening process

European nations have been increasingly alarmed due to state-owned Chinese companies acquiring too much control of critical technologies and sensitive infrastructure in the continent, while China shields its own economy.

For the same reason, EU parliament is developing an EU-level screening tool to vet foreign investments on grounds of security to protect strategic sectors and Europe’s interests. The regulation will protect key sectors such as energy, transport, communication, data, space, technology, and finance.

While the EU still remains open to FDI, the regulation will protect its essential interests. Nonetheless, stringent investment screening procedures are likely to limit foreign investments in the continent, particularly from China.

Tackling security threat posed by China

In March 2019, the EU Parliament passed resolution asking European institutions and member countries to take action on security threats arising from China’s rapidly rising technological presence in the continent.

The resolution is likely to impact the ongoing debate of whether to eliminate China’s Huawei Technologies from building European 5G networks. The EU is concerned that the Chinese 5G equipment could be used to access unauthorized data or sabotage critical infrastructure and communication systems in the continent.

To minimize dependence on Chinese technology firms (such as Huawei Technologies), EU countries would need to diversify procurement from different vendors or introduce multi-phase procurement processes.

EU countries expanding footprint to counter China’s reach

Since 2011, China has invested US$ 1.3 billion in concessionary loans and gifts across the Pacific region, and has established its supremacy by becoming the second largest donor. China has been trying to build its influence, as the Pacific is bestowed with vast expanse of resource-rich ocean and the regional countries have voting rights at international forums such as the United Nations.

To counter China’s reach and ambitions across the Pacific countries, European nations such as the UK and France plan to open new embassies, increase staffing levels, and engage with leaders in the region. The UK plans to open new high commissions in Vanuatu, Tonga, and Samoa by the end of May 2019 and France is looking to meet and engage with Pacific leaders during the year.

Investment in Africa to limit China’s influence

As a strategy to curb China’s growing influence, the EU plans to deepen ties with Africa by boosting investment, creating jobs, and strengthening economic relations. The plan is to create 10 million jobs in Africa over the next five years. Europe is also aiming to establish free trade agreement between the two continents.

In recent times, China has been blamed of neo-colonial approach towards Africa, which is aimed at emptying the continent of its raw mineral in exchange for inexpensive loans, extensive but inferior infrastructure, among others. Europe aims to curb such influence by attempting to do business ethically. 

EOS Perspective

Unnerved by flurry of Chinese investments in the continent, the EU is looking to regain its control over matters. Europe has adopted a defensive approach against China’s initiatives, reflected through measures taken to protect critical sectors using investment screening system. The EU understands the downsides of enormous Chinese investments/loans, which may seem hugely enticing in the beginning, but could saddle vulnerable countries in debt they cannot repay – for example, a Chinese-built highway in Montenegro is likely to increase the country’s debt to about 80% of its GDP.

Currently, the key issue is the fact that Europe is standing divided on the right strategy to respond to bolder and ambitious China. While countries such as Germany, France, and UK have grown skeptical of China and are revolting against it, Italy, Hungary, Portugal, Greece, among others, are generally China-friendly. Europe has certainly become stern and tougher on China, but cannot pursue its interests without standing united.

The current situation does not demand Europe opposing China outright, but rather ensuring fair business conditions and equal market access through dialogue and cooperation with China.

Nonetheless, the EU has been quite slow to wake up to the various challenges that excessively ambitious China brings to the table. However, if Europe is able to become united now, there is still a chance to build a decent Sino-European partnership that serves interests of both parties.

Argentina E-Commerce
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Argentina’s E-commerce Growing at an Explosive Rate, but Not without Challenges

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Argentina is the fastest growing e-commerce market in Latin America with a booming m-commerce segment. Blessed with high internet smartphone penetration rates, the country sets stage for plentiful e-commerce opportunities. However, Argentina is still battling high inflation and low economic growth rates, a fact that bleaks growth prospects of e-commerce market. Much like its regional neighbors, Argentina is also plagued with logistics and payment issues, and resolving these challenges is the need of the hour.

This article is part of a series focusing on e-commerce in LATAM, which also includes a look into e-commerce market in Mexico and Brazil

What is pushing the meteoric growth?

Home to MercadoLibre (Latin America’s most popular e-commerce site), Argentina, is one of the most prominent e-commerce markets in Latin America, known for its outstanding growth rate – between 2018 and 2022, e-commerce market is expected to increase by 83% to reach US$ 19 billion.

Strong connectivity is one of the key supporting factors powering the e-commerce market. Argentina benefits from incredibly high internet penetration rate of more than 80% and one of highest numbers of mobile Internet users in Latin America. Further, the country’s growing young, Internet-savvy consumer base, with sufficient disposable income, is also driving e-commerce sales.

What is holding back Argentina’s e-commerce market?

Logistics

The most significant barrier restraining Argentina from becoming Latin America’s e-commerce leader is logistics. To begin with, quality of roads in certain neighborhoods of various cities, even in the capital city of Buenos Aires, is not suitable for swift deliveries. An average delivery time for packages to reach shoppers is about seven days, which is not a convenient wait time and could dissuade shoppers from ordering online.

An average delivery time for packages to reach shoppers is about seven days, which is not a convenient wait time and could dissuade shoppers from ordering online.

Most logistics companies are unable to deliver as quickly and reliably as e-retail demands. Adding to the list of logistics and infrastructure insufficiencies is the unfinished GPS mapping, owing to confusing address systems and missing postal codes, thus, making deliveries an even more cumbersome task. With the current state of logistics, Argentina secured 61st rank (out of 160) in the Logistics Performance Index in 2018, lagging behind its fellow competitors (in the e-commerce space), Brazil and Mexico.

Payment methods

Online payments can be challenging in Argentina, particularly, for making purchases on international retailers’ websites. More than 50% of Visa and MasterCard cards provided by local banks, cannot be used on international websites. This is a major operational hurdle for international e-commerce retailers, who have to set up other payment methods.

More than 50% of Visa and MasterCard cards provided by local banks, cannot be used on international websites.

Moreover, with exorbitant credit card interest rates (according to the Central Bank of Argentina, credit card interest rates lie between 36% and 111%), customers have become vary of shopping online.

Additionally, debit cards comprise a negligible share of Argentinian e-commerce spend, as they can only be used on limited e-commerce websites, thus, limiting use of this crucial payment gateway.

Distrust

Another key challenge is distrust among several Argentinians toward e-commerce websites, especially when it comes to billing and payment transactions. Some customers are also hesitant to provide card details for online transactions with protection of information being their primary concern.

With no proper legislation in place, trust in the e-commerce marketplace is hard to build. Argentina does not have a comprehensive regulatory scheme governing e-commerce, rather it has just a few regulations that are applicable to e-commerce.

The country also does not adhere to any standard international e-commerce model such as UNCITRAL model law on electronic commerce by the USA or Directive 2000/31/EC (Directive on electronic commerce) of the European Parliament. Without any robust regulation in place, consumers would neither feel protected nor be certain regarding action being taken in case of unlawful activities.

Economy

Argentina’s economy is shackled with sky-high inflation rate (second highest in Latin America in 2018) and depreciating currency against dollar, thus, dampening economic growth prospects of the country. Poor economic conditions have taken a toll on all economic sectors, including e-commerce. High inflation rate has decreased purchasing power of consumers, who have become cautious shoppers.

Opportunities still exist

Nonetheless, outlook for Argentina’s e-commerce market is quite positive, with key e-commerce players craving for attention from Argentina’s proliferating online customer base.

Argentina’s e-commerce market is endowed with opportunities arising from growing m-commerce and social-commerce segments.

Argentina’s e-commerce market is endowed with opportunities arising from growing m-commerce and social-commerce segments.

Smartphones are increasingly becoming the key mode to reach consumers in Argentina, with consumers preferring to use mobile devices for accessing internet over stationary computers or laptops. The use of mobile phones for searching products before purchase is a common habit in Argentina. To tap this opportunity, businesses are increasingly focusing on building mobile-friendly websites – as of May 2018, 74.3% of businesses adapted sites to mobile phones (compared with only 10.4% in 2017).

Another trend emerging in the market is that of social shopping (shopping influenced by social media), fueled by growing social media engagement among Argentinians – as of January 2018, about 76% of the total population were active social media users. E-retailers are now using social networks to interact with shoppers, particularly the young demographic, and also to promote products. As of May 2018, 73.5% of businesses used social media to engage with shoppers and the most preferred sites were Facebook and YouTube.

Argentina’s E-Commerce Growing at an Explosive Rate, but Not without Challenges

EOS Perspective

Argentina’s e-commerce industry has reached a stage where consumers, particularly the young demographic, are slowly beginning to embrace online shopping as part of their daily lives, however, there is still scope for a lot of development for wider adoption. While Argentina’s e-commerce market is dynamic and growing, it could benefit from certain improvements, particularly in terms of payment methods, logistics, and building consumer’s trust in online shopping.

Payment methods need to be kept up to date with requirements of businesses and consumers, and steps are being taken for its betterment. Better logistics is a requisite for online retailing to function properly. In the era of one-day deliveries, a week’s wait time in Argentina is too long, and retailers are looking to resolve this issue.

MercadoLibre, the largest e-retailer in Argentina, has taken giant leaps for betterment of both payment mechanism and logistics. The company introduced a digital wallet, Mercado Pago, through which both debit and credit card payments can be processed. The digital wallet can be used in physical stores as well. Customers can scan QR code on items using MercadoLibre or Mercado Pago apps and choose preferred mode of payment.

Further, MercadoLibre has been adopting various measures to improve logistics. Through Mercado Envios, the company takes care of package shipment and delivery, as the seller only has to take the package to nearest dispatch center of MercadoLibre, and from there onwards MercadoLibre ensures seamless package delivery. Mercado Envios ascertains that the package reaches customer in the shortest time possible and allows tracking of shipment by both seller and buyer. MercadoLibre’s another program, Mercado Envios Flex, guarantees deliver of packages within 24 hours, but it is limited to Buenos Aires for now.

Undoubtedly, customer service and shopping experience need to be revamped, which could help in building customer’s trust as well.

Undoubtedly, customer service and shopping experience need to be revamped, which could help in building customer’s trust as well. The e-commerce platforms could use foreign digital expertise to develop websites that are safe for billing and money transactions. Moreover, online merchants need to understand that a transaction is not complete when a customer purchases product online, but when the package is received by the customer. To be able to gain customer’s confidence, merchants should take end-to-end responsibility, be transparent in communication by clearly stating the delivery timelines or any additional charges that are applicable, among others, before the payment is made.

Nonetheless, Argentina is slowly making progress and is on track to uphold its position as one of the e-commerce giants in Latin America. Despite being the fastest growing e-commerce market in Latin America, Argentina is still behind the two e-commerce powerhouses, Mexico and Brazil, at least as of now. However, the country definitely has the potential to give them both a tough competition with its e-commerce and m-commerce markets growing at exponential rates.

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Connecting Africa – Global Tech Players Gaining Foothold in the Market

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While in the past, most global tech companies have focused their attention on emerging Asian markets, such as India, Indonesia, Vietnam, etc., they have now understood the potential also offered by African markets. Africa currently stands at the brink of technical renaissance, with tech giants from the USA and China competing to establish here a strong foothold. That being said, Africa’s technological landscape is extremely complex owing to major connectivity and logistical issues, along with a limited Internet user base. Companies that wish to enter the African markets by replicating their entry and operating models from other regions cannot be assured of success. In addition to global tech firms building their ground in Africa, a host of African start-ups are increasingly finding funding from local as well as global VC and tech players.

Great potential challenged by insufficient connectivity

Boasting of a population exceeding 1.2 billion (spread across 50 countries) and being home to six of the world’s ten fastest-growing economies, Africa is increasingly seen as the final frontier by large global technology firms.

However, the African landscape presents its own set of challenges, which makes increasing tech penetration extremely complex in the market. To begin with, only about 35% of the continent’s population has access to the Internet, as compared with the global rate of 54%. Thus, Africa’s future in the technology space greatly depends on its ability to improve digital connectivity. This also stands in the way of large tech-based players that wish to gain foothold in the market.

Large players try to lay the necessary foundations

Due to this fundamental challenge, companies such as Google, Facebook, and IBM have initiated long-pronged strategies focusing on connectivity and building infrastructure across Africa. Facebook’s Free Basics program (which provides access to a few websites, including Facebook and Whatsapp, without the need to pay for mobile data) has been greatly focused on Africa, and is available in 27 African countries. With Facebook’s partnership with Airtel Africa, the company has started to strengthen its position in the continent.

Similarly, Google has launched Project Link, under which it rolled out a metro fiber network in Kampala, Uganda, with Ghana being in the pipeline. Through such efforts and investments, Google is aimed at bringing about faster and more reliable internet to the Africans.

Microsoft, which has been one of the first players to enter the African turf, is also undertaking projects to improve connectivity in Africa. The company has invested in white spaces technology, which uses unused radio spectrum to provide Wi-Fi connectivity at comparatively lower costs.

However, managing to get people online is only the first step in the long journey to develop a growing market. Companies need to understand the specific dynamics of the local markets and develop new business models that will fit well in the African market.

For instance, globally, the revenue model for several leading tech companies, such as Google and Facebook, largely depend on online advertising. However, the same model may not thrive in most African markets due to a limited digital footprint of the consumers as well as the fact that the business community in the continent continues to draw most transactions offline, using cash.

Connecting Africa – Global Technology Firms Gaining a Foothold in the Market

Players employ a range of strategies to penetrate the market

These tech giants must work closely with local businesses and achieve an in-depth understanding of the unique challenges and opportunities that the African continent presents. Therefore, these companies are increasingly focusing on looking for collaborations that will help in the development of successful and sustainable businesses in the continent.

Leading players, such as Google and Microsoft have been investing heavily in training local enterprises in digital skills to encourage businesses to go online, so that they will become potential customers for them in the future.

While this strategy has been used somewhat extensively by US-based and European companies, a few Chinese players have recently joined the bandwagon. For instance, Alibaba’s founder, Jack Ma announced a US$10 million African Young Entrepreneurs Fund on his first visit to Africa in July 2017. The scheme will help 200 budding entrepreneurs learn and develop their tech business with support from Alibaba.

The company has also been focusing on partnerships and collaborations to strengthen its position in the African market. Understanding the logistical challenges in the African continent, Alibaba has signed a wide-ranging agreement with French conglomerate, Bollore Group, which covers cloud services, digital transformation, clean energy, mobility, and logistics. The logistics part of the agreement will help Alibaba leverage on Bollore’s strong logistics network in Africa’s French-speaking nations.

Considering the importance of mobile wallets and m-payments in Africa, Alibaba has expanded its payment system, Alipay, to South Africa (through a partnership with Zapper, a South Africa-based mobile payment system) as well as Kenya (through a partnership with Equitel, a Kenya-based mobile virtual network operator). In many ways, it is applying its lessons learnt in the Chinese market with regards to payments and logistics, to better serve the African continent.

While Chinese players (such as Alibaba and Baidu) have been comparatively late in entering the African turf, they are expected to pose a tough competition to their Western counterparts as they have the advantage of coming from an emerging market themselves, with a somewhat better understanding of the challenges and complexities of a digitally backward market.

For instance, messaging app WeChat brought in by Tencent, China-based telecom player, has provided stiff competition to Whatsapp, which is owned by Facebook and is a leading player in this space. WeChat has used its experience in the Chinese market (where mobile banking is also popular just as it is across Africa) and has collaborated with Standard Chartered Bank to launch WeChat wallet. In addition, WeChat has collaborated with South Africa’s largest media company, Naspers, which has provided several value added services to its consumers (such as voting services to viewers of reality shows, which are very popular in Africa). Thus, by aligning the app to the needs and preferences of the African consumers, it has made the app into something more than just a messaging service.

While collaboration has been the go-to strategy for a majority of tech companies, a few players have preferred to enter the market by themselves. Uber, a leading peer-to-peer ridesharing company entered Africa without collaborations and is currently present in 16 countries.

While entering without forging partnerships with local entities helps a company maintain full control over its operations in the market, in some cases it may result in slower adoption of its services by the local population (as they may not be completely aligned with their preferences and needs). This can be seen in the case of Netflix, a leading player in the video streaming service, which extended its services to all 54 countries in Africa in January 2016 (the company has, however, largely focused on South Africa). Despite being a global leader, Netflix has witnessed conservative growth in the continent and expects only 500,000 subscribers across the continent by 2020.

On the other hand, Africa’s local players ShowMax and iROKO TV have gained more traction, due to better pricing, being more mobile friendly (downloading option) and having more relatable and local content, which made their offer more attractive to local populations.

Netflix, slowly understanding the complexities of the market, has now started developing local content for the South African market and working on offering Netflix in local currency. The company has also decided to collaborate with a few local and Middle-Eastern players to find a stronger foothold in the market. In November 2018, the company signed a partnership with Telkom, a South African telecommunication company, wherein Netflix will be available on Telkom’s LIT TV Box. Similarly, it partnered with Dubai-based pay-TV player, OSN, wherein OSN subscribers in North Africa and Middle East will gain access to Netflix’s content available across the region. However, while Netflix may manage to develop a broader subscriber base in South Africa and a few other more developed countries, there is a long road ahead for the company to capture the African continent as a whole, especially since its focus has been on TV-based partnerships rather than mobile (which is a more popular medium for the Internet in Africa).

On the other hand, Chinese pay-TV player, StarTimes has had a decade-long run in Africa and has more than 20 million subscribers across 30 African countries. While operating by itself, the company has strongly focused on local content and sports. It also deploys a significant marketing budget in the African market. For instance, it signed a 10-year broadcast and sponsorship deal with Uganda’s Football Association for US$7 million. To further its reach, the company also announced a project to provide 10,000 African villages with access to television.

US-based e-commerce leader, Amazon, is following a different strategy to penetrate the African markets. Following an inorganic approach, in 2017, Amazon acquired a Dubai-based e-retailer, Souq.com, which has presence in North Africa. However, the e-commerce giant is moving very slowly on the African front and is expected to invest heavily in building subsidiaries for providing logistics and warehousing as it has done in other markets, such as India. This approach to enter and operate in the African market is not widely popular, as it will require huge investment and a long gestation period.

Local tech start-ups are on the rise

While leading tech giants across the globe are spearheading the technology boom in Africa, developments are also fueled by local start-ups. As per the Disrupt Africa Tech Startups Funding Report 2017, 159 African tech start-ups received investments of about US$195 million in 2017, marking a more than 50% increase when compared to the investments received in 2016.

While South Africa, Nigeria, and Kenya remained the top three investment destinations, there is an increasing investor interest in less developed markets, such as Ghana, Egypt, and Uganda. Start-ups in the fintech space received maximum interest and investments. Moreover, international VC such as Amadeus and EchoVC as well as local African funds appear keen to invest in African start-ups. The African governments are also supporting start-up players in the tech space – a prime example being the Egyptian government launching its own fund dedicated to this objective.

African fintech start-ups, Branch and Cellulant, have been two of the most successful players in the field, raising US$70 million and US$47.5 million, respectively, in 2018. While Branch is an online micro-lending start-up, Cellulant is a digital payments solution provider. Both companies have significant presence across Africa.

EOS Perspective

Although US-based players were largely the first to enter and develop Africa’s technology market, Chinese players have also increasingly taken a deeper interest in the continent and have the advantage of coming from an emerging market themselves, therefore putting themselves in a better position to understand the challenges faced by tech players in the continent.

Most leading tech players are looking to build their presence in the African markets. Their success depends on how well they can mold their business models to tackle the local market complexities in addition to aligning their product/service offerings with the diverse needs of the local population. While partnering with a local player may enable companies to gain a better understanding of the market potential and limitations, it is equally imperative to identify and partner with the right player, who is in line with the company’s vision and has the required expertise in the field – a task challenging at times in the African markets.

While global tech companies are stirring up the African markets with the technologies and solutions they bring along, a lot is also happening in the local African tech-based start-ups scene, which is receiving an increasing amount of investment from VCs across the world. In the future, these start-ups may become potential acquisition targets for large global players or pose stiff competition to them, either across the continent or in smaller, regional markets.

It is clear that the technological wave has hit Africa, changing the continent’s face. Most African countries, being emerging economies in their formative period, offer a great potential of embracing the new technologies without the struggle of resisting to adopt the new solutions or the problem of fit with legacy systems. It is too early to announce Africa the upcoming leader in emerging technologies, considering the groundwork and investments the continent requires for that to happen, however, Africa has emerged as the next frontier for tech companies, which are causing a digital revolution in the continent as we speak.

plastic waste landfill
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Commentary: How USA Can Deal with Its Waste Crisis

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It is not often that one can hear that a US$100 billion industry is in tatters, however, this is currently the reality in case of the US recycling industry. For years, the USA has been dependent on waste exports, to countries such as China, India, and Korea. However, that dependence has now placed the USA in a very difficult position, as the implementation of National Sword policy by China, the largest export destination for US waste, amidst the China-USA trade disputes, resulted in waste exports coming to a virtual halt since the start of 2018.

With waste generation growing, the USA has been left scrambling to look for alternative destinations for its waste, the largest being India, Malaysia, Thailand, and Vietnam, albeit none of them capable of completely compensating for waste exports to China. Recently, in March 2019, India also banned imports of plastic waste, eliminating another major avenue through which the USA could get rid of its trash.

US dependence on exports for waste recycling meant that the development of domestic recycling facilities has been neglected. The country’s domestic waste recycling sector is now incapable of handling the ever-increasing waste, a major chunk of which ends up in landfills, creating other environment and health-related problems.

However, where there are challenges, there are opportunities as well. We look at what challenges the USA currently faces, and how the recycling industry is trying to adapt and come up with potential solutions to the country’s waste problem.

USA’s linear model left recycling industry unprepared

Traditionally, US municipals have depended on external companies to dispose their waste. Most disposal companies follow a linear model, under which they collect the municipal waste and then segregate it for further processing (with majority of it previously being exported to China). This dependence on waste exports led to limited investments in developing or expanding the domestic recycling infrastructure, which the country has been left to rue in the wake of the waste import ban imposed by China and India.

Limited capacities have put extra burden on the system. Moreover, elimination of revenue from scrap sales to China puts additional economic pressure on waste processors. As a result, many waste collection agencies have either suspended waste pickup or raised prices to dispose of waste. Municipals too have to bear greater economic burden. Cities, which were earlier paid for their waste, are now being charged significant amounts for hauling waste.

Current waste disposal process is not up to the mark

Another key challenge is the lack of sorting at source, i.e. at the household level. Due to consumer’s preference, the USA follows a single-stream recycling system, where all recyclables are collected in the same receptacle. With no segregation happening at this stage of waste collection, the processor is responsible for sorting different type of materials for recycling.

However, the lack of capacity and established infrastructure makes it difficult and expensive to sort these waste materials, resulting in most of the waste being discarded, either ending up at an incineration facility or a landfill, which are much more cost-effective compared with recycling. Currently, only 10% of plastic waste generated in the USA is recycled, while 75% of it is discarded in landfills (remaining 15% being incinerated to form electricity – but that too has its critics due to the pollution caused).

How USA Can Deal with its Waste Crisis

Recycling companies invest to boost processing capabilities

Impacted by the loss of the key buyer and facing own limited capacities, several smaller recycling companies reliant on exports to China have shut down their operations, while several other recyclers have been forced to reassess market strategy from exports to processing.

Several recycling companies have already started investing to develop their domestic waste processing and collection infrastructure. As an example, Waste Management, a US-based waste disposal and recycling services provider, invested more than US$110 million in 2018 alone in developing additional processing capacity, acquiring new technologies, and boosting waste collection infrastructure.

Robotic technology is likely to witness more investment

With limited capacities and waste production growing, there is a need to improve the overall efficiency of waste sorting and recycling process. Companies across Europe and Asia Pacific have been researching and developing trash robots (also called “trashbots”) capable of collecting, sorting, and recycling waste and other scrap materials.

The trend is now catching up in the USA as well. Waste Management has already installed a waste sorting robot at one of its material recycling facilities, and plans to install three more robots in 2019. The company is also planning to install additional screeners and optical sorters at its facilities.

New opportunities are emerging in plastic waste recycling

With a significant focus on promoting sustainability, several other companies also see recycling as a promising business opportunity, thereby driving investment in recycling infrastructure. GDB International, a US-based company selling plastic scrap to international markets, was impacted by the Chinese import ban, and decided to invest in developing its own recycling capabilities. The company plans to recycle plastic scrap domestically, and sell recycled plastic pellets to plastic product manufacturers within the USA and abroad.

EOS Perspective

Chinese and Indian waste import bans have jolted the US recycling industry as a whole, pressing it to search for a solution to its swelling problem. The industry is witnessing problems which question the entire structure of the industry and challenge companies to reconsider their commonly utilized business model – shifting from a linear model to a circular economy.

The most obvious solution for the US recycling industry, in the short term, is to consider alternative waste destinations, such as Vietnam, Malaysia, and Thailand, to share the waste burden. However, since none of these markets are developed enough to sustain over a long term, this solution, at best, can be considered a temporary fix.

The government needs to take several initiatives to lay a strong foundation for a revamped recycling industry, such as banning or restricting the use of hard-to-recycle plastics (including single-use plastics such as straws and disposable spoons), and laying down strict guidelines for sorting of waste already at the household level, which will improve the efficiency and costs associated with the recycling process.

A coalition of plastics players and other industry groups is lobbying for provision of funds by the US government, an investment of US$500 million, to help develop local waste management systems. If disbursed, these investments will enable development of the recycling industry until it becomes self-sufficient in handling domestic waste. Once this happens, the costs of disposing and processing waste are also likely to reduce.

In the long run, significant private investments in building domestic recycling capacities will be required to effectively address the ever-increasing waste. Excess waste, which was earlier exported to China and India, offers a sustainable source of raw materials to justify these investments in developing the recycling infrastructure. Furthermore, increasing focus on sustainability is driving a demand for recycled raw materials. Development of downstream recycling and processing capabilities can also enable recycling companies to tap this lucrative business opportunity. Partnerships with end users are likely to open further revenue stream.

While private investments in recycling infrastructure have started flowing in and the rate is expected to pick up, these investments will take time before the added capacities actually become operational. The success of these investments, however, will depend on how effectively the US government is able to execute initiatives to aid growth of domestic recycling industry.

Tunisia’s Bruised Tourism Industry Starts to Recover
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Tunisia’s Bruised Tourism Industry Starts to Recover

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The tourism sector of Tunisia has been in turmoil over the past few years. The terrorist attacks on Sousse beach and Bardo National Museum in Tunis in 2015 crippled the industry, which had been witnessing a healthy growth before these events. As the Tunisian government and tourism industry players have been implementing strategies to revive the industry, some progress has been witnessed. However, the damage to the country’s image was grave and it is yet to be seen if the measures being taken will put the industry back on the growth trajectory.

Grave repercussions to the sector

Post Tunisia’s political revolution in 2011, the government started promoting tourism both domestically and internationally, and by 2014, the tourism sector contributed 15.4% to the country’s GDP. However, the terrorist attacks in 2015 in Sousse and Tunis killed nearly 60 foreign tourists (including 30 UK nationals) and significantly tarnished the image of Tunisia as a safe tourist destination.

The concerns over safety, reinforced by travel bans and no-travel recommendations issued by some EU countries, resulted in a drastic fall in the number of overseas tourists arriving in Tunisia. A travel ban issued by the UK authorities was particularly damaging to the local tourism sector, as UK had been the key demand-generating market for Tunisia. Between 2014 and 2017, the number of incoming travelers from the UK declined by 93% to 28,000 and many renowned UK travel companies, including Thomas Cook and TUI, discontinued their services in Tunisia.

The tourism sector had always been crucial for Tunisia’s economy and was one of the country’s key employment sectors, employing over 200,000 people before the attacks. The sudden decline in country’s tourism industry impacted cash inflow, business operations of several tourism industry players, and further destabilized the already faltering economy of the country.

The Recuperating Tourism Sector of Tunisia

Government reaction and first results

After two years of struggle, the Tunisian tourism market started showing first modest signs of recovery in 2017, following measures undertaken by the government to boost tourist footfall in the country. The Ministry of Tourism’s initial steps to help the industry survive included covering of social security contributions for tourism entities such as hotels, resorts, restaurants, etc., by the government, with the intention to help the providers maintain their employees and stay afloat. While this helped reduce the impact, the country still saw a massive loss of jobs in travel and tourism in 2015.

Simultaneously, the government tried to address the most pressing issue directly responsible for the decreased demand for Tunisian tourism services – traveler safety. To make tourists feel safe, the government tightened security around touristic sites, particularly in Sousse and Tunis. Additional surveillance equipment was placed at airports, hotels, and resorts to enhance security, while sector staff and various security forces received training on detecting suspicious behaviors and on counter-terrorism. Over the following years, Tunisia also received help from western countries in raising its security standards and procedures.

While these initiatives were needed and welcome, preventing attacks of this sort in a country located in close proximity to conflict zones, requires massive funding and complete, deep overhaul of its security and counter-terrorism system at all levels. Regardless of whether the steps already taken are sufficient or not to truly ensure safety, they certainly offered greater sense of protection to tourists, a fact promptly and extensively communicated to target customers across British and other European media.

The government of Tunisia has also taken measures to balance out the losses by trying to diversify its demand markets. To attract tourist from outside Europe, visa requirements for countries including China, India, Iran, and Jordan were eased with the introduction of visa on arrival. This strategy helped Tunisia attract Chinese tourists, whose footfall increased 56% y-o-y in January-May 2018 period.

To fuel business travel arrivals, the MoT started granting one-year multi-entry visa to businessmen and investors of these countries as well. Further, the MoT also removed entry visa requirements for countries including Angola, Burkina Faso, Botswana, Belarus, Kazakhstan, and Cyprus.

In parallel, the industry realized the need to broaden the sector’s offering. One such initiative was to expand the premium and luxury tourism segment targeting (quite interestingly) particularly British affluent travelers (indicating a continuous bet placed on British customers). In 2017, Four Seasons Hotel Tunis was opened, a major step in putting the country on the luxury tourism map, followed by a few more luxury resorts openings. In several locations premium activities have been developed, including marine spas and golf courses.

Europe’s cautious return to holidays in Tunisia

The measures appeared to have worked, and in 2017, the industry witnessed growth of the number tourists by 23.2% y-o-y to reach 7 million. While the government actions were to some extent successful, it was the lifting of travel ban to Tunisia by EU countries including Belgium, the Netherlands, Poland, and the UK that was the main factor leading to growth.

Recovery was further supported by the return of travel companies such as Thomas Cook and TUI, which resumed operations in Tunisia. Moreover, an air service agreement was signed in late 2017 between the EU and Tunisia to increase the number of direct flights between European countries and Tunisia, which soon led to the return of European airlines including Air Malta and Brussels Airlines on these routes.

All these developments have helped to revive tourism sector and regain European visitors to a certain extent. The number of tourists, particularly, from France and Germany, increased by 45% and 42%, respectively, y-o-y for the period of January-May 2018. This growth in tourist footfall was a great sigh of relief for local industry players, whose businesses have suffered tremendously post attacks.

UK tourist, the most valuable visitor, reluctant to come back

Despite Tunisia’s attempts to diversify its demand markets, the country sees UK as the most important source of tourists for its tourism sector. According to the Tunisian Hotel Association, the market will not fully recover until the British visitors are back in numbers from before the attacks, which will also send a strong message to the world that Tunisia is safe for travel again.

Before the attacks, tourists from the UK formed the bulk of most valuable visitors to Tunisia with high spending capacity, the strongest inclination to spend on high-end accommodation and local cuisines, staying for longer duration in the country, and shopping extensively for locally-made products.

Rebuilding Tunisia’s image in the eyes of British tourists is therefore seen as of great importance. While some British tourists started to return to Tunisia (following tightened safety measures and an extensive publicity thereof) many UK travelers continue to remain wary, and in spite the lift of the travel ban, British arrivals have not reached pre-2015 levels. This reluctance is difficult to break, as UK tourists still do not fully trust that their safety will be ensured, a fear further underpinned by tensions in Tunisia’s neighboring Muslim countries (e.g. Libya).

Some issues remain unresolved

The inability to bring back the UK tourists at levels from before 2015 is still a major problem to the local industry. Although the government undertook several initiatives to improve tourist safety, these steps are likely to be insufficient to prevent such events in the future.

Amidst Tunisia’s frail economic conditions, the availability of sufficient funds to truly and permanently ramp-up security is limited. Moreover, Tunisia must be able to ensure ongoing counter-terrorism abilities as a preventive measure, a task requiring a systematic approach and continuous financing, without dependence on western governments. Considering Tunisia is surrounded by areas prone to continuously produce this sort of danger, ensuring the right intelligence and financing is likely to be a challenge.

Tunisian tourism sector is fighting several battles at the same time, and the blow it received in an aftermath of the attacks had broad repercussions. Various structural issues, which had been present before 2015, still persist. This includes a relatively large share of poor quality accommodation and hotel services, which are not up to par with international standards and expectations of a western tourist, therefore are detrimental to market growth. The 2015 events put several hotel operators under heavy debt and in fight for survival, which pushed upgradation of hotel facilities much lower on their priority list.

There is also a shortage of well-trained hotel and other tourist services staff, which makes it difficult for the Tunisian tourism industry to compete with countries such as Turkey, especially if the substandard service level is paired with outdated and poorer hotel amenities and services. Tunisia does have training centers, however the aftermath of 2015 attacks put the entire sector along with ancillary industries in a standstill, therefore several training center have not been functioning at full capacity. Recovery will take time and it will be a while till a sufficient number of well-trained hotel staff will become available.

EOS Perspective

With tourism playing a pivotal role in Tunisia’s economy, the country found itself in a very difficult position as a result of the attacks. The revival of tourist footfall since the summer of 2017 is definitely encouraging, however the industry is still not out of the woods and needs to continue to work along with the government to ensure the return of the tourists, by addressing the key issues – safety and quality of services.

This should also be a good moment for Tunisia to realize the risks of reviving the industry with the same over-dependence on limited variety of demand markets as before (i.e. UK), and intensify its efforts to diversify target markets across Europe and beyond.

Apart from introducing and maintaining fundamental changes to the safety of the traveler and to what the industry offers, the country needs to revamp the way it markets itself so that it can improve its image and boost tourism. In the past, public authorities and industry players have not paid much attention to promoting the country’s tourism market on social media, relying largely on tour operators and agencies. However, promoting a positive image of the country along with advertising tourist facilities through online channels might help Tunisia reach broader customer segments across markets, e.g. by influencer endorsements (quite a successful approach for Abu Dhabi and Turkey, to name just a few, in the past).

It is also important for Tunisia to look beyond traditional mass-market, organized tourism and explore other avenues of revenue. More focus could be put on promoting cultural tourism as well as access to Sahara Desert – key attraction for people visiting south of Tunisia. Local investors have already started working to develop offers with local cuisines and immersive desert experiences, along with authentic-themed hotels and restaurants.

Tunisia has also made the right (although modest) steps to address the issue of substandard hotel amenities and unclear standard of accommodation that can be expected by tourists. Changes are being made to classification of hotels, as the current star rating system is outdated and based on size and capacity rather than quality of services. Efforts are being made to re-classify hotels in line with international standards. Such reforms are crucial for the industry to ensure higher level of customer satisfaction.

Rebuilding damaged image is always a long and difficult process and Tunisian authorities must do whatever possible to prevent similar attacks in the future. If the public authorities along with the industry players continue to make efforts to pull the country’s tourism market out of the pit, the optimistic expectations about tourist arrivals reaching 12 million by 2028, with a CAGR of 4.6% over 2018-2028, are likely to become reality, bringing back much needed employment and revenue to the economy.

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China’s Investments in CEE: Sharing Benefits or Building Own Dominance?

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In 2012, China unveiled its plan to invest in Central and Eastern European Countries (CEECs) through transregional platform called the 16+1 Cooperation framework. Since the launch of this framework, China has been proposing various policies of mutual benefit, making efforts to become an important trade and economic partner of the CEECs.  While investments are welcome, several EU leaders and political experts in the region criticize such deals. They point at a threat of China’s growing dominance in the CEECs, as well as at China not keeping its promises made during the launch of this framework and negotiations of various deals.

China promises mutual benefits

The 2008 crisis brought worsened economic conditions to the CEECs, which have since been seeking capital to stimulate investment and facilitate higher economic growth, along with expanding exports beyond traditional European destinations.

Owing to China’s position as one of the largest economic power houses and due to the CEECs’ high trade deficit with China, the countries in this region showed interest in Chinese investments and opened their doors for potential avenues to increase trade with China. China too has looked for diversifying its export destinations and expanding its brands internationally, and CEECs could help it achieve just that. Chinese motivation to focus on CEECs has been fueled by two key factors: availability of skilled and cheaper workforce in CEECs (as compared to EU average) as well as China’s desire to gain stronger strategic influence in business and politics arena in the region as against the EU and Russia.

In this mutual interest, China and the 16 countries (Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Lithuania, Latvia, Macedonia, Montenegro, Poland, Romania, Serbia, Slovakia, and Slovenia) signed a framework named 16+1 Cooperation in Warsaw in 2012. At the outset, this framework aimed at deepening the multi-lateral economic ties, intensifying infrastructural and cultural cooperation, and capitalizing on the emerging business opportunities for both China and the CEECs.

The scope of cooperation was set to cover projects in CEECs’ infrastructure through investing in transportation systems by establishing new rail routes connecting the 16 countries with other parts of the world (Asia, Africa, and Middle East). China also intended to focus on capitalizing on green technologies, expanding export and import of goods, bringing new technologies for manufacturing sector, enhancing exchange programs for science, architecture, literature etc., and improving cross-cultural relations with the 16 countries.

Framework institutionalization raises a few eyebrows

In order to execute all the cooperation plans, the institutionalization of this framework in the CEECs became the first task to accomplish. It began with launch of Permanent Secretariat at the Chinese Foreign Ministry in China in 2012, followed by opening of Business Council in Poland (2014), Secretariat of Investment Promotion in Poland (2014), New Silk Road Institute in Czech Republic (2015), Center for Dialogue and Cooperation on Energy Projects in Romania (2016), Regional Center of the China National Tourism Administration in Hungary (2016), Coordination Mechanism on Forestry Cooperation in Slovenia (2016), Association for the Promotion of Agricultural Cooperation in Bulgaria (2017), China-CEE Institute in Hungary (2017), and few more.

Such institutionalization in the form of CEECs national coordinators, establishment of several secretariats, and a number of associations and industry organizations for individual states, became a crucial step towards enhanced political and economic relations of China and CEECs, and paved the way for further projects.

On the other hand, however, it left room for criticism. Some organizations, such as Institute for Security and Development Policy, Sweden, pointed out that establishing these institutions in a scattered rather than centralized way will deeply affect proper coordination and flow of information about all projects and initiatives within the framework.

Other voices of criticism, mostly from EU diplomats, warned about the fact that these institutions will limit accessibility to the information for the public. These institutions tend to work in line with the Chinese culture which differs greatly from cultural norms in European (and thus CEECs) organizations. In CEECs’ political culture (prevalent to various degrees across the European region), institutions are expected to actively and symmetrically communicate information to the public, providing room for public criticism and ensuring transparent procedures.

However, in Chinese political culture, public consultation and individual opinion are not given such importance. This leaves many EU leaders to ponder whether China’s intentions are to actually enhance the Sino-CEECs relations or to grow its dominance over the CEECs and act as it pleases behind the veil of its own culture providing an excuse for limited transparency.

OBOR and 16+1 framework go hand in hand

One of China’s major initiatives (and perhaps the only one so far considered to bring real benefit for both sides) is the One Belt, One Road (OBOR) project, launched in 2013 (we wrote about it in our article OBOR – What’s in Store for Multinational Companies? in July 2017). Under this project, China is ambitiously investing in developing one road connectivity, and this plan includes connecting the 16 CEECs with Asia, Africa, and Middle East. According to National Development and Reform Commission of China, Chinese investment in OBOR is likely to reach anywhere between US$120 billion and US$130 billion and with the external investments, it is expected to be totaling to US$600-800 billion by 2022. The success of OBOR is likely to impact the economies of CEECs though increased trade not only with China but also with other countries in Asian Pacific region.

China’s Investment in CEE Sharing Benefits or Building Own Dominance

The Balkans remain important in China’s plans

As part of OBOR, China has increased investment in infrastructure development in CEECs countries, with the initial focus on a few Balkan projects, especially in Serbia, with which China have always had excellent bilateral relations. The country appears to be the central hub in the Balkans for OBOR, both at an infrastructural and political level.

China started with a couple of agreements for infrastructure development with Serbia. These included China’s first large infrastructure investment in the region – construction of “Mihajlo Pupin”, the second bridge over Danube River in Belgrade in 2014 by China Road and Bridge Corporation (CBRC). The bridge shortened the travel time between Zemun on the south bank and Borca on the north bank of the Danube River from more than an hour to just 10 minutes. It also considerably reduced traffic problem on the first bridge. The project was received well by Serbia and taken as a good sign of China’s efforts to strengthen relations between the two countries.

China and Serbia came together for three more deals under the 16+1 framework, leading to total Chinese investment of nearly US$1.06 billion. These included US$715 million for construction of Kostelac power generation unit and expansion of coal-fired plant complex started in 2013, another US$350 million for re-construction of 34.5 km long segment of Belgrade-Budapest railway line, started in 2014, and undisclosed-value project of construction of Surcin-Obrenovac segment on Serbia’s E763 highway developed by China Communication Construction Company (CCCC) in 2017. All the three projects are likely to be completed by 2020.

Another flagship project, which involved Serbia and Hungary, was the construction of China-Europe land-sea fast intermodal transport route that was initiated in 2014 and became operational in 2017. With these infrastructural developments, China showed it delivered on its promises, and took steps to facilitate an enhanced exchange of goods with the CEECs.

Asymmetrical distribution of opportunities also causes criticism

The fact that all these projects were developed predominantly by Chinese firms, has been a cause for concern for western European leaders who criticized Chinese companies for seizing all opportunities and profits. The critics point out that if China and CEECs are coming together for such projects, the local companies should be able to benefit and be given opportunity to contribute skillset and technologies to local infrastructure development.

On the other hand, according to numerous experts, several countries, including Serbia, lack the technical and financial capacity required for such projects. China’s perspective should also be considered here – as China is already investing in the CEECs in the development of infrastructure, it is only logical (and natural) that it would prefer to engage own firms in order to help their business and take back some revenue from the projects.

China strengthens its foothold through financing initiatives

Chinese investments in CEECs are not only limited to the infrastructure sector, but also include certain financing initiatives in the form of availability of loans and funds. During the launch of 16+1 Cooperation framework, China announced a special credit of US$10 billion to the 16 countries to be used as preferential loans for implementation of common projects. Apart from that, in 2013, China together with CEECs launched a Sino-CEE investment fund of US$435 million, which aims at contributing financially to the sustainable economic development of CEECs.

Further, various banks and financial institutions, such as Bank of China, China Development Bank, China Export-Import Bank, and Industrial and Commercial Bank, have opened their branches in the region. While the official reason for this was to provide financial support and availability of funds to the CEECs, a relevant reason was also for China to expand the reach of these financial institutions’ brands in the European market.

Chinese investments grow in size and breadth

It is clear that China’s interest in CEECs has been growing, as exhibited through the sectoral breadth of investment initiatives and the variety of investment modes. Chinese companies are also pursuing the path of acquisitions and joint ventures with CEECs-based companies, the key example of which was seen in 2016, when Polish waste management firm, NOVAGO, was acquired by China Everbright International (Hong Kong). The deal was signed up at a value of US$144.3 million and was one of the largest acquisitions by a Chinese firm in the environment sector in CEECs.

While it is expected that such acquisitions can certainly bring benefits to the local entities involved in the deal (through capital and technology transfers, and easier access to the Chinese market), some concerns have been raised that an intensive Chinese-dominated M&A activity is not healthy for the local market dynamics.

The extent of these investments and acquisitions resulted in year-on-year increase in China’s outward foreign direct investment (OFDI) stock in the 16 countries. According to data from the Chinese Ministry of Commerce, the OFDI stock in 2010 in CEECs was estimated at US$0.85 billion and it reached US$1.97 billion in 2015, depicting an overall increase of around 130% in five-year period. Overall, Hungary was the leading recipient of FDI in CEE region with US$571.1 million, followed by Romania with US$364.8 million, and Poland with US$352.1 million in 2015.

The increased FDI in these countries is partially also a result of their interest in attracting Chinese investments even before the 16+1 cooperation framework came into picture. Poland, for example, being the largest economy amongst CEECs, started promoting itself with Chinese firms since the EXPO 2010 in Shanghai. For long, Hungary seems to have made a point to maintain good relations with China, even before other CEECs intensified multilateral relations with China. Hungarian government also made efforts to attract FDI, including from China, by proposing deals such as introduction of special incentives for foreign investors from outside EU or residence visa programs for bringing in a certain level of investment in Hungary.

Trade intensifies, though less than expected

Not only has there been growth in Chinese FDI since the yearly 2010s, but also the trade between China and the CEECs has grown progressively. According to Department of European Affairs at China’s Ministry of Commerce, trade between CEECs and China was estimated at US$43.9 billion in 2010 and grew to US$68.0 billion in 2017, showing a growth at a CAGR of 6.5% during 2010-2017.

While this might seem impressive, it must be noted that at the time of the launch of 16+1 cooperation framework, China promised to increase the trade value to US$100 billion by the end of 2015, which is far from the actual results even by the end of 2017. This again led to the criticism by the western European leaders over China’s ability (and willingness) to deliver on its promises, indicating lack of credibility in Chinese assurances.

On the other hand, the numbers do depict growth in trade between China and CEECs from 2010 to 2017 as compared to the previous years. According to Chinese Ministry of Commerce, China exports to CEECs were US$49.4 billion and imports from CEECs were US$18.5 billion in 2017, with an increase of 13.1% and 24%, respectively, from 2016. China’s exports to CEE concentrate on technology (with high-tech products from telecommunication, service sectors, and e-commerce sectors). CEECs supply agricultural products including fruit, wine, meat, and dairy products to meet the growing demand of the large population of China. Further interest in expanding imports of agricultural and dairy products by China can be expected, and an increased ease of exporting to China is likely to help CEECs to reduce their continued trade deficit in the coming years.

EOS Perspective

The rising investments of China in the CEECs have been under scrutiny since formalizing the 16+1 cooperation framework in 2012. Ever since the launch, China has been taking a range of initiatives that on the one hand worked towards development of the CEECs, but on the other hand gradually built its dominance in various markets and sectors in the region.

It is clear that such steps are taken by China in order to strengthen its political and economic foothold in the region. European leaders continue to remain skeptical over the intentions of China, which might also indicate the EU’s insecurity about China capturing strong hold over CEECs markets and building its dominance, which potentially might be able to overpower the EU’s influence in the region (especially in the Balkans out of which several countries are not EU members).

From the development point of view, initiatives such as OBOR, China-Europe sea-land express way, Belgrade and Budapest railway line, and even the mergers and acquisition deals, certainly bring advantages not only for China but for the CEECs as well, through much needed funding of infrastructure projects as well as through increased trade revenue.

Although it is of paramount importance for European watchdogs to keep an eye on the ongoing trade imbalance and growing Chinese ownership in CEE enterprises, it must be noted that acquisitions of CEECs-based firms by Chinese firms have largely affected the business in a positive way till now, thanks to influx of capital and the possibility to get the base to expand in Asian markets. Under this framework, despite its inherent issues and associated risks, steps taken by China for future development in the form of ongoing projects, especially in the infrastructure sector, have the potential to create more opportunities for the parties involved to strengthen cross-regional trade and hence create a (almost equal) win-win situation for both China and the CEECs.

by EOS Intelligence EOS Intelligence No Comments

High Production Costs Dampen Camel Milk Market Potential

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Over the past few years, dairy-caused allergies and the growing debate regarding the inherent benefits and disadvantages of consumption of cow milk and its products have made consumers look for alternative sources to traditional dairy products. One product that has been growing in popularity owing to this is camel milk. Deemed to be the most expensive milk in the market, camel milk is known to have several medicinal values, especially for the treatment of diabetes, orthopedic problems, and autoimmune diseases. Few studies also claim that it is beneficial for the treatment of autism. While camel milk remains a niche product at the moment, it will be interesting to see if this product can make a dent in the massive dairy-milk industry, especially with the presence of several other healthy plant-based milk alternatives.

Growing demand and expanding production

Camel milk is not a new product as it has been consumed in the Middle East for ages, however, it is only recently that it has sparked global interest. Owing to its significant health benefits (primarily for diabetes), the product has found traction especially in developed countries, such as the USA, parts of Europe, Singapore, and Australia. The global market, which was valued at about US$4.24 billion in 2017 is estimated to register a CAGR of about 7% during 2018-2022.

Investments to expand Australian camel milk production

In response to the growing demand, several companies (especially across Australia) are entering the camel milk space and are increasing their investments in the sector.

Australia’s Wild Camel Corporation has expressed plans to increase its herd size five-fold from 450 camels to 2,500 camels over the next two years.

Similarly, Western Australia-based Good Earth dairy, which in mind-2018 had about 100 camels, plans to expand to 3,300 camels by June 2020, which would help the dairy produce about 10,000 liters of camel milk in a day.

Victoria-based The Camel Milk Co. doubled its milk output in 2017 to reach 250 liters a day from a herd of 250 camels. It has also maintained a scope for further expansion by moving to a farm that can house a herd of 1,000 camels, planning to increase its herd size along with growing demand.

International investments are also pouring into Australia’s camel milk market. In 2017, UAE-based investors funded a US$6 million (AUD8 million) pilot camel milk farm at Rochester, Australia. Several Chinese investors are also reported to be interested in investing in the camel milk business in the country.High Production Costs Dampen Camel Milk Market Potential

India’s camel milk production grows as well

In addition to Australia, India (and a few African countries, such as Kenya and Ethiopia) has also focused on increasing camel milk production.

India-based Aadvik Foods and Products, which procures raw camel milk from Indian camel breeders and herders and processes and markets it, has significantly increased its scale of operations. It started with procuring and processing 80-100 liters milk per month in 2015 and moved on to procuring and processing close to 8,000 liters per month in 2017.

In January 2018, Rajasthan’s State Government (in partnership with Jaipur-based Saras Dairy) announced its plans to set up a mini camel milk plant in Jaipur. The plant will cost US$1 million (INR 70 million) and is expected to be set up by the end of the year. Post the establishment of the Jaipur plan, the government plans to open another mini plant in Bikaner.

Expanding food product lines

In addition to processing and marketing camel milk, several companies across the globe are expanding their product base to include camel milk products such as milk powder, chocolate, cheese, infant formula, ice cream, etc.

In 2016, Desert Farms, a US-based camel milk company, added camel milk soaps and camel milk powder to its product range.

In 2017, India-based Aadvik Foods, also extended its camel milk product line to include camel milk chocolates and milk powder.

In a similar move, Amul, one of India’s largest dairy cooperatives, launched camel milk chocolates in late 2017. Unlike most other players in the market, Amul has first started with chocolates and then wishes to enter the packaged camel milk market in the near future.

In 2018, Australia’s QCamel announced its plan to launch camel-milk chocolates for the Australian as well as international markets.

In February 2018, UAE-based Camelicious launched the world’s first camel milk infant formula for children aged one to three, an alternative for children who are lactose-intolerant.

The camel products for children are praised for their benefits, as camel milk is the closest alternative to mother’s milk in terms of nutritional value. Since camel milk is beneficial for children as it has higher iron and vitamin C content compared with other milk options, products such as chocolates, infant formula, and ice cream, seem to be smart product extensions, especially if such benefits are highlighted through marketing.

Moreover, product extensions help companies reach a greater audience for their camel milk. Since camel milk is saltier than the largely consumed cow milk, products such as chocolates, help garner users that otherwise may reject camel milk due to taste preferences.

High retail prices hamper demand growth

While camel milk as a product is gaining popularity and acceptance globally, it is not without its share of challenges. Camel milk is the most expensive type of milk in the market.

In the USA, Desert Farms sells one gallon of camel milk for US$144 (US$38 per liter), while it sells a kg of camel milk powder for about US$370. In comparison, a gallon of cow milk sells for about US$3.50 in the USA.

In Singapore, a liter of camel milk sells for about US$19 per liter (US$72 per gallon). In comparison, cow milk sells for close to US$8 per gallon in Singapore.

Similarly, camel milk in India costs about US$7 per liter and camel milk powder costs close to US$87 per kg, whereas cow milk retails for about US$0.6 per liter.

While the benefits of camel milk are plentiful, they do not always justify the high price in the eyes of the consumer. The high cost can be attributed to the high production cost and low yield compared with dairy cattle produce.

In Australia, the cost of producing one liter of camel milk is around US$13 (AUD17), while in India a liter of camel milk cost US$5-6 (INR 350-400) to produce – in comparison to this, producing one liter of cow milk costs farmers about US$0.27-0.32 (AUD0.37-0.44) per liter in Australia and US$0.2-0.27 (INR 14-22) per liter in India.

Camels also produce less milk in comparison with cows. While cows produce around 16 liters a day, a camel usually produces only 6 liters a day.

While the benefits of camel milk are plentiful, they do not always justify the high price in the eyes of the consumer.

In addition to the barrier of high price and costs, camel milk also faces significant competition from plant-based milk alternatives, such as soy, almond, and coconut milk. These milk options are also considered to be a healthy alternative to cow milk and have the added benefit of being vegan. Moreover, while these milk options are more expensive in comparison with cow milk, their prices are still considered more reasonable when compared with camel milk price.

EOS Perspective

Camel milk has a lot of inherent benefits, which are expected to ensure steady sales growth over the next decade. While there are no doubts regarding the growing popularity of camel milk, it is too far-fetched to say that this market can dent the dairy mega-industry. Camel milk market is standing at the beginning of its promising growth curve, however, it must work towards pushing the production costs down to become more mainstream rather than niche, which will not be achieved by simply marketing the medicinal properties of the product.

Camel milk market is standing at the beginning of its promising growth curve, however, it must work towards pushing the production costs down to become more mainstream.

Several dairy farms across the globe have realized this aspect and are working towards achieving economies of scale and getting costs down through increasing operations size and venturing into extended product lines. While it is certain that the industry will continue to grow, it is yet to be seen whether it can create a shelf space for itself across large retail stores or whether it remains a primarily niche premium online sales product mostly for affluent consumers.

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