Learning Objectives

By the end of this chapter, you will be able to:

  • Understand how e-commerce transforms business strategy and competitive dynamics
  • Explain the impact of e-commerce on organizational structure and culture
  • Describe how e-commerce changes business processes and workflows
  • Analyze industry transformation using strategic frameworks
  • Identify disintermediation and reintermediation patterns
  • Apply these concepts to Nepali business contexts
  • Evaluate strategic responses to e-commerce disruption

Introduction: E-commerce as a Transformative Force

E-commerce is not merely a new sales channel or technology platform—it is a fundamental disruptive force that reshapes every aspect of how businesses operate. This transformation occurs across three critical dimensions:

  1. Strategy: How businesses compete and create value
  2. Structure: How organizations are designed and managed
  3. Process: How work gets done and value is delivered

Understanding these changes is essential for businesses seeking to survive and thrive in the digital economy.

Part 1: How E-commerce Changes Business Strategy

1.1 Competitive Strategy in the Digital Age

E-commerce fundamentally alters the nature of competition and strategic positioning.

Traditional vs. Digital Competition

Aspect Traditional Business E-commerce Business
Geography Local/Regional Global from day one
Barriers to Entry High (physical assets) Low (digital infrastructure)
Competition Known local competitors Unlimited global competitors
Information Asymmetric (seller advantage) Transparent (buyer advantage)
Customer Switching High switching costs Low switching costs (one click)
Scalability Linear (physical constraints) Exponential (digital leverage)

Key Strategic Shifts

1. From Physical Assets to Digital Capabilities

  • Traditional: Success based on physical locations, inventory, distribution networks
  • E-commerce: Success based on technology platforms, data analytics, digital marketing

Example (Nepal):

  • Traditional: Bhatbhateni’s success built on prime retail locations in Kathmandu
  • E-commerce: Daraz’s success built on digital platform, logistics network, and data analytics

2. From Local to Global Markets

  • Traditional businesses compete locally; e-commerce businesses compete globally from inception
  • Nepal Example: Nepali handicraft sellers can now reach global markets through Etsy, Amazon Handmade

3. From Product-Centric to Customer-Centric

  • E-commerce enables mass customization and personalization at scale
  • Focus shifts from “What can we make?” to “What do customers want?”

4. From Transaction-Based to Relationship-Based

  • Digital tools enable ongoing customer relationships
  • Subscription models, loyalty programs, personalized communication

1.2 Strategic Frameworks: Digital Transformation

Porter’s Five Forces in the E-commerce Era

Michael Porter’s Five Forces framework helps analyze competitive intensity. E-commerce significantly impacts each force:

1. Threat of New Entrants: INCREASED ⬆️

  • Why: Lower barriers to entry (no physical stores needed)
  • E-commerce Impact: Anyone can start an online store with minimal investment
  • Nepal Example:
    • Traditional: Opening a retail shop in Kathmandu requires lakhs in investment
    • E-commerce: Starting on Daraz or social media requires minimal capital
    • Result: Explosion of small online sellers in fashion, cosmetics, food

2. Bargaining Power of Suppliers: MIXED ↔️

  • Decreased: Businesses can source globally, more supplier options
  • Increased: Digital platforms (Amazon, Alibaba) become powerful intermediaries
  • Nepal Example:
    • Local retailers can now source directly from international suppliers
    • But dependence on platforms like Daraz gives the platform negotiating power

3. Bargaining Power of Buyers: INCREASED ⬆️

  • Why: Price transparency, easy comparison, low switching costs
  • E-commerce Impact: Customers can compare prices instantly across multiple sellers
  • Nepal Example:
    • Consumers use price comparison across Daraz, Sastodeal, HamroBazar
    • Reviews and ratings give customers information advantage
    • Social media allows public complaints and pressure

4. Threat of Substitute Products: INCREASED ⬆️

  • Why: Easy discovery of alternatives through search and recommendations
  • E-commerce Impact: Algorithm-driven product recommendations expose customers to substitutes
  • Nepal Example:
    • Customer looking for a specific brand discovers cheaper alternatives on Daraz
    • YouTube reviews introduce substitute products

5. Rivalry Among Existing Competitors: INTENSIFIED ⬆️

  • Why: Global competition, transparent pricing, reduced differentiation
  • E-commerce Impact: Price wars, aggressive marketing, constant innovation required
  • Nepal Example:
    • Intense competition between Daraz, Sastodeal, SmartDoko
    • Food delivery wars: Foodmandu vs. Bhoj Deals vs. PathaoFood
    • Ride-sharing: Pathao vs. Tootle vs. InDrive

Overall Result: E-commerce increases competitive intensity across all five forces, making it harder to sustain competitive advantage.

Value Chain Transformation

Michael Porter’s Value Chain shows how businesses create value through activities. E-commerce transforms each activity:

Primary Activities:

Activity Traditional E-commerce Transformation Nepal Example
Inbound Logistics Physical receiving, warehousing Digital inventory management, automated ordering Daraz’s warehouse management system
Operations Manual production/assembly Automated order processing, digital fulfillment Sastodeal’s automated order system
Outbound Logistics Local delivery trucks Last-mile delivery networks, real-time tracking Pathao delivery integration
Marketing & Sales Print ads, in-store promotions Digital marketing, personalized ads, SEO/SEM Instagram marketing by Nepali fashion brands
Service In-person customer service Chatbots, online support, self-service portals eSewa’s 24/7 digital support

Support Activities:

Activity Traditional E-commerce Transformation
Procurement Manual purchase orders E-procurement, automated supplier management
Technology Back-office IT Core competitive advantage, continuous innovation
HR Management Local talent pool Remote work, global talent access
Infrastructure Physical facilities Cloud infrastructure, scalable digital platforms

Key Insight: In e-commerce, technology moves from support to primary activity—it’s not just supporting the business, it IS the business.

1.3 Strategic Responses to E-commerce Disruption

Businesses face strategic choices when confronting e-commerce disruption:

  • Description: Continue traditional operations, hope e-commerce is a fad
  • Outcome: Usually leads to obsolescence
  • Example: Kodak ignored digital photography, went bankrupt

Strategy 2: Defend

  • Description: Use existing strengths to protect market position
  • Tactics:
    • Emphasize personal service, local presence
    • Build customer loyalty programs
    • Competitive pricing
  • Nepal Example: Local kirana stores emphasizing personal relationships, credit facilities, immediate delivery

Strategy 3: Hybrid/Omnichannel

  • Description: Combine physical and digital channels
  • Tactics:
    • “Click and collect” - order online, pick up in store
    • Online catalog, physical showrooms
    • Integrated inventory across channels
  • Nepal Example:
    • Bhatbhateni exploring online ordering
    • Big Mart developing e-commerce presence
    • Miniso Nepal with online + physical stores

Strategy 4: Pure Digital Transformation

  • Description: Fully embrace e-commerce, may close physical operations
  • Tactics:
    • Build robust digital platform
    • Invest in logistics and technology
    • Data-driven decision making
  • Nepal Example:
    • Sastodeal (pure-play online electronics)
    • SmartDoko (online-first appliances)

Strategy 5: Platform Play

  • Description: Create a marketplace connecting buyers and sellers
  • Tactics:
    • Don’t own inventory
    • Focus on platform development
    • Network effects drive growth
  • Nepal Example:
    • Hamrobazar (classifieds platform)
    • Aayo (B2B platform connecting manufacturers and retailers)

1.4 Competitive Advantages in E-commerce

How do e-commerce businesses build sustainable competitive advantage?

1. First-Mover Advantage

  • Definition: Being first in a market segment
  • Benefits:
    • Brand recognition
    • Customer data and learning
    • Network effects
    • Switching costs
  • Nepal Example:
    • eSewa: First major digital wallet, now dominates market
    • Foodmandu: First food delivery platform, strong brand recognition

Warning: First-mover advantage is NOT guaranteed—must execute well.

2. Data and Analytics Advantage

  • How: Collect customer data, analyze behavior, personalize experiences
  • Result: Better product recommendations, targeted marketing, pricing optimization
  • Nepal Example: Daraz using purchase history to recommend products, optimize inventory

3. Network Effects

  • Definition: Platform becomes more valuable as more users join
  • Types:
    • Direct: More users = more value (social networks)
    • Indirect: More buyers attract more sellers and vice versa (marketplaces)
  • Nepal Example:
    • Hamrobazar: More listings attract more buyers; more buyers attract more sellers
    • Facebook Marketplace in Nepal: Massive user base creates value

4. Platform Ecosystem Lock-in

  • How: Create an ecosystem of complementary services
  • Result: High switching costs, customer retention
  • Nepal Example:
    • eSewa ecosystem: payments, bill pay, ticket booking, recharge
    • Khalti: Similar ecosystem strategy

5. Operational Excellence

  • Focus: Efficiency, speed, reliability, cost leadership
  • Key Areas:
    • Logistics and fulfillment
    • Technology infrastructure
    • Process optimization
  • Nepal Example: Daraz’s logistics network, same-day delivery in Kathmandu Valley

6. Customer Experience Differentiation

  • Focus: Superior user experience, convenience, trust
  • Elements:
    • Website/app usability
    • Customer service
    • Easy returns
    • Personalization
  • Nepal Example: Sastodeal’s focus on electronics expertise, warranty support

Part 2: How E-commerce Changes Organizational Structure

2.1 Traditional vs. E-commerce Organizational Structure

Traditional Hierarchical Structure

                    CEO
                     |
        _____________|_____________
       |             |             |
    Marketing      Sales       Operations
       |             |             |
   [Teams]       [Teams]       [Teams]
  • Characteristics:
    • Vertical hierarchy
    • Functional silos
    • Slow decision-making
    • Command-and-control management

E-commerce Flat/Network Structure

                    CEO
                     |
    ________________________________
   |        |        |        |     |
Product  Tech   Marketing  Data  Customer
 Team    Team     Team     Team   Success
   |        |        |        |     |
[Cross-functional Squads]
  • Characteristics:
    • Flat hierarchy, fewer layers
    • Cross-functional teams
    • Fast decision-making
    • Agile, autonomous teams

2.2 Key Structural Changes

1. Flatter Organizational Hierarchies

Why:

  • Speed is critical in e-commerce
  • Fewer layers = faster decisions
  • Empowered employees = better customer service

Impact:

  • Reduced middle management
  • More direct communication
  • Greater employee autonomy

Nepal Example:

  • Traditional businesses: Multiple approval layers for decisions
  • E-commerce startups: Small teams, direct CEO access

2. New Organizational Roles

E-commerce creates entirely new job functions:

Technology Roles:

  • Chief Digital Officer
  • Head of E-commerce
  • Data Scientists
  • UX/UI Designers
  • DevOps Engineers

Marketing Roles:

  • Digital Marketing Manager
  • SEO Specialist
  • Social Media Manager
  • Content Marketing Manager
  • Marketing Automation Specialist

Operations Roles:

  • Marketplace Manager
  • Logistics/Fulfillment Manager
  • Customer Experience Manager
  • Fraud Prevention Specialist

Nepal Context:

  • Growing demand for these roles in Kathmandu
  • Skills gap: Many positions hard to fill locally
  • Training programs emerging (universities, bootcamps)

3. Cross-Functional Teams

Traditional: Teams organized by function (all marketers together, all engineers together)

E-commerce: Teams organized by product/outcome with mixed skills

Example Team Structure:

  • Product Squad for “Checkout Experience”:
    • Product Manager (leads)
    • Engineers (2-3)
    • Designer (1)
    • Data Analyst (1)
    • Marketer (0.5)

Benefits:

  • Faster execution
  • Better communication
  • Accountability for outcomes
  • Innovation

Nepal Example:

  • Daraz likely has cross-functional teams for different categories (fashion, electronics, etc.)
  • Each team owns end-to-end experience

4. Remote and Distributed Teams

E-commerce enables (and sometimes requires) distributed work:

Drivers:

  • Technology enables remote collaboration
  • Access to global talent
  • Cost savings
  • 24/7 operations across time zones

Challenges:

  • Communication and coordination
  • Company culture
  • Management and oversight

Nepal Context:

  • Many Nepali e-commerce companies hire remote workers (development, design)
  • COVID-19 accelerated remote work adoption
  • Enables Nepali professionals to work for global e-commerce companies

5. Partnership Networks vs. Ownership

Traditional businesses often own all operations (vertical integration).

E-commerce businesses often partner for key functions:

Function Own Partner Nepal Example
Technology Platform Build in-house Use SaaS (Shopify, WooCommerce) Daraz built custom, small sellers use Shopify
Logistics Own delivery fleet Partner with couriers Daraz partners with Pathao, local couriers
Payment Build payment system Integrate payment gateways All integrate eSewa, Khalti, IME Pay
Inventory Own warehouse Dropshipping, marketplace Hamrobazar: no inventory (C2C marketplace)
Marketing In-house marketing team Agencies, influencers Mix of both common in Nepal

Strategic Question: What to own vs. what to partner?

  • Own: Core competencies, strategic differentiators
  • Partner: Commoditized functions, rapid scaling needs

2.3 Cultural Changes

E-commerce also demands cultural shifts:

From Risk-Averse to Experimental

  • Traditional: “Don’t fail”
  • E-commerce: “Fail fast, learn quickly”
  • Practices: A/B testing, MVP (Minimum Viable Product), rapid iterations

From Planning to Adapting

  • Traditional: Long-term plans, annual budgets
  • E-commerce: Agile sprints, continuous adaptation
  • Why: Market changes too fast for rigid planning

From Hierarchy to Meritocracy

  • Traditional: Respect for seniority, tenure
  • E-commerce: Respect for results, data
  • Impact: Younger employees can have significant influence

From Information Hoarding to Information Sharing

  • Traditional: Information is power, limited sharing
  • E-commerce: Transparent data, democratized insights
  • Why: Fast decisions require everyone having information

Nepal Context: These cultural shifts are challenging in Nepal’s traditionally hierarchical business culture. E-commerce companies must balance respect for cultural norms with need for agility.

Part 3: How E-commerce Changes Business Processes

3.1 Business Process Reengineering (BPR)

Definition: Business Process Reengineering is the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in performance.

E-commerce often requires BPR rather than incremental improvement.

Traditional Process Improvement vs. BPR

Aspect Process Improvement Business Process Reengineering
Scope Incremental Radical transformation
Pace Gradual Rapid, all at once
Technology Support existing process Enable new process
Risk Low High
Potential Gain 10-20% improvement 100-1000% improvement

Example:

  • Improvement: Reduce order processing time from 2 days to 1 day
  • Reengineering: Eliminate order processing entirely through automation (instant)

3.2 Key Process Transformations

1. Order Fulfillment Process

Traditional Retail Process:

  1. Customer visits store
  2. Browses products
  3. Takes product to cashier
  4. Pays
  5. Leaves with product

Duration: 15-60 minutes

E-commerce Process:

  1. Customer browses online (anywhere)
  2. Adds to cart
  3. Checkout (online payment)
  4. Order confirmed instantly
  5. Warehouse receives order (automated)
  6. Picking and packing (optimized routing)
  7. Shipping label generated automatically
  8. Courier picks up
  9. Real-time tracking
  10. Delivery to customer

Duration: 1-7 days (but customer invests only 5-10 minutes)

Key Changes:

  • Automation: Steps 5-8 largely automated
  • Separation: Transaction (steps 1-4) separated from fulfillment (steps 5-10)
  • Transparency: Real-time order tracking
  • Efficiency: Warehouse operations optimized

Nepal Example - Daraz Order Process:

  • Online browsing and ordering
  • Automated warehouse management system
  • Integration with multiple delivery partners
  • SMS/app notifications at each stage
  • Same-day delivery in Kathmandu (for some products)

2. Customer Service Process

Traditional:

  • Customer calls phone number
  • Waits on hold
  • Speaks to representative
  • Issue resolved (or not)
  • No record for customer

E-commerce:

  • Self-Service Portal: FAQs, knowledge base (90% of queries resolved without human)
  • Chatbot: Instant response to common questions
  • Live Chat: Real-time human support when needed
  • Email/Ticket System: Asynchronous support with tracking
  • Social Media: Public support on Facebook, Twitter
  • Complete History: All interactions logged and accessible

Benefits:

  • 24/7 availability
  • Lower cost per interaction
  • Consistent responses
  • Data for improvement
  • Customer empowerment

Nepal Example:

  • eSewa: App-based support, chatbot for common queries, phone support
  • Daraz: Help center, chat support, social media customer service

3. Inventory Management

Traditional:

  • Physical inventory counts (weekly/monthly)
  • Manual reorder points
  • High safety stock (buffer inventory)
  • Based on historical averages

E-commerce:

  • Real-time inventory tracking: Every sale instantly updates inventory
  • Predictive analytics: AI predicts demand patterns
  • Just-in-time inventory: Reduced holding costs
  • Drop-shipping: No inventory at all (for some models)
  • Multi-channel integration: Online and offline inventory synchronized

Technologies:

  • RFID tags
  • Barcode scanners
  • Warehouse Management Systems (WMS)
  • Demand forecasting algorithms

Nepal Example:

  • Sastodeal: Real-time inventory visible on website
  • Daraz: Sophisticated inventory management across multiple warehouses
  • Small sellers: Often use spreadsheets, gradually adopting software

4. Marketing and Customer Acquisition

Traditional Marketing Process:

  1. Create ad campaign (weeks/months)
  2. Buy media (TV, print, radio)
  3. Launch campaign
  4. Wait weeks for results
  5. Limited measurement (surveys, sales lift)

E-commerce Digital Marketing Process:

  1. Create multiple ad variations (hours/days)
  2. Launch campaign (instantly)
  3. Real-time performance data
  4. A/B testing (which ad performs better)
  5. Adjust in real-time
  6. Retargeting (reach people who visited but didn’t buy)
  7. Personalization (different ads for different customers)

Transformation:

  • Speed: Campaigns launched in hours, not months
  • Measurement: Every click, view, conversion tracked
  • Optimization: Continuous improvement based on data
  • Targeting: Precise audience targeting
  • Personalization: Individual-level messaging

Nepal Example:

  • Facebook Ads for Nepali e-commerce: Precise targeting (Kathmandu, age 18-35, interested in fashion)
  • Google Ads: Bidding on keywords like “buy laptop nepal”
  • Retargeting: Visit Daraz, see Daraz ads on Facebook
  • Influencer marketing: Instagram influencers promoting products

5. Payment Processing

Traditional:

  • Cash payment (most common in Nepal)
  • Credit card processing (for larger businesses)
  • Check payments
  • Bank transfers (manual verification)

E-commerce:

  • Digital Wallets: eSewa, Khalti, IME Pay (dominant in Nepal)
  • Online Banking: Direct bank integration
  • Card Payments: Integrated payment gateways
  • Cash on Delivery: Still popular in Nepal
  • Buy Now Pay Later: Emerging (Fonepay Credit)

Process Transformation:

  • Instant payment verification
  • Automated accounting reconciliation
  • Fraud detection algorithms
  • Multiple payment options
  • Seamless checkout experience

Nepal Context:

  • Digital wallet adoption growing rapidly
  • Cash on Delivery still ~50-60% of transactions
  • Trust issues with online payment gradually reducing
  • QR code payments becoming common

6. Product Development and Launch

Traditional:

  • Market research (months)
  • Product development (months/years)
  • Production tooling (expensive)
  • Launch with inventory
  • Hope customers like it

E-commerce (Lean Startup Approach):

  1. Idea: Hypothesis about customer need
  2. MVP (Minimum Viable Product): Simplest version to test hypothesis
  3. Launch: Small scale, limited audience
  4. Measure: Customer feedback, usage data
  5. Learn: What works, what doesn’t
  6. Pivot or Persevere: Adjust or continue
  7. Iterate: Continuous improvement

Benefits:

  • Lower risk
  • Faster time to market
  • Customer-driven development
  • Lower initial investment

Nepal Example:

  • Online clothing brands: Test designs on Instagram, produce only what sells
  • Food delivery: Test new restaurant partnerships, keep what works
  • Service marketplaces: Launch with few providers, expand based on demand

3.3 Automation and AI in E-commerce Processes

Modern e-commerce increasingly uses automation and AI:

Automated Processes:

  • Order routing: Intelligent assignment to nearest warehouse
  • Pricing: Dynamic pricing based on demand, competition
  • Inventory replenishment: Automatic reorder when stock low
  • Email marketing: Triggered emails based on behavior (abandoned cart, etc.)
  • Customer support: Chatbots handling common queries
  • Fraud detection: Algorithms flagging suspicious transactions

AI/Machine Learning Applications:

  • Personalization: Product recommendations (Amazon’s “Customers who bought this also bought”)
  • Demand forecasting: Predicting future sales
  • Image recognition: Visual search, automatic product tagging
  • Voice commerce: Alexa, Google Assistant shopping
  • Chatbots: Natural language understanding

Nepal Context:

  • Early stages of AI adoption
  • Daraz likely uses recommendation algorithms
  • Chatbots emerging in customer service
  • Significant opportunity for growth

Part 4: Industry Transformation Patterns

4.1 Disintermediation

Definition: The removal of intermediaries (middlemen) from the supply chain.

Traditional Distribution Chain:

Manufacturer → Distributor → Wholesaler → Retailer → Consumer

E-commerce Direct Model:

Manufacturer → Consumer

How E-commerce Enables:

  • Internet allows direct communication
  • Digital payment processing
  • Logistics networks for direct shipping
  • Lower barriers to entry

Benefits:

  • For Manufacturers: Higher margins, direct customer relationships, customer data
  • For Consumers: Lower prices, more product information, direct support

Challenges:

  • Manufacturers must build new capabilities (marketing, fulfillment, customer service)
  • Existing channel partners resist
  • Logistics complexity

Nepal Examples:

Success Story - Disintermediation:

  • Nepali handicraft artisans selling directly on Etsy, Amazon Handmade
    • Traditional: Artisan → Middleman → Export shop → International buyer
    • E-commerce: Artisan → Etsy → International buyer
    • Result: Higher income for artisans, lower prices for buyers

Partial Disintermediation:

  • Local garment manufacturers selling on Daraz
    • Bypass some wholesalers/retailers
    • Still use Daraz as platform (new intermediary)

4.2 Reintermediation

Definition: The introduction of NEW intermediaries that add value in the digital economy.

Surprising Fact: The internet was supposed to eliminate middlemen, but it created NEW types of middlemen!

New Digital Intermediaries:

  • Marketplaces: Amazon, Daraz (connect many sellers to many buyers)
  • Comparison Sites: PriceGrabber, Google Shopping
  • Review Sites: TripAdvisor, Yelp
  • Payment Processors: PayPal, eSewa
  • Fulfillment Services: Amazon FBA (Fulfillment by Amazon)
  • Influencers: Social media influencers as product recommenders

Why New Intermediaries Emerged:

  • Information Overload: Too many choices, need curation
  • Trust: Need verification, reviews, guarantees
  • Convenience: One-stop shopping vs. visiting many sites
  • Services: Fulfillment, payment processing, returns

Nepal Examples:

  • Daraz: New intermediary between Nepali sellers and buyers
  • Hamrobazar: Intermediary for classified ads
  • eSewa: Intermediary for digital payments
  • Instagram Influencers: New intermediaries recommending products

Key Insight: The intermediaries that SURVIVE provide genuine value (curation, trust, convenience), not just a distribution toll.

4.3 Industry-Specific Transformations

Different industries transform differently with e-commerce:

Retail: Most Transformed

  • Impact: Massive disruption, many store closures
  • Survival Strategy: Omnichannel, experience-focused stores
  • Nepal: Early stages, but growing

Travel: Heavily Transformed

  • Impact: Travel agencies diminished, OTAs (Online Travel Agencies) dominant
  • Examples: Expedia, Booking.com
  • Nepal: Domestic travel still traditional, international bookings increasingly online

Banking: Transforming

  • Impact: Branch visits declining, mobile banking growing
  • Examples: Online-only banks
  • Nepal: Mobile banking growing (eSewa, Khalti), but branch culture strong

Education: Beginning Transformation

  • Impact: Online courses, MOOCs, hybrid learning
  • Examples: Coursera, Udemy
  • Nepal: COVID-19 accelerated online education adoption

Healthcare: Early Stages

  • Impact: Telemedicine, online pharmacy
  • Examples: Teladoc, Amazon Pharmacy
  • Nepal: Very early stages, regulatory barriers

Pattern:

  • Standardized products (books, electronics) → Easy to sell online
  • Experience products (clothing, furniture) → Harder but growing (AR/VR helping)
  • Service industries → Slower transformation, but accelerating

Part 5: Strategic Implications for Nepali Businesses

5.1 Opportunities

1. Global Market Access

  • Traditional: Limited to local market
  • E-commerce: Reach international customers
  • Example: Nepali handicrafts, tea, pashmina to global markets

2. Lower Startup Costs

  • Traditional: High capital for physical store
  • E-commerce: Start with minimal investment
  • Example: Fashion brands starting on Instagram

3. Data-Driven Insights

  • Traditional: Limited customer insights
  • E-commerce: Detailed behavior data
  • Example: Understand what products Nepali customers prefer

4. Niche Markets

  • Traditional: Need large local market
  • E-commerce: Can serve global niche
  • Example: Nepali language books, specific handicraft styles

5.2 Challenges

1. Infrastructure Limitations

  • Internet: Unreliable in many areas
  • Payment: Cash-on-delivery still dominant
  • Logistics: Poor roads, difficult last-mile delivery

2. Digital Literacy

  • Sellers: Many lack e-commerce skills
  • Buyers: Older generations less comfortable online

3. Trust Issues

  • Product Quality: Fear of receiving substandard products
  • Payment Security: Concerns about online payment fraud
  • Fake Products: Counterfeit goods

4. Competition

  • International: Amazon, Alibaba could enter Nepal
  • Local: Low barriers mean intense local competition

5. Regulatory Environment

  • E-commerce Law: Still evolving in Nepal
  • Taxation: Digital taxation rules unclear
  • Cross-border: Import/export complexities

5.3 Strategic Recommendations for Nepali Businesses

For Traditional Businesses:

  1. Start Digital Experimentation: Don’t wait, start small online presence
  2. Invest in Skills: Train staff in digital marketing, e-commerce operations
  3. Partner with Platforms: Use Daraz, Facebook as learning ground
  4. Focus on Experience: Use physical stores for experiences that can’t be replicated online

For E-commerce Startups:

  1. Solve Real Problems: Don’t copy international models blindly, address Nepal-specific needs
  2. Build Trust: Invest in customer service, quality assurance, transparent policies
  3. Master Logistics: In Nepal, logistics is often the key differentiator
  4. Use Data: Leverage customer data for personalization and optimization
  5. Think Mobile-First: Most Nepali consumers access internet via smartphones

For Policymakers:

  1. Digital Infrastructure: Invest in internet connectivity, especially rural areas
  2. E-commerce Regulation: Clear, balanced regulations that protect consumers and enable innovation
  3. Digital Payment: Promote digital payment adoption and security
  4. Skills Development: Include digital literacy and e-commerce in education

Summary

E-commerce fundamentally transforms businesses across three dimensions:

Strategy:

  • Intensifies competition through globalization, transparency, and lower barriers
  • Shifts competitive advantage from physical assets to digital capabilities and data
  • Requires new strategic thinking using frameworks like Porter’s Five Forces and Value Chain in digital context

Structure:

  • Flattens organizational hierarchies for speed and agility
  • Creates new job roles focused on digital, data, and customer experience
  • Enables cross-functional teams and distributed work
  • Shifts from ownership to partnerships for non-core functions

Process:

  • Automates and digitizes workflows for efficiency and scale
  • Enables real-time visibility and data-driven decision making
  • Transforms customer-facing processes (ordering, service, payment)
  • Facilitates continuous experimentation and optimization

Industry Impact:

  • Disintermediation removes traditional middlemen
  • Reintermediation creates new value-adding intermediaries
  • Different industries transform at different rates based on product characteristics

Nepal Context:

  • Significant opportunities: global market access, lower startup costs, niche markets
  • Persistent challenges: infrastructure, trust, logistics, skills
  • Success requires addressing local context while adopting global best practices

Key Takeaways

  1. E-commerce is transformative, not incremental: It requires fundamental rethinking of strategy, structure, and process
  2. Competitive intensity increases: All five forces in Porter’s model are amplified
  3. Strategy shifts from assets to capabilities: Success comes from technology, data, and agility, not physical assets
  4. Structure becomes flatter and more agile: Speed and customer focus require organizational change
  5. Processes become automated and data-driven: Technology enables dramatic process improvements
  6. Disintermediation AND reintermediation occur: Some middlemen disappear, new ones emerge
  7. Nepal has unique opportunities and challenges: Global market access vs. infrastructure limitations
  8. Adaptation is mandatory, not optional: Businesses that don’t adapt risk extinction

Discussion Questions

  1. Using Porter’s Five Forces, analyze the competitive position of a traditional retail store in Kathmandu facing e-commerce competition. What strategic responses are available?

  2. Compare the organizational structure of a traditional Nepali business (e.g., a retail chain) with a Nepal-based e-commerce startup. What are the key differences and why do they exist?

  3. Choose a business process (e.g., customer service, inventory management) and describe how it changes when moving from traditional to e-commerce operations. Use a Nepali example.

  4. Is disintermediation always beneficial? Discuss the pros and cons for different stakeholders (consumers, manufacturers, traditional intermediaries).

  5. What capabilities does a traditional manufacturer need to develop if they want to sell directly to consumers online? Are these capabilities easy to build?

  6. Analyze Daraz’s business model. Is it disintermediation or reintermediation? Who benefits and who loses?

  7. What strategic advantages do traditional brick-and-mortar stores in Nepal have that e-commerce cannot easily replicate? How should they leverage these?

  8. If you were advising a traditional Nepali business on e-commerce strategy, would you recommend building their own platform, partnering with existing platforms, or a hybrid approach? Why?

  9. How might AI and automation further transform e-commerce processes in the next 5 years? What implications does this have for employment in Nepal?

  10. Compare the speed of e-commerce adoption across different industries in Nepal (retail, banking, education, healthcare). Why do some industries transform faster than others?

Case Study: Daraz Nepal - Transformation of Retail

Background:

  • Daraz entered Nepal in 2014
  • Acquired by Alibaba Group in 2018
  • Largest e-commerce platform in Nepal

Strategic Impact:

  • Disintermediation: Enabled manufacturers to reach consumers directly
  • Reintermediation: Became new intermediary/marketplace
  • Intensified Competition: Forced traditional retailers to adapt

Structural Changes:

  • Built technology team in Nepal and abroad
  • Created logistics network across Nepal
  • Cross-functional teams for different categories

Process Innovations:

  • Automated order management system
  • Seller portal for inventory and order management
  • Integration with multiple payment methods
  • Real-time order tracking

Challenges Faced:

  • Building trust with Nepali consumers
  • Last-mile delivery in difficult terrain
  • Cash-on-delivery preference
  • Counterfeit products

Results:

  • Market leader in Nepali e-commerce
  • Enabled thousands of small sellers
  • Transformed consumer shopping behavior
  • But: Still significant portion of Nepali consumers shop traditionally

Lessons:

  1. Platform models can scale rapidly
  2. Local adaptation essential (cash-on-delivery, local festivals)
  3. Logistics is critical competitive advantage in Nepal
  4. Building trust takes time and consistent execution
  5. Technology alone insufficient—operational excellence matters