Pakistan Is One of the Most Promising E-Commerce Markets in Asia: Daraz Asia CEO

ProPakistani recently got a chance to talk to Bjarke Mikkelsen, who is the CEO of Daraz Asia. The discussion comes at the heels of a $56 million funding round so we there’s never been a better time to discuss Daraz and the ecommerce market in Pakistan!

Tell us about the structure of Daraz Group

Daraz is a holding company with subsidiaries in Bangladesh, Myanmar and Pakistan. The new investment is in Daraz Asia, not specifically one market. Daraz is owned by the Asia Pacific Internet Group which in turn in 50% owned by Rocket Internet and 50% owned by Ooredoo, a Qatar based telco.

Now, the holding company is now welcoming on-board CDC Group, a development finance institution owned by the UK government. 20 million Euros are being put up by CDC while 30 million Euros are being invested by existing investors ie APIG.

CDC Group was set up by the British government after the second world war to secure food supplies by investment in trade partners. So while it may seem like just another investment, there’s a larger interest in seeing Pakistan and Bangladesh being more developed. This investment won’t only go into marketing and advertising but it’s also going to create real jobs on the ground. That’s something important to CDC and us as well. The money will be spent mostly in existing markets of which Pakistan is by far the largest and an appropriate portion will of course will allocated to the country.

How has Rocket Internet’s involvement helped Daraz?

I would say that Rocket Internet is a big organization where there are a lot of best practices that were initially shared. Today, Daraz is its own company. We operate independently, we have investors to whom we need to deliver results and they want to see healthy results. Rocket Internet’s support is valuable and we still share best practices but the initial setup was more relevant from Rocket Internet’s perspective rather than running the business on the ground today.

Have you decided how much of the funds are going to be invested in Pakistan?

There’s no specific allocation to Pakistan but it’s the biggest market and naturally, a large part would go to Pakistan.

How does Pakistan compare to the rest of the markets in which Daraz operates?

For me, Pakistan and Bangladesh are two markets that are developing very fast. Pakistan is maybe further ahead due to better internet penetration but in terms of ecommerce both countries are more or less on par.

Where does Daraz stand in the ecommerce space and how do you see the market evolving in the next few years?

We are pretty comfortable in saying that we are the biggest player in the ecommerce market in Pakistan.

In terms of development, an interesting way to look at it is by comparing internet penetration to ecommerce penetration. These are two metrics that follow each other and have a very strong correlation. In the beginning, when ecommerce is just starting up, you see incredible growth to just get the market going and that’s where we are right now. To say anything about the longer term, I would look at how fast the internet penetration is going to grow and ecommerce would be closely correlated with it. Right now, we are creating the market so we expect solid growth over the next 12 months.

What are the challenges of operating in Pakistan?

One of the big challenges is that Pakistan is a very big and fragmented market. For other countries, the ecommerce market is usually concentrated around the major cities. In Pakistan, that’s not the case and that’s what makes us very excited for the market as well. We have seen huge activity from tier 2 cities outside of Islamabad, Lahore and Karachi. That means we have to develop an infrastrucutre that can deliver the best possible customer service to everyone in this country. And that’s a big challenge. Currently, we are delivering our own packages in Lahore, Karachi and Islamabd. Outside of those cities though, we are relying on our delivery partners. If you think about it, there are only two people who interact with the customer are the customer service representative and the guy who delivers the package. So if you want a premium customer experience, it becomes a huge challenge and it’s something we are working on. If you don’t control every single delivery, there is a always going to be some variability.

What can we expect from Daraz over the next 12 months?

One big thing that we’re working on currently, is an event we hosted with Google called TechMela. I would say that it’s one of the first big ecommerce events in Pakistan which focuses on bringing the best possible deals to customers. We’re also bringing Black Friday Sales to Pakistan around late November in partnership with EasyPay. Over the next 3 months, we are also going to focus efforts to optimize our mobile apps. That’s because we’ve been seeing a very fast transition from desktop to mobile. Those are the two key thing you can expect from our side.

Tell us about your workforce and how much you plan to expand?

Currently, we have about 400 employees in Pakistan. That’s going to grow. I don’t expect it to be as much as our revenues will grow because of economies of scale but it’ll surely be in multiples of our current work force over the next 12-18 months.

Can you mention how much Daraz has grown in number?

To answer the question, it’s important to mention that Daraz started a long time ago in 2012 as a fashion business. It was only in November 2014 that we decided to sell electronics and general merchandise goods. So Daraz in its current form, which is a general business similar to Amazon, has only really existed since November last year. Since then, we have grown more than 3 times. We can’t mention any hard numbers since we decided not to in financing round but what we can say is that the number of visitors on the site is 6 million per month and growing.

Daraz doesn’t have the responsibility of complaints. So how do you plan to fix issues with vendors like substandard quality, out of stock items etc?

First of all, Daraz is a marketplace. We can of course control who can sell on the market but in the end, it’s the sellers and buyers who interact. In the long term, these issues will not exist. We already have a ratings system on the website and eventually, everyone will know who are reliable sellers. In the mean time, we are very actively de-listing sellers who don’t comply with our requirements. When you begin a business, you need maximum vendors to make sure customers have their pick.

Now, we have enough vendors so over the last 3 months, we have focused on improving the quality. So if a vendor has consistent returns or out of stock of items or complaints, we de-list them and they have to go through a training program to come back. We are at a stage where we can afford to be selective about who we work with. This is not something that happens overnight; it’s a journey, but we are working very hard on it.

Has the lack of a payments solution like PayPal hurt Daraz’s business and adoption in Pakistan?

It’s not hurting our business and it’s not holding us back but from the customer’s perspective and from a working capital perspective on our side, it’s better to have an efficient payments system. The payments challenge in Pakistan is the low credit and debit card penetration. So even if there was a Paypal, it’d apply to a small portion of the country. That’s why we find a system like EasyPay really interesting. We’re partnering with them for the first Black Friday event in Pakistan and it’s poised to be quite big.

Are you going to expand to new markets?

Right now, we are going to focus on the existing 3 Daraz markets. In 2016, we may or may not go to additional markets. For now, we are focusing on building a healthy business with good customer experience for the 400 million people in Pakistan, Bangladesh and Myanmar.

How is the climate for businesses in Pakistan and what can the government do to make it better?

I’d rather not comment on the government part because I’m not a specialist in Pakistani regulations. But overall, the climate for doing business is improving. We have good relationships with the key regulators. I do think there is a lot of need for dialogue and development but I’m not the best person to go into details on that.