Daraz is a renowned name in the e-commerce industry in South Asia as the company is serving the online purchase needs of more than 40 million users. The PESTLE analysis of Daraz shows the effect of different environmental factors on the operations of the company. These factors also have to potential to restrict or advance the growth of the organization.
Company Information
| ame | Daraz |
|---|---|
| Type | E-commerce platform |
| Founded | 2012 |
| Headquarters | Kathmandu, Nepal |
| Area served | Bangladesh, Myanmar, Nepal, Pakistan, and Sri Lanka |
| Products | Consumer electronics, fashion, beauty products, home appliances, and groceries |
| Parent Company | Alibaba Group |
| Website | www.daraz.com |
Political Factors
The political factors have a profound influence on the e-commerce platforms as the timely delivery of packages is dependent upon the stability in the region. In case of ongoing conflicts, the delivery operations are negatively affected with a higher likelihood of delayed delivery. For instance, the war between Russia and Ukraine slows down supply chain process.
South Asian countries such as Pakistan and Sri Lanka have frequent political disturbances. Such an unstable political climate makes the environment unpredictable and the companies have to be extra vigilant to cope with conflict. In case of a violent outbreak in the city, the management has to take the necessary steps to safe guard the well being of the employees.
Government’s policies pertaining to tax have a direct impact on the way business operations are managed. In case of Daraz, the withholding tax implemented on the retailers is determined by the government’s guidelines. Another implication of political factors is the input in e-commerce platforms in the form of FDI.
In 2018, the acquisition of Daraz by Alibaba was managed under the related policies of the government (Russell, 2018). The decision to acquire the company was made after analysis of the overall political climate and the growth chances of business in South Asia. Moreover, the amiable trading ties between the South Asian countries facilitated in the acquisition process.
Economic Factors
The economic prosperity of a country supports its businesses to flourish, while poor economic performance limits the growth chances of an organization. There are various forces in the economic domain that have the potential to effect business operations and profitability. These factors include the rate of inflation, price of energy, tax rate, labor market dynamics etc.
Despite being a leading e-commerce company, Daraz is negatively affected due to the declining economic situation in South Asian countries. For example, Pakistan has been experiencing economic decline, high rate of inflation and increased taxation are some of the factors that have lead to the decision of 11% workforce reduction.
Another factor that has influenced the performance of the company was the lower subsidies being offered by the government. The change in subsidies has altered the revenue of Daraz, along with the rising cost of operations due to high prices of energy and fuel. The management of supply chain and transportation cost structure has been significantly altered (Shahid, 2023).
Social Factors
The e-commerce users are increasing in South Asian regions which provide a suitable growth opportunity to companies such as Daraz. Businesses are becoming more involved in the use of digital medium for selling their products besides the traditional sources. In addition, buyers are becoming more depending on online based purchasing.
Pandemic has opened up new business opportunities for e-commerce companies as the demand for online purchase of household items such as grocery shifted towards digital medium. Daraz has expanded its scope of operations and included groceries and medicines as well besides other product ranges to address the evolving customer demand.
The company has been able to capitalize on the interest of people in products that are available at a lower price and sale discounts. People are interested in 11:11 offers which capture the attention of a significant ratio of the Daraz users. The company was able to achieve sales of 66 crore within the first hour of the initiation of the 11:11 sale, which was a record achievement.
Despite the positive social factors, Daraz faces two major challenges when it comes to social dynamics. Doubts about the authenticity of online platforms among the public and education of the sellers are main barriers in the fast growth of the company (Alam, 2022). Due to the low credibility of the company, it has been facing loss in Pakistan.
Technological Factors
Technology is required to run the e-commerce platform, with minimal disruption due to glitches. The supply chain process and inventory management is also dependent on the use of suitable technology. Daraz is using various technology tools to ensure smooth e-commerce operations and maintain relevance with the target market needs, such as jQuery and Google Analytics.
Digital revolution has facilitated the increase of online users of the company, making it a leading name in South Asia. In Sri Lanka alone, Daraz has 140,000 sellers, including 50,000 SMEs as well (CBR, 2022). Innovative technologies have further developed the company’s operations as live streaming and personalized app usage make the market reach more effective.
Legal Factors
The online selling platforms are governed by cyber security laws, which are put in place to protect the consumers from issues related to their data privacy. Moreover, these laws aim to protect the buyers from being a target of fraudulent sellers. The Information Technology Act of 2000 is also relevant for Daraz as the online processes are guided by these regulations (Jabbar, 2023).
Daraz also has to follow the regulations related to including sellers as a part of their platform and making sure that the items being sold are in accordance to legal requirements. The management also has to implement the employment laws that are relevant for its region of operations.
Environmental Factors
The environmental protection initiatives by Daraz include the use of renewable energy and adding low fuel consumption or electric vehicles. The management has shifted towards paperless handling of documentation, relying on digital medium as a sustainable alternative. In case of the packaging, the company is using material that can be recycled for further use (Daraz Group, 2023).
Conclusion
Daraz has been able to gain a strong position in the South Asian countries through the use of technology and innovation. The company faces issues in Pakistan, nevertheless is performing well in other countries. The industry provides opportunities for growth due to rising number of digital users and shifting focus towards online purchasing.
References
- Alam, K. (2022). Low trust and seller education biggest challenges in Pakistan ecommerce, says Daraz CEO. Dawn. Retrieved from: https://www.dawn.com/news/1714897
- CBR (2022). Daraz Commits to Boosting the Digital Economy in Sri Lanka. Ceylon Business Reporter. Retrieved from: https://cbr.lk/economics/daraz-commits-to-boosting-the-digital-economy-in-sri-lanka/
- Daraz Group (2023). Our Impact. Retrieved from: https://daraz.com/our-impact/
- Jabbar, A. (2023). E-commerce laws and their challenges in Pakistan. Pakistan Today. Retrieved from: https://www.pakistantoday.com.pk/2023/02/05/e-commerce-laws-and-their-challenges-in-pakistan/
- Russell, J. (2018). Alibaba buys Rocket Internet’s Daraz to expand its e-commerce empire into South Asia. Tech Crunch. Retrieved from: https://techcrunch.com/2018/05/08/alibaba-buys-rocket-internets-daraz/
- Shahid A. (2023). Chinese ecommerce giant Alibaba-backed Daraz cuts workforce by 11%. Reuters. Retrieved from: https://www.reuters.com/technology/chinese-ecommerce-giant-alibaba-backed-daraz-cuts-workforce-by-11-2023-02-07/