A government inquiry into the impact of global e-commerce players on local businesses has revealed the retailers ‘likely to face significant pressure’ from overseas competition.
In its report tabled last week, the Innovation, Industry, Science and Resources Committee outlined the shift in the Australian retail industry, which has seen the once relatively protected local sector face increasing competition from online businesses based overseas.
Online retail accounts for just 6.4 per cent of Australian retail spending but, unlike traditional retail, this is growing rapidly. Currently 80 per cent of online spending is with domestic retailers but competition from overseas retailers is increasing.
In its submission to the inquiry, the Department of Industry, Innovation and Science (DIIS) said the retailers most at risk from international competitors were large retail department stores, domestically focused low-cost online retailers, and small retailers selling homogenous products that can be purchased more cheaply online.
It also said Amazon’s presence in the Australian market could place significant competitive pressure on other retailers because: “Amazon’s scale, lack of physical stores, membership based model (through Amazon Prime), and cross subsidisation from its hugely profitable web services business has meant it can offer far greater choice at lower prices than traditional retailers can offer”.
Online opportunities for Australian retailers
The committee also looked at the positive impact of digital platforms like eBay and Alibaba, which allow Australian retailers to sell their products overseas.
As many as 90 per cent of Australian small businesses on eBay use the site to export their products and this opportunity to sell to a global market has helped business succeed that would likely be unviable if restricted to the local market.
The committee was chaired by former deputy prime minister Barnaby Joyce, who said selling online was a great option for small businesses based in regional areas.
“Online shopping is only going to continue to grow and disrupt trade in traditional bricks-and-mortar shops around the country,” he said.
“It is vital that we support Australian businesses to invest in the digital technologies, while demonstrating advantages of the virtual marketplace based in regional areas where infrastructure like the NBN is available and overheads such as rent can be much cheaper, that will enable them to take advantage of internet retail opportunities.”
Report recommendations
The committee made a number of recommendations, including the creation of a digital grants program for small business. This would provide businesses with small-scale grants to help them take advantages of digital opportunities like online retail.
It also recommended the government consider reforming competition law in future “in light of the potential impact of digital retail platforms, taking into account the way major tech firms collect, use, and monetise data in possibly anti-competitive ways”.
It also recommended the DIIS partner with industry associations and educational institutions to create educational materials aimed at encouraging small business to participate in the digital economy.
Read the full report.
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