How e-commerce is unlocking the growth of small businesses

For many years, businesses were confined to their geographic locations and networks, relying on walk-ins and referrals to generate sales.

Today, they can reach customers across the country and beyond through e-commerce.

This transformation underscores the power of the digital economy in unlocking growth opportunities for millions of micro, small, and medium enterprises (MSMEs).

MSMEs are the backbone of Kenya’s economy as they play a pivotal role in job creation and poverty reduction.

The latest data estimates that Kenya hosts 1.5 million formally registered MSMEs and over five million informal ones, collectively contributing 30 per cent of the economy.

However, many of these businesses operate informally, limiting their potential for growth and scalability.

E-commerce platforms have emerged as transformative tools that enable MSMEs to thrive in a competitive environment.

Businesses can now connect with customers on a larger scale, unhindered by time or location. Kenya’s e-commerce penetration is projected to grow to 53.6 per cent in 2025, according to the Communications Authority of Kenya.

Convenience, a wider product range and competitive offers have driven more Kenyans to embrace online shopping.

Expanding market reach

MSMEs traditionally operated within a limited geographic radius. This localised model constrains growth and customer acquisition. Listing on an e-commerce platform allows more businesses to access a larger local and regional market.

Fostering a competitive business environment

Success in e-commerce requires resilience and adaptability. It’s an area where only the most disciplined and customer-focused businesses thrive.

This competitive environment pushes SMEs to evolve from small, informal vendors into reputable companies capable of scaling their operations.

For instance, a vendor selling shirts can suddenly compete with other sellers, reaching customers far beyond their immediate vicinity.

This expanded market exposure compels MSMEs to enhance their competitiveness by offering quality products at reasonable prices - fostering innovation and improvement in product offerings.

Inventory management

Effective inventory management is a critical skill for any small and medium business operating on e-commerce platforms. Sellers must maintain adequate stock levels to meet demand and avoid losing visibility.

On e-commerce platforms, running out of stock can push a seller’s products to the back pages, reducing customer interest and sales.

This forces SMEs to adopt better inventory tracking and replenishment practices. For example, ensuring real-time updates on stock availability and forecasting demand accurately helps sellers stay competitive.

By mastering inventory management, businesses can minimise lost sales opportunities, improve customer satisfaction and enhance their market presence.

Proper inventory management fosters operational efficiency and MSMEs learn to balance supply and demand effectively, reducing the costs associated with overstocking or frequent stockouts.

These practices, when consistently applied, transform MSMEs from informal operators into professional, reliable businesses.

Enhancing customer experience

Customer feedback on e-commerce platforms is usually immediate and impactful. When a product is returned due to quality issues, businesses receive direct feedback, enabling them to address the problem swiftly.

For example, if a vendor sells 4,000 units of a product and receives 1,500 returns in a week, the feedback highlights areas for improvement. The process challenges the seller to refine their offerings, enhancing customer satisfaction and loyalty.

Driving formalisation and growth

By participating in structured platforms, businesses transition from the informal to the formal sector.

This shift brings numerous benefits, including compliance with tax regulations, access to financing, and increased credibility. Once formalised, MSMEs can focus on growth rather than worrying about compliance issues.

E-commerce platforms educate MSMEs on critical aspects of business management, such as accounting and governance. Sellers learn to track their sales, manage returns, and analyse financial performance.

This not only improves operational efficiency but also facilitates a transition from informal to formal business practices. The transparency e-commerce demands is a stepping stone to sustainable growth.

Formalised SMEs contribute to a broader tax base, reducing reliance on small-scale tax hikes. By increasing businesses operating transparently, Kenya can collect more revenue organically, fostering a sustainable economic model.

E-commerce platforms also play a pivotal role in this transformation. Kenya’s digital economy is expected to contribute Sh662 billion to the gross domestic product by 2028, creating 300,000 jobs and increasing tax revenues by Sh150 billion.

This is according to the GSMA report.

For MSMEs to truly thrive, they must embrace the challenges and opportunities e-commerce presents, transforming themselves into engines of economic growth and innovation.

The writer is Jumia Regional CEO for East Africa