DUBAI â Souq.com, an online retailer based in the United Arab Emirates, said on Monday that it had raised $ 275 million from international investors. It was a vote of confidence for digital commerce in the Middle East, which has made little headway compared with elsewhere in the world.
Souq, the largest e-commerce company in the Middle East, was founded in 2005 on an eBay-like online auction model, but it subsequently evolved into more of an Amazon-style set-price retailer. It has been a rare success story in a region where online businesses face logistical problems, political challenges, stifling bureaucracy and regulations that vary greatly from country to country.
Souqâs latest round of funding included investments from the New York-based hedge fund Tiger Global Management, as well as Standard Chartered Private Equity and the International Finance Corporation, which is an arm of the World Bank.
Souq â which means market in Arabic â did not provide details on what the funding round meant for its overall valuation, and it has not released details on its annual sales or profit. The $ 275 million funding round was, however, the largest ever disclosed by a technology start-up in the Middle East and North Africa, according to Wamda, a research firm based in Dubai, the United Arab Emirates.
Even after multiple fund-raising rounds, however, the Jabbar Internet Group â which sold Maktoob, a news site, to Yahoo for more than $ 150 million in 2009 â still holds a majority stake.
âThe start-up scene has changed so much since Souq launched over 10 years ago,,â Ronaldo Mouchawar, the chief executive of Souq, said in an interview, âand the size and scope of this kind of funding is encouraging for entrepreneurs.â
Mr. Mouchawar said the company would use the funds to bolster its technology, such as payment processing, and to help increase the scale of its operations by improving logistics. Souq also hopes to introduce new product categories, particularly related to beauty and fashion, and to recruit employees, he said.
In particular, it will look to improve its mobile application â Mr. Mouchawar noted that 70 percent of purchases from Souq in Saudi Arabia, the Middle Eastâs second-biggest market, were made on phones.
Souq, now the largest online retailer in the Arab world, has operations in Egypt, Saudi Arabia and the United Arab Emirates. It ships hundreds of thousands of products across the six countries of the Gulf Cooperation Council.
âMost local retailers â whether they will openly admit it or not â are fully aware that customers can find products cheaper online, whether locally or on global sites,â said Alexandra Tohme, an independent e-commerce analyst with more than a decade of marketing experience in the region. âIn some cases, even heavy items with shipping charges still generate savings of up to 50 percent compared to brick and mortar stores.â
Ms. Tohme said Souqâs particular success was driven by competitive prices compared with other retailers in the region, and by its reputation for reliable delivery services.
Several other online retailers have tried, and failed, to overcome the myriad difficulties of e-commerce in the Middle East.
Barriers to trade across the region remain high and include tariffs, varying national laws and different currencies, and political instability can also be an obstacle in countries like Egypt, whose population of nearly 90 million has endured heightened levels of violence since a popular uprising in 2011. The high costs associated with online retail can also discourage start-ups.
As a result, several major online retailers have struggled: Joob, an online travel website started by the Jabbar Internet Group, folded with little explanation a year after its introduction in 2011; the German start-up fund Rocket Internet closed Mizado, an Amazon copycat, in 2012, after just five months of operation, to concentrate on the online shoe retailer Namshi, it said. That same year, the online daily deals website LivingSocial abruptly exited the Middle East.
The marketâs potential remains attractive, however.
âBy the end of the decade, two-thirds of the region will have smart devices â supercomputers in their pockets â which means increased innovation, problem-solving and purchasing power,â said Christopher M. Schroeder, an American venture capitalist.