1 0.1 0.1 0.2 0.3 0.4 0.5 0.7 0.8 0.9 1 1.1 1.4 1.5 1.7 1.9 2.2 2.4 2.6 0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 1.8 2 2.2 2.4 2.6 2.8 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Billion Global Internet Users 1996 - 2013 70 76 78 83 86 90 94 66 83 104 126 156 175 189 23 25 25 27 27 28 29 5 6 8 9 11 13 14 0 5 10 15 20 25 30 35 0 20 40 60 80 100 120 140 160 180 200 2007 2008 2009 2010 2011 2012 2013 Per 100 Millions Fixed Broadband Subscribers: China vs US USA China E-commerce and Internet Trends US vs China E-commerce has been growing rapidly globally with annual turnover of more than USD 1.3 trillion by the end of 2014, up 22% from the previous year. This represents almost 6% of global retail sales. 1 China for its part has been posting figures of RMB 1.2 trillion as of September 2013 to RMB 1.8 trillion as of September 2014 according to the National Bureau of Statistics. The US has somewhat slower growth but still represents the biggest global market, with 300 billion USD in 2014. Needless to say, e-commerce has become a central part of our daily lives. However, if we take one step back and ask ourselves what effects has the onset of e-commerce had on different industries’ supply chains, distribution channels and overall economies? Is there any major difference how the arrival of Internet retail and Internet platforms has come about in the US as compared to China? How do these two markets differ at present? We will try to set the basis for further discussion on these questions in the content to come. Moreover, we will try to look deeper into what specific problems does e-commerce address and what holds in the medium future for this impressive phenomenon called Internet. The Internet has changed everything – the way we live, the way we consume, the way we communicate. As such, the Internet can be viewed as the third industrial revolution. Web browsers together with the first web pages such as Yahoo in 1994 represent the basis for the first major Internet trend of gaining as much traffic as possible on a particular online platform. This has been especially the case in the world of e-commerce. Namely, the more traffic there is in traditional retail stores, the more chance of higher sales, using the same logic that was established for e-commerce. This kind of Internet business model has been widely popular – and still is – but starting from 2007, an additional important input arrived in the form of smartphones. 1 https://www.internetretailer.com/2014/12/23/global-e-commerce-will-increase-22-year http://www.forbes.com/sites/forrester/2014/05/12/us-e-commerce-grows-reaching-414b-by-2018-but-physical-stores-will-live- on/ accessed on 20.03.2015
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USvsChina
E-commercehasbeengrowingrapidlygloballywithannualturnoverofmorethanUSD1.3trillionbytheendof2014,up22%fromthepreviousyear.Thisrepresentsalmost6%ofglobalretailsales.1Chinaforits part has been posting figures of RMB 1.2 trillion as of September 2013 to RMB 1.8 trillion as ofSeptember2014accordingtotheNationalBureauofStatistics.TheUShassomewhatslowergrowthbutstillrepresentsthebiggestglobalmarket,with300billionUSDin2014.Needlesstosay,e-commercehasbecome a central part of our daily lives. However, if we take one step back and ask ourselves whateffectshastheonsetofe-commercehadondifferentindustries’supplychains,distributionchannelsandoveralleconomies?IsthereanymajordifferencehowthearrivalofInternetretailandInternetplatformshascomeaboutintheUSascomparedtoChina?Howdothesetwomarketsdifferatpresent?Wewilltrytosetthebasisforfurtherdiscussiononthesequestionsinthecontenttocome.Moreover,wewilltrytolookdeeperintowhatspecificproblemsdoese-commerceaddressandwhatholdsinthemediumfutureforthisimpressivephenomenoncalledInternet.
WebbrowserstogetherwiththefirstwebpagessuchasYahooin1994representthebasisforthefirstmajorInternettrendofgainingasmuchtrafficaspossibleonaparticularonlineplatform.Thishasbeenespecially the case in theworld of e-commerce.Namely, themore traffic there is in traditional retailstores,themorechanceofhighersales,usingthesamelogicthatwasestablishedfore-commerce.Thiskind of Internet business model has been widely popular – and still is – but starting from 2007, anadditionalimportantinputarrivedintheformofsmartphones.
As previously stated, the Internet and the advent of e-commerce have indeed reshaped the globaleconomy.Thiscanbeseeninchangestointernationaltrade,currencyexchangesandnewperspectivesoftraderelationsbetweendevelopedanddevelopingeconomies.
Whenwelookatindividualeconomies,theintroductionofe-commercehashadtwosignificantimpacts:an increase in productivity and a decrease in inflation.2These two are related in that whenwe haveincreasedefficiency, then theendproduct is cheaperanddue to the increase incompetition, there isfurtherpotentialforpricestodecline.Thetrendisfurtherfacilitatedbynon-participatingcompanies,astheyareexpectedtoreact tothe increasedcompetitionfrome-ommerceandtherefore increasetheirownproductivitywhichfurtherdecreasespricesandinflation.Theincreaseinefficiencyisprimarilyseenin managing of the supply chains as e-commerce has profoundly changed the distribution channels.Namely, the intermediaries are skipped, or significantlyweakened,whereby e-commerce has enabledthe companies to directly reach the final consumer.More importantly, big data allow them to knowexactlywho their customers are.As in thepast, all themajor technological improvements that led toincreasedcompetitioninturnfurtherimprovedtheinnovationprocessascompaniestendtogatherpacecomparedtotheircompetitors.E-e-commerceisnoexception.
Attheinitialstageofe-commerceintheUS,therewaslowdemandforonlineshoppingasonlythetechsavvyandcuriouswouldgiveitatry.Thatiswhylargeretailerswereslowtoentere-commercein2001when 75 percent of it consisted of non-physical stores.3However,wehave sincewitnessedbrick andmortar stores entering the e-commerce sector as more consumers go online for their purchases.
2WhatImpactWillEcommerceHaveontheUSEconomybyJonathanL.Willisp53Diagrams - Global Internet Users Source: UN/International Telecommunication Union; Fixed Broadband Subscribers Source:InternationalTelecommunicationUnion,WorldBank;ChinaInternetUsersSource:ChinaInternetNetworkInformationCenter*2014asofJune;InternetUsersper100PeopleSource:InternationalTelecommunicationUnion,WorldBank
Furthermore,informationtechnologycostshavebeendecreasingwhichalsomotivatestraditionalstoresto go online. However, late online entry and different organizational cultures to true e-commercecompanieshavebeenprovingtobeachallengetomanyofthesuccessfultraditionalretailers.
Theintroductionofe-commercerepresentsarevolutionaryshiftindealingwiththeintermediariesinthesupply chain. The companies upstream and consumers downstream have been empowered by thelimitlessinformation.Eventhoughtheinformationisstillexpensivetobeproduced,itcanbemultipliedandissuedtoanunlimitednumberofpeoplewithinformationdistributioncostsessentiallynon-existent.The benefits achieved from intermediary weakening can be distributed between manufacturer andbuyer.4From the companies’ perspective one of the most obvious improvements introduced by e-commercehasbeenlowerlaborcost.Inaddition,thecompanieshavebeenabletoexpandthepresenceof their products internationally. With respect to manufacturing and material ordering, this has alsobeenhelpedbyaccesstocheapersuppliersthatarenowcompetingmoreactivelyduetoe-commerce.In addition, communicationwith suppliers has improved as it has become less costlywithmore highquality information being transmitted. The supply chains have seen improvements in orderingprocedures,lowercostsofcorrespondenceandfasterdocumentfillingprocedures.Suppliersreceivethedocumentsimmediately,which,inturn,leadstoadecreaseintheworkforceinthesupplymanagementarea. Those companies that havemany suppliers have particularly benefited from e-commerce as anelectronic ordering system makes it much less labor intensive. Furthermore, the adoption of e-commercehasallowedcompaniestomaintainfewerassetsintheirinventories.
Additionally, e-commerce has aided companies to have higher returns with a lower average cost ofproduction.5According to research, after the advent of e-commerce, revenues for a typical companyhavenotchangedsignificantlybutthecompany’sinputorcostsdid.6Asthisparticularsurveyhasshown,aloweringofthelaborcostshasprovedtobethemostbeneficialaspectofadoptinge-commerceinthesupplychainmanagement.Nevertheless,thelevelofbenefitslargelydependsuponthecompany’scoststructure. Narrowly concentrated e-commerce decisionswithin specific departmentswill have limited
4TheEvaluationofEcommerceImpactonBusinessEfficiencybyPetrasBarsauskas,TadasSarapovas,AurelijusCvilikasp.80Diagrams -Chinae-commerceRetailSalesSource:Chinae-businessResearchCenter (CECRC)*2014projected for thesecondhalfoftheyear;ChinaInternetBusinessTurnoverSource:ChinaInternetNetworkInformationCenter
impactontotalbusinessefficiency.7Furthermore,astheinformationfactorhasbeenthemostimportantaspect in the adoption of e-commerce, different industries have benefited variously from itsimplementation. For instance, coal mining is one of the industries that benefited the least fromintroductionofe-commerceastheindustryhaszlimitednumberofbuyersandsuppliers.8
Consumers, meanwhile, have been enjoying lower prices and easier access to a greater variety ofproducts.Theonlineshopperhasbecomesmarterwithmoreinformationattheirfingertips.Theprocessofsearching,orderingandreceivinghasbecomemucheasier.
E-commerce:USvsChina
Even though the Internet has global reach, there are many obstacles that prevent well known e-commerce web sites from successfully operating both in the US and China using the same businessmodel. In addition to regulative (political), language and technical issues, there are also the culturaldifferences. According to research done on cross-cultural differences between the US and China inadopting e-commerce, there are 3main obstacles: language, values and infrastructure.9If we look atChinese Internet surferswecan see that they tend topreferusing theirnative language to search forinformation. Therefore, a Chinese-languageweb site should also bedesignedwith a different culturalapproachandvaluessystem.Moreover,InternetusersinChinatendtobeyoungerthanintheUS.
CreditCardsvsCash
Internetshoppingpaymentmodesalsorepresentadifferencebetweenthetwomarkets.Theadoptionofe-commerceintheUShasbeenlargelydependentuponthecreditcardsystem.Ontheotherhand,thecreditcardsysteminChinaisnotaswidespreadasintheUS.GoldenCardwasthefirstcreditcardverification schemedesigned topromote theuseanddisseminationof cards.10However, inpractice itworkedmorelikeadebitcard.Anationalclearingsystem,theCentralizedNationalAutomatedPaymentsSystem (CNAPS), was also being built at the time. Nonetheless, Chinese consumers historically havepreferredtopaybyreadymoneyandthat iswhyattheverybeginningofe-commerce, Internetuserswere paying by cash on delivery. Fast forward a few decades andwe can see that today’s “online tooffline”platformsresemblesomeofthesecharacteristics.Ontheotherhand,Chinahasbeenpioneering
payment applications on smartphones, which has driven the rapid development of mobile businessapplications.Thenumberofmobilepaymentusersincreasedby63%inthefirsthalfof2014toreachtheutilizationrateofalmost40%,comparedto25%in2013.11ThistrendhasbeenhavingaprofoundimpactonmobileshoppingbutalsoonthefinancialandbankingsystemofChina.ThereasonChinesehavebeenso willingly approving the payment application system is that it is one of the more secure paymentmethods.Inaninstantthebuyercanpayandthesellercanreceivethemoney,asifthetransactionhasbeenoccurringbythemostpreferableway-cash. Inthatrespect, InternetcompaniessuchasAlibabaandTencenthavebeenabletoattracttheirusers’deposits.Thisisprovingtobeasignificantcompetitiveadvantage as the two companies have diversified from social networking and e-commerce into thefinancial sector. This in turn has had a profound impact on the banking system in China. Due to themobilepaymentsystem,therehasbeenasignificantincreaseinthenumberofonlinepaymentusersinChina,reaching300millionin2014.
Infrastructure
At the start of the century, Chinese Internet companies did not have the necessary infrastructure fordeliveryandpayment transactions.12At that time, thestate-ownedPostOffice thatprovidedthemaindeliveryserviceswasnotoriouslyslow.Onecouldhaveneverhaveimaginedthate-commerceinChinawould become as efficient as it is today. One of the main drivers for the rapid improvement ininfrastructure has been the “delivery man”. The Chinese market has an abundant supply of deliveryemployees.
IndividualvsGroup
Chinese society puts more focus on social relationships, and this has also indirectly shaped theirapproachtotheInternetandtoe-commerce.ThisisverydifferenttotheindividualisticsocietyasseenintheUS.Evenwithadvancede-commerce,manyChinesepreferpersonaldealingswiththosewhomtheyhavealreadytradedratherthanunknownInternetsellers.13
IntheUS,institutionssuchasresearchuniversities,government,venturecapitalistsandlawfirmshavebeenthekeytotheinnovationprocess.InSiliconValley,theleadingfiguresfromtheseinstitutionsandoperating companies know each other both formally and informally, which is very important forinnovation. On the other hand, such informal relations in China are either absent or underconstruction.14
Ifwe lookat thetwomarkets’e-commercegiantssuchasAlibabaandAmazonweseethat theyhavebothbeenbuiltonthepremiseofaggregatetraffic.However,astheconsumerbecomesmoreinformedand gains access to limitless data through smartphones, the purely aggregate traffic business modelmightnotbeenoughtomaintainthepresentmarketshare.Asconsumersturnmoreindividualistic,thebehavioralpatternswillbecrucialforane-commercetoreachtheirusers.IntheUS,wehavewitnessedmany apps diverting traffic from bigger platforms,which has also been the case in China, albeit at aslowerpace.AsatechindustryanalystputitduringaninterviewwithBBCNews,“unlikeinotherpartsofthe world, potential entrants to the Chinese market are facing well funded aggressive home grownplayers”.
Overtaking mobile phones as the fastest-selling devices in history, smartphones are conquering ourplanet.Developingcountries,inparticular,haveexperiencedanincreasingnumberofusers.Attheendof2013,morethan30%ofglobalphoneuserswereusingsmartphones.15Accordingtoestimates,abouthalfoftheglobaladultpopulationownsasmartphone.16Thedevice isessentiallyaportablepersonnelcomputerthatrepresentsanewcomputingcyclefollowingtheoriginalcomputers.
According to the Internet trends researchdonebyKleinerPerkinsCaufieldByers (KPCB)at theendof2013,97%ofglobalsmartphoneoperatingsystemsoriginatedfromtheUScomparedtoonly5%in2005.Systems suchasAndroidand IOShavebeendominating theupstreammarket apps’platforms. This isalsothereasonwhymanyofthetechstart-upsarebasedinSiliconValley.
Two smartphones of the same brand look the same on the outside, however they are completelydifferentinsideastheyarepersonalizedtotheneedsoftwodifferentowners.Inturn,theseneedsandhabits are digitalized and, as such, are easily accessible by the platforms holders through big datachannels.That iswhynowadaysmanyof thetechcompaniesareable toconnectand interactdirectlywiththeircustomers.
Diagrams – China 3G Source:Ministry of Industry and Information Technology; Internet Access Devices of Internet Users inChinaSource:ChinaInternetNetworkInformationCenter;SmartphoneMarketsSource:Informa
CrossCulturalDifferences
Asitwasthecasewithe-commerce,culturehasprovedtobeanimportantinputinadoptingtheideaofmobile shopping. Lee et al in 2004 introduced five cultural measures for m-commerce usage: powerdistance, uncertainty avoidance, individualism-collectivism, masculinity-femininity and long termorientation.Thestudyhasshownthattherearemajordifferences incultureofm-commerceadoption
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between theUS andChina on uncertainty avoidance, power distance and individualism-collectivism.17Hofstede (1991) has found that societies in low uncertainty avoidance are open to embrace newtechnology such as theUSwhile consumerswith high uncertainty avoidance such as Chinese tend torefrain from such technologies. 18 Nonetheless, Chinese smartphone users have been embracinginnovation inmany of the services offered as long as it is a collective push. Furthermore, in the US,consumerswouldusemorepersonalizedplatformstoshowcasetheirindividuality,whichisoppositetoChineseconsumers,whotypicallyfeelmorecomfortableasapartofthegroup.19
GlobalMessagingEcosystem–SelectPlayers2013
The most important aspects of the above model with regards to m-commerce in China have beeninnovativeness, perceivedusefulness, perceived cost, subjective norms andperceived ease of use.Onthe other hand, for US users the most important aspects were consumer privacy, innovativeness,perceivedusefulness,enjoymentandcompatibility.20Accordingtotheresultsoftheresearch,therewasasignificantdifferenceincostperception,enjoymentandsubjectivenormsbetweenChinaandtheUS.21Moreover,thesubjectivenormsandenjoymentweremuchhigherinthelevelofimportanceintheUS,while for Chinese users the cost of usage has been the most important.22Chinese people considerexpensesandfunctionalitybeforeoptingtousem-commerce.Ontheotherhand,theUSconsumerputsmore focus on personalization and on the enjoyment aspects ofmobile shopping. The characteristicsfoundtobemoststrongonbothsideswereprivacy,innovativeness,perceivedvalueadded,usefulness,easeofuseandcompatibility.23
Global Internet users have been experiencing declining computing costs, declining storage costs anddecliningbandwidthcosts.Factorinthegrowingpopulationanddecliningaveragepriceofsmartphonesandyouhavea ripeenvironment for the rapid growthof Internetusage. In addition,wehave seenachange inbusinessmodel fromusersaccessingoneplatformtoanumberofplatformsaccessingeachuser.Namely,aftertheintroductionofsmartphones,wehaveseenadifferenttrendwhereoneInternetuserchoosesfromnumerousapps.Theseappsaredevelopedforasinglepurposeinordertoaddressaconcreteneedwiththephilosophyof“lessismore”.
The Economistmagazine came outwith an illustrative title - The dawn of the planet of smartphonescame in2007.24This latestcomputingcyclehas introducedawholenewmodeofhowconsumersandcompanies interact. Although Internet and e-commerce have shortened supply chains, smartphonetechnology has goneone step further by completely eliminating themiddleman.Drivers to purchasecertainproducts includeauthenticity,association,convenience,experience,varietyandvalue.Allthesehave been facilitated with the personal computer in our pocket. With the trend of individualconsumerismontheincrease,companiesarenowabletobecloserthanevertotheircustomers.
That the Internet isverypowerful is confirmedby the fact that lightassetcompaniesarenowable tosignificantly change their supply chains and even affect overall economies. One of the most excitingtrends is that smartphone technology has enabled people to address some of the most pressingchallengesthatweashumanbeingsarefacing.
Lookingintothefuture,wewillseemoreofdevicesthatareabletogatherdatathatisthenusedtooffercustomized services and solutions to end consumers. Themost important competitive advantage forInternetcompanieshasbeenbigdataanditsusefulnessthroughanalytics.