China is rapidly becoming a trendsetter in many digitally driven industries. This is turning conventional research methodology on its head. Investors should look to China to discover where technology and retail markets around the world are headed.
For decades, investors studied developed-world trends to forecast the future in emerging markets. That approach now looks obsolete. In industries ranging from e-commerce to advertising, China has leapfrogged its developed-market peers. Companies and investors in the West should pay close attention.
E-commerce vs. Brick and Mortar
Mobile trends are at the heart of the new world order. China’s landline telephony infrastructure never developed as much as that in the US or Europe (Display, left). Yet mobile phone penetration in China has almost caught up with that in the West (Display, right). Meanwhile, brick-and-mortar retail is very underdeveloped in China. This difference in infrastructure is the source of China’s edge.
For developed countries, the shift to e-commerce is often painful. It requires the retail sector to unwind huge networks of stores and strike the right balance between physical and digital sales. For China, it’s much easier, since companies don’t have to dismantle nearly as much physical store space to take the digital leap (Display below, left).For example, the Alibaba Group has been building out its Hema supermarket chain, in which the stores are optimized for online delivery. In contrast, Amazon recently purchased Whole Foods and will likely need to retrofit the stores meaningfully.