revolution

THE ASIAN DOOR: The silent revolution of the digital economy. Águeda Parra.

The United States and China have been fighting a commercial war for a long time in the economic field without apparent winners or losers yet. Diplomacy is playing an important role in the game of alliances in Asia Pacific, where Washington has seen its leadership and influence reduced in recent years. However, the most growing rivalry is seen in the silent digital revolution that is placing China a few steps behind the United States, reducing the distance that separated them just a decade ago.

In the words of John Chambers, director of Cisco System, “At least 40% of all businesses will die in the next ten years if they cannot imagine how to change their entire business model to accommodate new technologies.” And not only they must transform themselves so as not to have an imminent expiration date, but adapting to the digital universe allows companies to have less rigid production processes, making them more competitive. China is taking advantage of it to reduce its differences with the major powers, thanks to the fact it does not have the burden of highly structured business processes. China is jumping into the digital environment in a more agile way and with greater capacity to start competing more easily in the global ecosystem within a globalized environment.

In the physical world, a dissatisfied customer can tell 6 people, while in the digital world it can reach up to 6,000 friends, according to Jeff Bezos, founder and CEO of Amazon. This principle is followed by the main digital platforms in China, the so-called BAT (Baidu, Alibaba and Tencent), the ones that with their star applications are redesigning the model of digital economy in China. So much so, that the search engine par excellence in the Asian giant is Baidu, the first Chinese company listed in the NASDAQ 100 Index. It has a market share in the country of 75.1%, compared to the 1.4% that Google has. In the field of e-Commerce, the reference in China is Tmall, owned by Alibaba, with a 56.6% share, whereas Amazon represents only 0.8% of the Chinese market. In the field of social networks, WeChat, owned by Tencent, with 1 billion active users, exercises the leadership. This is a universe Facebook cannot compete with, having just 54 million users in China, according to the report 2017 Digital Economy Compass by Statista.

The transformation of the digital environment is causing 4 Chinese tech titans to appear in the Top 15 of major digital platforms, Alibaba (5), Tencent (6), Baidu (8), and JD.com (10), in a classification that worldwide continue to lead the US companies Apple (1), Google (2), Amazon (3) and Facebook (4), according to the aforementioned report. However, China has in its favour the immense population of the country that represents the great growth potential of online services. With an Internet penetration in China that reaches 50% of the population, about 700 million people can find in online services the means to meet their daily needs. In the case of the United States, the situation is quite different, since Internet penetration reaches 77% of the population, and only 59 million people still do not enjoy online services, according to the Statista study.

The stereotype of unicorns, private investment technology startups that have a value of more than $1 billion, follows the same dynamic as the digital economy as a whole. In this decade, it is more possible that companies with a value of more than $1 billion are Chinese or American, as was the case of 31 out of the 40 companies created during 2016, mostly related to new technologies. In this digital revolution, Europe seems to be falling behind and far from China and the United States, not only in the creation of startups, but also in digital spending calculated as a percentage of total household consumption per capita. At this point, China is in the Top 1 with 10.6% in 2016, much higher than that registered by Europe (5%) and the United States (4.5%).

Among the markets analysed by Statista in its report are the eServices, highlighting the distribution of food as the most dynamic market, with an overall annual profit growth of 21% between 2016-2021, similar to the one registered in the United States, with an 19% increase in the next five years. The eTravel market is another example of the markets that will register the most significant growth globally, almost doubling the revenues in 2021 to reach around one trillion dollars, mainly driven by the United States, which will grow by 7.4%, while China with an increase of 17.9% will not be enough to overcome the American power in this area. The study also indicates that China will dominate the online luxury market worldwide with a turnover that can reach more than $285 billion in 2021. The Asian giant, as dragon of the FinTech, leads a market that has expected to double its revenues in this period, registering growths of 30.2% between 2016 and 2021, according to the abovementioned report.

However, in the Chinese digital ecosystem, payment for advertising follows an inverse trend. WeChat incorporated payment campaigns in 2015, and today they only represent 15-20% of Tencent’s revenues, compared to 70% for Facebook. However, according to the forecast, the market will double its income between 2016 and 2021. The situation is likely to change in the next five years. How long will the digital economy revolution in China continue to seem silent?

 (Traducción: Isabel Gacho Carmona)

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