Mon, Oct 06, 2014 - Page 8 News List

Eyeing China’s online revolution

By Jiang Qiping 姜奇平 and Jonathan Woetzel

It is a story that has played out worldwide: Internet adoption reaches critical mass, changing how business is conducted and creating billion-dollar markets for digital goods and services — and causing massive “creative destruction.” Now China is to experience this phenomenon — only, in China’s case, it comes amid broad economic transformation and rapid social change.

The collision of these forces could transform the world’s second-largest economy.

With 632 million users, China’s Internet has already produced a dynamic technology sector, thriving social networks and the world’s largest e-tail market. Global investors’ excitement about the initial public offering of China’s largest online retailer, Alibaba, reflects the scale of the economic value that has already been created.

However, most of the action has been on the consumer side. Key sectors, from manufacturing to healthcare, have not moved past the early stages of the shift online. As of 2012, only about one-quarter of China’s small and medium-sized enterprises had started to use the Internet in areas like procurement, sales and marketing — meaning that the most sweeping changes lie ahead.

As traditional industries increase their Web use, they streamline operations, find new methods of collaboration and expand their reach through e-commerce — all of which accelerate productivity growth.

The McKinsey Global Institute projects that new Web applications could enable as much as 22 percent of China’s total GDP growth through 2025.

The Internet can also boost transparency and trust. E-tailing, for example, began with a cash-on-delivery model. However, over time, online payment platforms gained Chinese consumers’ trust, paving the way for explosive growth.

Other industries are beginning to follow suit. Online real-estate databases match buyers and sellers faster, while reducing price premiums stemming from information asymmetries. Such platforms have been created for land auctions and foreclosures, as well as private transactions.

Similarly, China’s nascent used-car market stands to benefit from the Internet revolution, as e-commerce boosts the transparency of vehicle listings and transactions and new online tools help lenders acquire and analyze credit histories in a more detailed and sophisticated way.

Of course, building a trust-based system is no easy feat. Much of the Internet’s commercial potential stems from data collection, sharing and analysis, which are fraught with privacy concerns.

Even though Beijing established preliminary rules governing online privacy in 2012, many gray areas remain, including basic issues such as the types of information companies can share, how that data can be used and what constitutes consumer consent.

In addition to clarifying the legal framework for data sharing, Beijing can set an example by using the Internet to render its own data collection and transaction records more uniform and systematic. Moreover, by making some of its own data sets publicly available, it can accelerate an open-data movement and pave the way for the emergence of related industries.

For Chinese firms, such a movement would have to be accompanied by a fundamental change in mentality. Instead of focusing on large-scale, one-size-fits-all production, firms must use the data they receive to glean detailed insights about consumers’ wants and expectations — and expand their portfolios to include the niche products that consumers crave.

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