The true role of e-commerce in emerging markets: e-commerce had succeeded in China precisely

because the economic and legal infrastructure of the country was weak when the Internet was
introduced. China lacked the economic, political, and legal institutions necessary for commerce to
thrive, and Internet companies and their online communities had stepped in to fill the void.

And why wouldn’t that be true elsewhere? From Bogotá to Shanghai, from Mumbai to Lagos, the
weaker the institutions, the greater the opportunity for e-commerce to take root. And just as e-
commerce entrepreneurs in China had faced and solved logistical, payment, and trust issues,
Colombian entrepreneurs could use the Internet to address local concerns, including safety and
security.

And as a business community addresses these issues, e-commerce blossoms, creating new
opportunities for entrepreneurs, multinationals, and customers alike.

Early 2000s China

 Alibaba was in Jack Ma’s garage.

 Payment infrastructure was inefficient.
 Credit card use was nearly non-existent.
 Logistics infrastructure was poor.
 Engineering & management talent was concentrated in Silicon Valley.
 Chinese shoppers would never trust online merchants enough to buy products online.

2016

China largest e-commerce market in the world.

In 2016, in a single 24 hours period, Alibaba handled $17.8 billion in transactions. (More than black
Friday and cyber Monday sales in US).

E-Commerce = 14% of total retail in the country. In US, its 8%.

Currently, only half the Chinese population has access to internet.

Study US because:

United States made for a relatively smooth transition from traditional commerce to e-commerce,
which the giants eBay and Amazon dominated in the early days.

Other developing countries tried copying US model but failed. In dev. Countries, e-commerce and
brands are moving in a different direction.

Study China Because:

To understand how China’s deep cultural roots have led to a more social approach to e-commerce.
After years of Maoism, the opening of China’s economy triggered the conditions that enabled China’s
e-commerce to leapfrog beyond that of the West. Major Player: Alibaba, Tencent, Jingdong

In China I’d seen how e-commerce empowered struggling villagers by allowing them to sell their
products online. And it offered those villagers who ventured to the city entry-level jobs as couriers.
Ecommerce has provided young students and recent graduates, who might otherwise have been
destined to work in creaky state-owned enterprises, an outlet to pursue their dreams, create their
own brands, and earn enough money to think about life and ideas beyond the need to put food on
the table. It has also absorbed unemployed or displaced workers, giving them a foothold from which
to rebuild their careers.

E-commerce has proved to be more creative than disruptive in emerging markets, creating
opportunities that otherwise would not have existed, not simply killing old retail incumbents, as it
did in the West. I hope that explaining how e-commerce is growing in emerging markets will help
accelerate its adoption.

AMERICAN MODEL

Amazon – Jeff Bezos

Ebay – Pierre Omidyar

Alibaba – Jack Ma

First Retail System:

1872 – American West – Catalogue and delivery system. Montgomery Ward Catalogue. First general
item mail order catalogue

Cash on Delivery. Free Returns, no questions asked. 100% satisfaction. Deliver within a week to
nearest AmEx outlet. Lowest wholesale prices. Marketing – Never let good opportunities go by. If you
do, you will never be rich.” He encouraged his customers to tour Montgomery Ward’s warehouse
in Chicago. He also encouraged customers to contact his team, saying, “We cheerfully answer
inquiries” and “We have 25 typewriters always ready to wait on you.”

Civil war was fought btw 1861-65 and Lincoln passed the homestead act in 1862 to facilitate
movement of people from east to west. Offered 160 acres of land in 5 years for settlers. Earlier – 14%
population in west, by 1890, 2X. Chicago in center developed as a major hub. Problems – 70% rural,
population, no railways (but Amex and Wells Fargo delivered), variety and availability of industrial
products in East and coastal city but no availability in West. Bought from general store who sold at
margin of 60-200% and 12.5% interest on credit. Ward solved this problem – hugely successful. From
a single page pamphlet to 72 pages catalogue in 1874 (2 years). 1904 – 3 million catalogue and 600
pages.

Rural – Catalogue. Cities – Departmental Stores. 1878, NY – Macy’s & Co.’s – “A place where almost
anything can be bought.” Marshall Field – Chicago. Ward and its competitor Sears stared stores to
cater to new middle-class population. Ward – From 0 store in 1924 to 500 in 1926. Sears built shopping
malls. Another player – JC Penny.

After WWII – more demand and more growth. 1950s the demographics & geography were changing.
Interstate highway system, flights from the cities, encouraged the growth of suburbs. In the suburb’s
retailers faced lower costs of doing business and less expensive land. More organised modern trade
system.

THE WALMART DISRUPTION – Sam Walton, 1962, Rogers, Arkansas. Took physical retail to the limits
of efficiency. Scale + Tech = Low Prices. Pioneered the idea of low margin in exchange for high volumes.
Sold high volumes of discounted products. Might look common sense today but wasn’t back then.

Competitors that time – Woolco, Target, Kmart. Deep pockets. Yet lost.
The things that we were forced to learn and do, because we started out underfinanced and
undercapitalized in these remote, small communities, contributed mightily to the way we’ve grown
as a company. Indeed, an inefficient rural retail infrastructure meant that Walmart was able to
leapfrog past its competitors and establish an entirely new way of doing business. In 8 years-32
stores and 31 million annual sales. Optimum location across US for saturating the market and early
adopting of computers. 1966- Enrolled to IBM school for retailers. Saw potential of capturing sales
data and managing logistics and inventory through computers. Computerised warehouse and
distribution system. 1980 – 276 stores, 1.2 billion in revenue. 1992 – 3.7 lac employees. 1995 – global
expansion.

Other copying the model - Toys “R” Us, Circuit City, and Barnes & Noble.

By 1995 the efficiency of US retail seemed to have reached its upper limits. Virtually any product a
consumer needed was within an arm’s reach and at a reasonable price. US retail market was as
efficient and convenient as one could imagine. Products were readily available and prices were
reasonable. The American retail landscape had evolved from independent general stores and mom-
and-pop shops to glossy air-conditioned stores with nationally recognized names. Payment was easy:
by credit card, debit card, or personal check. Shipping was convenient, reliable, and inexpensive. Not
sure about a product’s quality? Read Consumer Reports. Not sure about a retailer’s integrity? Call the
Better Business Bureau.

THE AMAZON JOURNEY

Internet gave a new, data-driven era, requiring different set of skills. Jeff Bezos, Seattle (Tax free),
1995, Books, Garage. “Everything Store”. Amazon took advantage of the systems and processes that
Walmart had helped create. Bezos poached some key logistics managers from Walmart, built on
Walmart’s expertise, and applied it to an online model.