The exponential growth in the number and types of digital technology applications, coupled with ever-declining costs, has created an explosion of opportunities for technological and business innovation. Social networks, mobile apps, analytics and cloud computing are changing the way people live and work, and also redefining industry boundaries and markets, as well as governments’ regulatory policies. These unprecedented changes will bring new growth dividends for Chinese enterprises.
To a large extent, the digitization of Chinese businesses is driven by the consumer markets. China has the world’s largest population of digital consumers, with more than 600 million Internet users and 500 million mobile Internet users. The country’s network infrastructure continuously improves, with rapid popularization of 3G and 4G networks.
Chinese consumers’ way of life is increasingly digital. They engage in mobile shopping anytime and anywhere, use social media to have their voices heard, switch between multiple screens frequently, experience seamless shopping in both online and offline channels, and are more willing than ever to change suppliers if their experiences are lacking.
Consumers are not the only ones adopting a digital lifestyle. As the Chinese economy enters the “new normal” of moderate growth, many enterprises are looking to pursue cross-sector business opportunities. Executives of Chinese businesses are increasingly turning to digital technologies as crucial elements of their cross-sector growth strategies. They believe that digital technologies can assist them in opening up new sales channels, developing products and services, and improving consumer experiences.
Based on our research and experience, Accenture sees a new market ecology and pattern of competition emerging in China. The shift is due primarily to digital technologies, which are blurring industry boundaries, lowering market entry barriers, decreasing channel (and R&D) costs, and enabling the delivery of highly satisfying consumer experiences.
All this is making it possible for competitors from different industries to provide entirely new products and services to consumers in new and innovative ways. At Accenture, we term the new market ecology and industry convergence that digitization enables “digitally contestable markets.” We see four such markets emerging in China in the following areas: paying, shopping, listening/watching and traveling. Each of these markets comprises a core sector and a few “ecological sectors”. Ecological sectors consist of two sector groups, a “digital enablement sectors,” which encompass hi-tech activities, products and services that enable digital contestability and “halo sectors”, which are the traditional sectors that can now compete in digitally contestable markets because of digital technologies. For example, in the case of shopping, transportation will be the “halo sector”.
To better understand the size and impact of these digitally contestable markets in China, Accenture and Oxford Economics jointly conducted a comparative analysis of two of these markets in China and the United States. Due to a lack of data for paying market, our market size analysis for the paying market is based on data from a comprehensive set of players within the financial services sector. Here is what we found:
In China, the growth rates of gross output value of the core retail and financial services sectors are expected to increase 9 percent and 8.7 percent annually, respectively, between 2013 and 2020. In contrast, the growth rates of output in the digitally contestable markets for shopping and financial services are expected to increase 9.7 percent and 9.6 percent over the same period.
While the valuations of the digitally contestable markets for the shopping and financial services sectors in the United States are predicted to be significantly higher than the total value of their counterparts in China by 2020, those sectors in China are expected to grow at a rate of approximately 5 to 7 percent faster than in the United States.
Our conclusion is that the influence of digitally contestable markets cannot be ignored. This is especially true in China, where digitization is spurring faster growth among the digitally contestable markets (and the core sectors that ground them).
To survive in the highly competitive digitally contestable markets, companies must fully understand how digitization is changing the business landscape in which they operate. Our research has analyzed in detail the impact of digitization on various key industries and we have come up with six actionable insights for Chinese business leaders:
Build best-in-class digital capabilities. You need to best digital in order to compete.
Data is the new lifeblood. Data that flows between businesses need to collected and acted upon.
Listen to you customers. Consumer insights are critical to understand customer needs and expectations.
Think like a Start-up. Businesses need to reboot and start thinking afresh like a start-up and view the business landscape and how to compete from scratch.
Cross the blurring industry boundaries. Look outside your own industries to see new opportunities to create value.
Go digital to improve management capabilities. Seamlessly integrate traditional and digital technologies to build the best management capabilities.
Leaders of Chinese enterprises must explicitly identify their digital strategies and accurately position themselves in digitally contestable markets. Further, they need to translate digitization into distinct competitive advantages that will drive cross-border growth and the way toward high performance.