It’s a quiet news day on this Black Friday after the US Thanksgiving holiday, so I thought I would close out the week with a couple of interesting items that show how quickly the China’s Internet market is still growing and how e-commerce’s influence is rising. The rapid growth is showing up in the latest government data that says China’s Internet community has officially passed the 600 million user mark, further bolstering the market’s position as the world’s largest. At the same time, another new report involving Shunfeng, a leading domestic parcel delivery firm, is revealing a potential new trend that could see e-commerce firms form new alliances with their suppliers and logistics companies.
The big theme in this is that China’s Internet is quickly becoming the nation’s dominant force in many areas like entertainment and retailing, forcing traditional players to quickly develop online strategies or risk going out of business. A number of forces are driving this rapid shift, but the biggest is the relative underdevelopment of many of these industries compared with counterparts in the west. That means that many of China’s traditional industries are still highly fragmented, making it easy for a well-run, well-funded entrepreneurial firms to come in and quickly gain market share.
Let’s start this Internet round-up with the latest figures from the China Internet Network Information Center (CNNIC), which has just announced that the number of Internet users in China crossed reached 604 million at the end of September. (Chinese article) That means nearly half of China’s 1.3 billion people now use the Internet, or about double the population of the entire US, the world’s second largest market.
The number of mobile Internet users within the larger figure continued its rapid climb, with 464 million people now accessing the web over their smartphones, or about three-quarters of the total. The percentage of mobile web surfers is even higher in China’s biggest cities, and I can personally testify that the big majority of young people in Shanghai constantly use their mobile phones to access the Internet at every chance they get.
As those numbers grow, traditional industries that sell to average consumers are scrambling to move more of their business online. Retailers like Li Ning (HKEx: 2331) and Carrefour (Paris: CA) were late to recognize the trend and are now struggling to catch up, while names like Walmart (NYSE: WMT) and Suning (Shenzhen: 002024) are making a better transition. Two groups that have thrived in the e-commerce boom are product makers and logistic companies, which can offer their goods and services to the wide range of major e-commerce companies like Alibaba and Jingdong that record billions of yuan in sales each month.
So far most of these suppliers and logistics firms have chosen to work with multiple e-commerce partners, but a new report suggests that could slowly change as these supporting companies narrow their relationships to just a handful of partners. That report says that Shunfeng, one of the nation’s leading courier services, has shifted an increasing part of its business to e-commerce and now makes 30 percent of all deliveries for Yixun, the e-commerce arm of Internet giant Tencent. (HKEx: 700) (Chinese article)
The report doesn’t say how many other partners Shunfeng has. But such a high volume from Yixun could easily mean that it’s focusing its efforts on building major relationships with big players, which could become a formula for greater efficiency in the future. I wouldn’t be surprised if we start to see more of these delivery services and also product makers start to enter similar exclusive partnerships with the big e-commerce firms. That’s important because it could finally help to differentiate the many e-commerce companies in this crowded field, paving the way for some much-needed consolidation.
Bottom line: The role of China’s Internet in the delivery of traditional consumer goods and services is accelerating, leading companies to form a growing number of exclusive alliances.