What Happens in China, Stays in China
If you listen to the chatter regarding global markets today, the two power-houses to watch are (drum roll, please), India and China. Although e-commerce is still booming in the US and Europe, year over year growth will, at some point subside and match other ‘brick and mortar’ industries. Internet penetration (i.e. the percentage of users with Internet access) in the US is nearing 70%, followed closely by Australia and Europe. What really fuels the growth of Internet sales now is a shift from retail sales to online sales. So, savvy marketers have their sights set on new game, with the same potential for growth that the US and Europe had nearly a decade ago.
Enter the Asian markets. Both India and China have vast populations (China, 1.32 Billion; India, 1.17 Billion) and a relatively underdeveloped, but growing e-commerce market. What’s more, the degree of Internet penetration in the region is a minuscule 12%. One might assume that, given a similar amount of time (i.e. a decade) these countries would match the level of penetration seen in other markets… and what’s more, there’s a lot more people in Asia - way more. So, we have large populations with little (but growing) Internet access; this should be a veritable boon for e-marketers.
There are two big problems, however. Regarding the case of India, there are significant infrastructure barriers preventing the further spread of Internet access across the population. It is expected that private funding from SMBs, not government investment, will pay for future expansion of India’s telecommunications infrastructure. However, herein lies a problem; a network externality of sorts. Further investment in the country from businesses is dependent on the expansion of telecommunications infrastructure. On a micro level, this means that Company A’s success in the region depends on overall Internet expansion in the region, which is dependent on aggregate investment… which is dependent, in part, on Company A’s investment in the region. But one small or medium sized business is not enough to get things rolling. That’s why all eyes are on the big players, like Google.
Google is reported to have plans of investing in excess of $1B in India. Google’s investment in the country is taking several forms, including investments in startups (much to the chagrin of VC firms) as well as the possible addition of a server farm within the Andhra Pradesh state of India. Other large players, such as Yahoo! and Microsoft are following suit - and that is important. However hopeful such investment in the region appears, one cannot overlook the potential for stagnating development in India or China.
In the case of China, infrastructural expansion is only one side of the equation. The other, and possibly more disastrous, hurdle is oppressive governmental regulation and lack of freedoms. China’s government has formulated broadly defined regulations regarding the transfer of information over the Internet and imposes censorship and DNS poisoning to further restrict the free flow of information - particularly information that may be harmful to the state.
In a move shunned by US analysts, Google enabled censorship in its Chinese search engine. Previously and within the same calendar year, Google had rejected a US Department of Justice subpoena, which demanded the disclosure of 2 months of search records from the company’s Internet portal. Google prided itself on resisting the DOJ request and has publicized the move every which way from Sunday. In the end, one must wonder how Google’s Asian bet will pay off and whether future moves to appease the Chinese powers that be will erode its support, and ultimately its market share in the US and Europe.