The rapid adoption of online retail and digital payments is making developing markets internet trendsetters, says AllianceBernstein LP, a global asset management firm, in a blog.
E-commerce penetration in several emerging markets has already exceeded developed countries and the rapid adoption of online retail is making more developed market firms pay closer attention to innovations in emerging markets, say Laurent Saltiel and Naveen Jayasundaram in the blog.
The under-developed physical retail infrastructure in emerging markets is proving to be an advantage for e-commerce. The authors cite India as an example where a large part of the retail sector is still unorganized and how it is helping e-commerce firms drive online retail usage.
“Offline retailers never established the kind of footprint and consumer behaviour that Wal-Mart Stores or Carrefour have in their respective home markets. As a result, online retail penetration in India is already ahead of Italy and will soon exceed that of Singapore, a country with one of the highest per capita incomes in the world,” Saltiel and Jayasundaram note.
Emerging markets such as China are also leading in online payments. While the changing landscape provides investment opportunities, the authors warn these high-growth markets are fraught with risks citing the story of local online retailer Flipkart.
“Flipkart was founded in 2007, six years before Amazon.com entered the market. Amazon.com had learned its lessons from missteps in China, and made a much more aggressive launch in India by investing $5 billion over three years, building a strong local team and providing same-day delivery to 100 Indian cities. Flipkart’s efforts to fend off the threat faltered, and the company has lost market share, while its valuation plummeted,” the authors add.