Competing in Digitally Contestable Markets：Unconventional growth opportunities in China

Contents

Foreword 3

Executive summary 4

I. Consumer market-driven digital transformation 6

The rise of the digital consumer 8 Cross-sector expansion, powered by digital 9

II. The emergence of digitally contestable markets 12

Four digitally contestable markets 14 Bigger market sizes and larger growth prospects 16 The future in the making 21 • Paying 22 • Shopping 24 • Listening/watching 26 • Traveling 28

III. Winning in the digitally contestable markets 30

Appendix 35

About the research 38

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Foreword

Gong LiChairman, Accenture Greater China

Gong LiChairman, Accenture Greater China

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I see it in the media, in industry research reports, and in conversations with senior executives: a pervasive anxiety about our collective future. This feeling—rooted in economic uncertainty—is understandable. China is experiencing a slowdown. Europe continues to struggle as it rebounds from its financial crisis. And developing countries, as a group, are facing serious challenges.

Yet, amid these concerns, I am an optimist.

My confidence in our ability to weather the economic volatility we face is rooted in what I have witnessed over my nearly 30 years in business and more than 15 years leading Accenture’s practice in China. Time and again, markets have shown their resilience. Leaders have demonstrated their sound judgment, adaptability and innovative spirit. And technologies have unleashed new levels of efficiency and productivity that exceed our expectations. Every challenge has ultimately made us stronger, better and smarter than we were before.

Today, we are poised to accelerate our momentum of progress. Why? Because we a turning point that marks the beginning of the true digital age.

I have seen, firsthand, the profound changes that digitization enables. With its explosive growth of mobile Internet and smartphones, China has the largest digital population in the world. Here, more than in other countries, consumers’ adoption of digital solutions is driving businesses to rethink how they serve and interact with their customers and business partners. Digitization is lowering market entry barriers, eliminating intermediaries and redefining industry boundaries. It is unlocking new business models, innovations and opportunities. It is even enabling entirely new forms of cross-industry competition and cooperation in what Accenture terms “digitally contestable markets.” In China, four such markets have emerged in the areas of shopping, paying, listening/watching and traveling.

Recently, Accenture and Oxford Economics set out to understand the impact and potential of these digitally contestable markets in China. Our conclusions, which are highlighted in this report, suggest that digitization plays a bigger role in China than in other countries when it comes to enabling the disruptive innovation that threatens established businesses—a premise that is echoed by my colleagues Larry Downes and Paul Nunes in their new book Big Bang Disruption (Penguin, 2014).

I believe digitization will be the driving force behind what Premier Li Keqiang described as grassroots innovation at the World Economic Forum in Tianjin in 2014. That Big Bang innovation, spurred by digitization, will drive entirely new levels of productivity—an issue of great importance to China, now that the Chinese economy has slowed and entered the new normal of modest growth. That said, it is important to know that the opportunities afforded by digitization will extend far beyond China. As this report conveys, digitization is an important lever companies anywhere in the world can pull to improve productivity and seize new opportunities.

As we stand at the cusp of the digital age, we will once again see technologies taking us to new levels of growth and prosperity. As market participants use digital technologies, they will realize their potential to reshape processes, accelerate innovation, create new customer value, and capture a greater share of the markets in which they compete. I am convinced that the digital dividends, like the new technologies that produce them, will continue to exceed our wildest dreams.

Executive summary

Paying

Shopping

Listening/watching

Traveling

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In addition to financial service providers, non-financial service enterprises, including third party payment institutions, provide a variety of flexible ways of payment through mobile devices, social media and other digital technologies.

Many non-traditional retailers enter retail markets through e-commerce while other retailers provide seamless shopping experience through digital technologies.

Cashing in on consumers’ tendency to switch between screens, both traditional content providers and digital content providers try to attract target audiences through the Internet.

Travel becomes more and more intelligent as digital technologies enable people to make travel plans and access means of transportation more easily and flexibly.

Consumer markets drive digital transformation 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.

Digitally contestable markets 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).

Becoming digital enterprises to realize unconventional growthThe rapid development of digital technologies will facilitate a host of innovations in different industries and markets. Digitization will also enable an ever-widening integration of manufacturing, health and education sectors in China. That will, in turn, further accelerate industry transformation and enable Chinese companies to tap new sources of sustainable economic growth.

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.

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Consumer markets drive digital transformation 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.

Digitally contestable markets 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).

Becoming digital enterprises to realize unconventional growthThe rapid development of digital technologies will facilitate a host of innovations in different industries and markets. Digitization will also enable an ever-widening integration of manufacturing, health and education sectors in China. That will, in turn, further accelerate industry transformation and enable Chinese companies to tap new sources of sustainable economic growth.

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.

I. Consumer market-driven digital transformation

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China is experiencing a wave of digital transformation that has far-reaching implications. As the Internet and data have become ubiquitous in modern society, social media, mobility, analytics and cloud computing are bringing profound changes to people’s way of life. They are also redefining industry boundaries and markets.

Over the past three decades, the transformation of the Chinese economy and business environment has been largely government-led. The current digital transformation, in contrast, is being driven by consumer markets. The increasingly affluent Chinese consumers are not only influencing how (and what) individual businesses sell, but also redefining the competitive landscape of entire markets through their ever-growing digital consumption. In response, businesses competing in China are trying to understand how they can capitalize on these new trends. Many recognize that their future success will be based largely on their ability to pursue non-conventional and digitally enabled growth strategies.

The rise of the digital consumerOver the past several years, the demands for (and development of) digital technologies have exploded. In China, it is fair to say that the exponential growth of digital adoption, coupled with digital technologies’ declining costs, has created a “Big Bang” disruption that is turning technological and business innovation on its head. The source of this disruption is easy to identify: it is China’s large and growing number of digital consumers.

• China has more than 632 million Internet users, who spend 25.9 hours online each week on average. In 2013, the total value of e-commerce transactions in China exceeded 10 trillion yuan (US$1.6 trillion). Of this amount, online retail accounted for 1.85 trillion yuan (or nearly US$300 billion), making the country the world’s largest online retail market.

• China has 527 million mobile phone subscribers. The number of smartphone users is expected to reach 870 million by 2016.

• The number of social network users is rapidly growing. Microblog subscribers total 275 million, and the number of monthly active WeChat (Tencent’s social media app) accounts now exceeds 468 million, up 39 percent year on year.

As these numbers illustrate, Chinese consumers are embracing digital technologies as never before. This digital surge is having a profound effect—nurturing new consumption models, changing consumer behaviors and reshaping consumer markets at an unexpectedly high pace and in unpredictable ways. Consider the following:

• Mobile uptake is exploding. The convenience and flexibility of smart devices, innovative apps and 3G/4G mobile Internet services are permeating the consumers’ lives. They can use their devices to easily watch videos, go shopping and make travel plans. They can also share information and experiences, anywhere and anytime. In 2013, the value of all payments issued via mobile devices exceeded 9.6 trillion yuan (about US$1.5 trillion), quadrupling the mobile payment value of the previous year.

• Social media has become the new word-of-mouth medium of marketing. Chinese consumers rely heavily on word-of–mouth opinions when making their purchasing decisions. Social media has enabled consumers’ access to such information and is strongly influencing their views and preferences. In China, nine out of 10 consumers are likely to

share stories of their “disgusting” shopping experiences through social networks.

• Digital technologies has enabled more venturesome shopping behaviors. As their income levels increase and their choices expand, almost 70 percent of Chinese consumers indicate they are willing to try new products and brands. Digital technologies have made it easier than ever for them to switch between brands and providers.

• Chinese consumers love switching among multiple screens. They spend nearly eight hours each day, on average, on their TV, computer, mobile phone and tablet; that’s 90 minutes more time than spent by consumers in the United States and the second longest daily screen time in the world (after Indonesia). In addition, half of Chinese consumers watch TV while also using PCs and/or mobile devices.

• Digital has blurred the lines between online and offline shopping. Digital technologies—which provide quick access to convenient online shopping channels—have made China the world’s largest online marketplace. Digital also enables a truly seamless shopping experience, evidenced by the fact that 66 percent of Chinese consumers report they have tried Webrooming and Showrooming.

While a vast number of consumers obtain and share information and also make decisions and complete transactions online, businesses are also taking the digital plunge. Enterprises in China use digital technologies to gain consumer and market insights. And they reconfigure and optimize their value chains through analytics. Markets and business models are both undergoing revolutionary changes driven by digital technologies.

Cross-sector expansion, powered by digitalAs the Chinese economy enters the “new normal” of moderate growth, business leaders are adjusting their priorities to seek new markets and models for growth. Accenture’s 2013 Survey of Global Business Leaders showed that many top executives of Chinese enterprises are actively pursuing growth opportunities by reaching out beyond their own industries (see Figure 1).

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Over the past three decades, the transformation of the Chinese economy and business environment has been largely government-led. The current digital transformation, in contrast, is being driven by consumer markets. The increasingly affluent Chinese consumers are not only influencing how (and what) individual businesses sell, but also redefining the competitive landscape of entire markets through their ever-growing digital consumption. In response, businesses competing in China are trying to understand how they can capitalize on these new trends. Many recognize that their future success will be based largely on their ability to pursue non-conventional and digitally enabled growth strategies.

The rise of the digital consumerOver the past several years, the demands for (and development of) digital technologies have exploded. In China, it is fair to say that the exponential growth of digital adoption, coupled with digital technologies’ declining costs, has created a “Big Bang” disruption that is turning technological and business innovation on its head. The source of this disruption is easy to identify: it is China’s large and growing number of digital consumers.

• China has more than 632 million Internet users, who spend 25.9 hours online each week on average. In 2013, the total value of e-commerce transactions in China exceeded 10 trillion yuan (US$1.6 trillion). Of this amount, online retail accounted for 1.85 trillion yuan (or nearly US$300 billion), making the country the world’s largest online retail market.

• China has 527 million mobile phone subscribers. The number of smartphone users is expected to reach 870 million by 2016.

• The number of social network users is rapidly growing. Microblog subscribers total 275 million, and the number of monthly active WeChat (Tencent’s social media app) accounts now exceeds 468 million, up 39 percent year on year.

As these numbers illustrate, Chinese consumers are embracing digital technologies as never before. This digital surge is having a profound effect—nurturing new consumption models, changing consumer behaviors and reshaping consumer markets at an unexpectedly high pace and in unpredictable ways. Consider the following:

• Mobile uptake is exploding. The convenience and flexibility of smart devices, innovative apps and 3G/4G mobile Internet services are permeating the consumers’ lives. They can use their devices to easily watch videos, go shopping and make travel plans. They can also share information and experiences, anywhere and anytime. In 2013, the value of all payments issued via mobile devices exceeded 9.6 trillion yuan (about US$1.5 trillion), quadrupling the mobile payment value of the previous year.

• Social media has become the new word-of-mouth medium of marketing. Chinese consumers rely heavily on word-of–mouth opinions when making their purchasing decisions. Social media has enabled consumers’ access to such information and is strongly influencing their views and preferences. In China, nine out of 10 consumers are likely to

share stories of their “disgusting” shopping experiences through social networks.

• Digital technologies has enabled more venturesome shopping behaviors. As their income levels increase and their choices expand, almost 70 percent of Chinese consumers indicate they are willing to try new products and brands. Digital technologies have made it easier than ever for them to switch between brands and providers.

• Chinese consumers love switching among multiple screens. They spend nearly eight hours each day, on average, on their TV, computer, mobile phone and tablet; that’s 90 minutes more time than spent by consumers in the United States and the second longest daily screen time in the world (after Indonesia). In addition, half of Chinese consumers watch TV while also using PCs and/or mobile devices.

• Digital has blurred the lines between online and offline shopping. Digital technologies—which provide quick access to convenient online shopping channels—have made China the world’s largest online marketplace. Digital also enables a truly seamless shopping experience, evidenced by the fact that 66 percent of Chinese consumers report they have tried Webrooming and Showrooming.

While a vast number of consumers obtain and share information and also make decisions and complete transactions online, businesses are also taking the digital plunge. Enterprises in China use digital technologies to gain consumer and market insights. And they reconfigure and optimize their value chains through analytics. Markets and business models are both undergoing revolutionary changes driven by digital technologies.

Cross-sector expansion, powered by digitalAs the Chinese economy enters the “new normal” of moderate growth, business leaders are adjusting their priorities to seek new markets and models for growth. Accenture’s 2013 Survey of Global Business Leaders showed that many top executives of Chinese enterprises are actively pursuing growth opportunities by reaching out beyond their own industries (see Figure 1).

Figure 1. Chinese executives actively seek cross-border growth

Thinking about your company’s growth aspirations for the next 5 years, are you planning to: (Please select all that apply)

Brazil China France Germany India Italy Russia Spain UK USA

70% 63% 60% 61% 67% 40% 83% 75% 61% 68%

50% 87% 66% 59% 67% 55% 63% 68% 53% 53%

23% 43% 30% 33% 33% 33% 37% 25% 39% 34%

40% 30% 20% 24% 43% 23% 47% 35% 23% 20%

Source: Accenture Global Business Leader Survey, 2013

Pursue new market opportunities in (or in collaboration with) other industries

Pursue new market opportunities in (or in collaboration with) the public sector and/or the non-profit sector

Expand your business into new areas by harnessing the changing roles of stakeholders (e.g. consumer co-production, open innovation, crowdfunding

Grow your existing business

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Figure 2. Other industry players are entering retailing through M&A

One way companies pursue cross-sector growth is through mergers and acquisitions (M&As). The number of cross-sector M&As is on the rise in China. For instance, many enterprises operating in traditional industries such as

transportation, real estate, financial services and IT are actively buying consumer goods manufacturers and retailers. The number of such M&A deals increased by 46 percent in 2013, alone (see Figure 2).

No. of deals ( by target industry)

Transportation service/logistic Real estate

IT/Media/Communication serviceFinancial services

As of July

* The data include ecosystem players acquiring CG/Retailers and IT/Media/Communication services; data do not include M&As occurring within IT/Media/Communication services.Source: Capital IQ, Accenture analysis

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Figure 4. Consumer goods/retail enterprises obtain digital capabilities through M&A

Source: Accenture Global Business Leader Survey, 2013

No. of deals ( by target industry)

IT Media Communication service

As of July

Note: Explanation on data limitation: 1. M&A includes majority and minority interest mergers. 2. Might include minimal M&A within group company. 3. M&A initiated by e-commerce platforms such as Alibaba and JD.com is included here. Source: Capital IQ, Accenture analysis

48% 50% 29% 30% 44% 33% 70% 43% 36% 32%

60% 63% 39% 43% 64% 30% 39% 37% 42% 48%

36% 63% 50% 53% 44% 36% 57% 69% 46% 38%

52% 63% 50% 47% 48% 39% 61% 69% 36% 53%

60% 57% 63% 48% 52% 52% 57% 57% 75% 56%

40% 13% 37% 40% 40% 27% 57% 66% 41% 30%

20% 40% 50% 27% 52% 18% 52% 34% 34% 41%

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Another way enterprises plan to achieve their cross-sector expansions is by applying digital technologies. As shown in Figure 3, Chinese executives believe that social media, mobile apps and analytics all will play a crucial role in cross-sector growth.

Accenture’s analysis further suggests that M&As are becoming increasingly important means of gaining access to digital capabilities. Consumer goods companies and retailers are taking the lead in this regard, acquiring companies with attractive digital assets in the IT,

Figure 3. Chinese executives believe digital capabilities are the key for cross-sector development

Which tools and capabilities will be most important to enable this growth? (Please select all that apply)

Traditional online / e-commerce channels

Mobile computing and / or app development

Personal relationships and networks

Membership of cross-industry business groups

Good working relationships with policymakers/regulators

Use of social media

Data analytics

Brazil China France Germany India Italy Russia Spain UK USA

media and communication service sectors. In the first seven months of 2014, consumer goods and retail organizations carried out 28 such deals. There were only a dozen such deals, on average, in each of the previous six years (see Figure 4).

II. The emergence of digitally contestable markets

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According to Accenture’s research and experience, it is clear that a new market ecology is taking shape in China. This new paradigm is driven by Chinese consumers’ increasingly digital way of life and the recognition among businesses that new growth strategies are needed. Digital technologies will continue to serve as a catalyst for business transformation. They will enable companies to create new experiences and connections, as well as new products and services that will redefine industry boundaries and present new opportunities for growth.

Four digitally contestable markets Digitization is redefining industry boundaries. It lowers market entry barriers, thereby making it easier for businesses to expand across sectors. For instance, some Internet companies are entering the banking industry—an industry that has traditionally had an extremely high entry barrier. Digital technologies decrease channel costs, as well as research and development costs. For example, Haier now offers an online platform that provides customers with convenient financing and payment services. Digitization also continuously improves consumer experiences by making it easier for companies to match supply and demand, reduce processing time and offer better service. This has been proven in the popularity of taxi service apps and by the success of companies like Uber and Yongche.com, China's largest mobile car-sharing service.

As sector boundaries blur, competitors from different industries are building direct communications with consumers they’ve never targeted before. By cutting out the middleman and providing new and direct services based on consumer insights, these innovative companies are achieving cross-sector growth and market leadership. Accenture terms the new market ecology and industry convergence that digitization enables “digitally contestable markets.”

In these contestable markets, digital technologies enable enterprises to not only gain better insights into consumer demand, but also provide new products and services in new ways. Thus, new competitors can keep entering these markets and establishing footholds through innovation. Meanwhile, traditional enterprises are also seeking growth and transformation by tapping new technologies and forming a bigger

and more complex ecology centered on consumers. While newly emerging enterprises and traditional companies compete in this ecosystem, they also cooperate, producing new value by transforming legacy industries and market value chains.

Accenture’s research into the markets of major developed countries shows that digitally contestable markets are thriving in education, health care, manufacturing, financial services, transportation and other industries. In China—where the digital revolution is driven mainly by consumers—digitally contestable markets are rapidly developing in four areas:

• Paying: Non-financial service companies such as third-party payment institutions are competing with traditional financial service providers to offer a variety of flexible payment options through mobile devices, social media and other digital technologies.

• Shopping: Many non-traditional retailers are entering retail markets through e-commerce, while traditional retailers are providing seamless shopping experiences through digital technologies.

• Listening/watching: Cashing in on consumers’ tendencies to switch between screens, both traditional content providers and digital content providers are trying to attract new target audiences through the Internet.

• Traveling: Travel planning becomes more “intelligent” as digital technologies enable people to make travel plans and access means of transportation more easily and flexibly.

Although traditional core sectors dominate these four major contestable markets, other sectors (referred to as “ecological sectors”) are entering these markets via digital technologies. They are capturing a larger market share through technological and business innovation. For each of the digitally contestable markets in China, the ecological sectors include the digital enablement sectors of hi-tech, electronics and telecommunications. Other industries also play an important role (see Figure 5). For instance, while the financial services sector dominates the digitally contestable market for paying, third-party payment service providers from the retail space are making inroads. Similarly, in the digitally contestable market for shopping, the dominant sector—retail—is now sharing market space and customers with transportation, construction and financial services companies.

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Figure 5. Four major digitally contestable markets: core sectors and ecological sectors

Paying Shopping

Listening and Watching

Transportation

Traveling

Financial Services Retail

Media and Publishing

Electronics

TelecomRetail

Hi-tech

Hi-techElectronics

TelecomRetail

Advertising

Electronics Hi-tech

Electronics Hi-tech

Telecom

Telecom

Transpor-tation

Non-residentialconstruction

Non-residentialconstruction

Financial Service

Auto

Four digitally contestable markets Digitization is redefining industry boundaries. It lowers market entry barriers, thereby making it easier for businesses to expand across sectors. For instance, some Internet companies are entering the banking industry—an industry that has traditionally had an extremely high entry barrier. Digital technologies decrease channel costs, as well as research and development costs. For example, Haier now offers an online platform that provides customers with convenient financing and payment services. Digitization also continuously improves consumer experiences by making it easier for companies to match supply and demand, reduce processing time and offer better service. This has been proven in the popularity of taxi service apps and by the success of companies like Uber and Yongche.com, China's largest mobile car-sharing service.

As sector boundaries blur, competitors from different industries are building direct communications with consumers they’ve never targeted before. By cutting out the middleman and providing new and direct services based on consumer insights, these innovative companies are achieving cross-sector growth and market leadership. Accenture terms the new market ecology and industry convergence that digitization enables “digitally contestable markets.”

In these contestable markets, digital technologies enable enterprises to not only gain better insights into consumer demand, but also provide new products and services in new ways. Thus, new competitors can keep entering these markets and establishing footholds through innovation. Meanwhile, traditional enterprises are also seeking growth and transformation by tapping new technologies and forming a bigger

and more complex ecology centered on consumers. While newly emerging enterprises and traditional companies compete in this ecosystem, they also cooperate, producing new value by transforming legacy industries and market value chains.

Accenture’s research into the markets of major developed countries shows that digitally contestable markets are thriving in education, health care, manufacturing, financial services, transportation and other industries. In China—where the digital revolution is driven mainly by consumers—digitally contestable markets are rapidly developing in four areas:

• Paying: Non-financial service companies such as third-party payment institutions are competing with traditional financial service providers to offer a variety of flexible payment options through mobile devices, social media and other digital technologies.

• Shopping: Many non-traditional retailers are entering retail markets through e-commerce, while traditional retailers are providing seamless shopping experiences through digital technologies.

• Listening/watching: Cashing in on consumers’ tendencies to switch between screens, both traditional content providers and digital content providers are trying to attract new target audiences through the Internet.

• Traveling: Travel planning becomes more “intelligent” as digital technologies enable people to make travel plans and access means of transportation more easily and flexibly.

Source: Accenture analysis

Although traditional core sectors dominate these four major contestable markets, other sectors (referred to as “ecological sectors”) are entering these markets via digital technologies. They are capturing a larger market share through technological and business innovation. For each of the digitally contestable markets in China, the ecological sectors include the digital enablement sectors of hi-tech, electronics and telecommunications. Other industries also play an important role (see Figure 5). For instance, while the financial services sector dominates the digitally contestable market for paying, third-party payment service providers from the retail space are making inroads. Similarly, in the digitally contestable market for shopping, the dominant sector—retail—is now sharing market space and customers with transportation, construction and financial services companies.

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Bigger market sizes and larger growth prospects

How large are these new digitally contestable markets? Do they grow faster than traditional core sectors? To answer these questions, Accenture and Oxford Economics conducted joint research focused on the shopping (retail) and paying (financial services) markets. Our research not only examined the future prospects of these digitally contestable markets in China, Germany, the United Kingdom and the United States, but also analyzed the role digitization is expected to play in each. Due to a lack of data for paying, our market size analysis for the paying market is based on data from a comprehensive set of players within the financial services sector. While not an exact reflection of the size of the digitally contestable market for paying, we believe this proxy data from financial services provides a meaningful basis for comparison and interpretation.

Our study of the digitally contestable markets in China and the United States (which are comparable in size) found that:

1) Digitally contestable markets are expected to grow faster than their corresponding core sectors. Ecological sectors will also grow fast, thus stimulating an even greater expansion of digitally contestable markets.

This phenomenon can be seen in the growth rate projections of gross value. In 2013, the gross output of the core retail sector in China was US$234.3 billion; for the core financial services sector, the figure was US$714.6 billion. The growth rates of output value for these 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 paying are expected to increase 9.7 percent and 9.6 percent over the same period. That means that by 2020, the value of the gross output of the digitally contestable markets for shopping and paying is expected to reach US$550 billion and US$1.6 trillion, respectively (see Figure 6).

Our predictions are based on analyses of two scenarios. One is the “digital foundation” scenario, which presumes digital technology adoption will reflect a continuation of the penetration rates witnessed over the last five years. The other—the “digital acceleration” scenario—presumes a more pronounced adoption of digital technologies and is based on annual growth forecasts of various digital enablement sectors (such as analytics and e-commerce platforms) from market research organizations. We anticipate that the market will more likely grow in an accelerated manner. Unless otherwise stated, the market size data for digitally contestable markets in this report reflect the “digital acceleration” scenario.

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Figure 6. Sizing the digital prize: Size and growth of core sectors and their digitally contestable markets (2013-2020)

Source: Accenture and Oxford Economics analysis (based on 2010 comparable prices)

Note: all the data for digitally contestable markets (DCMs) reflect growth as projected under the “digital acceleration” scenario.

Shopping

China, 2020

China, 2013 US, 2013

US, 2020

Core industry（Retail） Eco industries（Electronics, Hi-tech, Telecom, Transportation, Non-residential construction）

Eco industries：

$103.0 bn

Eco industries：

$219.4 bn

Core industry：

$443.9 bn

Core industry：

$234.3 bn

Core industry：

$1119.4 bn

Core industry：

$1455.6 bn

DCM：$546.9 bn

DCM：$1675.0 bn

17

Source: Accenture and Oxford Economics analysis (based on 2010 comparable prices)

Note: all the data for digitally contestable markets (DCMs) reflect growth as projected under the “digital acceleration” scenario.

China, 2013 US, 2013

China, 2020 US, 2020

DCM：$1588.8 bn

DCM：$2668.5 bn

Core industry (Financial Services ) Eco industries（Electronics, Hi-tech, Telecom, Retail）

Financial services

18

Eco industries：

$259.5 bn

Eco industries：

$263.2 bn

Core industry：

$1329.3 bn

Core industry：

$2405.3 bn

Core industry：

$714.6 bn

Core industry：

$1875.8 bn

Figure 7. Comparison of gross output and growth rates of digitally contestable markets in China and the United States

2) The Chinese retail and financial services markets, though smaller than their US counterparts, will grow more rapidly thanks to digital technologies.

Since the gap between the Chinese and US economies is narrowing, we were interested in conducting a comparative study between these two markets. As shown in Figure 7, the valuations of the digitally contestable markets for the shopping and paying sectors in the United States are predicted to reach US$1.7 trillion and US$2.7 trillion, respectively, by 2020. That’s significantly more than the total value of their counterparts in China. But those sectors in China are expected to grow at a rate of approximately 5 to 7 percent faster than in the United States, thereby considerably reducing the gap between the two countries over time.

China

Source: Accenture and Oxford Economics analysis

US

0

200

400

600

800

1000

1200

1400

1800

285

547

1274

1675

Gross output and growth rate: Shopping DCM

Gross output and growth rate: Paying DCM

2013 2020

1600

$ bn $ bn4.0%

9.7%

0

500

1000

1500

2000

2500

3000

834

1589

2066

2669

2013 2020

3.7%

9.6%

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3) The growth of the ecological sectors has a significant effect on the growth of the digitally contestable markets. This is especially true in China.

We found that in both digital foundation and digital acceleration scenarios, the ecological sectors account for a larger share of digitally contestable markets in China than in the United States. In China, the share is 5 to 6 percent higher in the digital acceleration scenario than in the digital foundation scenario (in the United States, the study showed just a 3.5 percent difference between foundation and accelerated scenarios). This indicates that ecological sectors are poised to play a bigger facilitating role in digitally contestable markets in China than in the United States.

Among ecological sectors, digital enablement sectors (including electronic engineering, high-tech and telecom) contribute significantly (about 15 percent) to the make-up of digitally contestable markets. Therefore, it is strategically important for the Chinese economy and business community to vigorously develop their digital enablement sectors and promote the application and popularization of digital technologies in all fields.

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The future in the making

What are the driving forces that are shaping the four major digitally contestable markets in China?

What are the characteristics of the new ecology?

What competitive strategies have traditional providers and new entrants taken in these markets?

And what about future trends? What will change?

To address these and other questions, Accenture and Oxford Economics conducted additional in-depth analyses. Here is what we observed:

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Figure 8. Ecosystem of the digitally contestable market for paying

Mobile technologies

Connected Devices

Big DataIntelligentidentification

Source: Accenture analysis

Card networks

Other third-party service providers

Intelligent devicesmanufacturers

Banks

Internet companies

Telcos, Retailers

Market ecosystem The easing of regulatory controls on the third-party payment market and booming online consumption set the stage for the digitally contestable market for paying. In 2011, The People’s Bank of China (China’s central bank) issued its first business license for third-party payment services. As of July 2014, that figure had soared to 269.

China UnionPay, a bank card association, and banks have been dominating the paying industry. The new ecological sector of payment services is now flooded with non-traditional players, including Internet companies, telecom carriers, retailers and

smart device manufacturers. For instance, each of the three e-commerce giants (Alibaba, Tencent and Baidu) has established its own entity to support payment services. The three major telecom carriers, as well as the local public transportation IC card companies in cities such as Beijing and Shanghai have been licensed. And independent third-party payment service providers have been established. These include YeePay, 99bill and ChinaPnR.

Emerging competitors can offer new—and superior—consumer experiences because they are willing to adopt innovative business models and entirely new digital payment methods. Consider Alipay Wallet, WeChat Payment and Lakala Payment. With these services, consumers can make payments not only through regular

1. Paying

BarcodeTwo-dimensional code

CashBankcardInternet bankingSMS

Smart cardPrepaid card

Non-bank accountBiometric paymentsVirtual currencies

channels such as bank cards and online banking, but also through text messaging, barcodes, quick response codes, prepaid cards, non-banking accounts, sonic payment and virtual currencies (see Figure 8).

The evolution of the payment services market is particularly important for traditional banks. Paying-related businesses accounted for 7.5 percent of public banks’ total revenue in 2013, up from the 4.9 percent in 2007. Revenue from these businesses experienced a CAGR of 26 percent over the past six years.

As new entrants in the payment services market, third-party payers represent a relatively small share of the entire paying ecosystem in China. In 2013, third-party payments totaled 18.2 trillion yuan (US$2.9 trillion), or a modest 1.1 percent of the transactions made through non-cash payment channels. However, the influence of third-party payments on traditional banks’ payment business (particularly for those businesses that target individuals and small and micro-businesses) is not negligible. In fact, the share of payments made via banks’ traditional payment instruments declined from 60 percent to 54 percent from 2009 to 2013. The impact of the expanding third-party payment market on banks’ consolidated income is quite clear.

Market structures are being affected, too. Currently, online payment, bank card payment and mobile payment account for 59 percent, 33 percent and 7 percent of the third-party payment market, respectively. While the rise in the use of the first two payment methods tends to be slowing down, mobile payment methods are experiencing explosive growth, with annual growth skyrocketing from 50 percent in 2010 to 694 percent in 2013. Clearly, mobile payments already have the potential to bring major changes to the financial services industry, in terms of both its traditional organizational structures and business models. If “Apple Pay”—a new payment service that allows iPhone, Apple Watch or iPad owners to issue payments from their devices simply and securely—is launched in China, as many predict, the mobile payment revolution will gain even more momentum.

Future trends Non-contact payments, such as mobile payments, are poised to become mainstream

The ongoing development of mobile communication technologies and devices, the popularization of smartphones and handheld computers, the mobile Internet, and the integration of multiple networks will all help to make non-contact paying universal. It is possible that physical bank cards might disappear altogether in the coming years as cloud solutions, electronic wallets and retailer apps become safer and easier to use.

Payments will be integrated into the more widespread end-to-end consumer interactions

Mobile payment and other non-contact payment services are interactive and buyer-driven, delivering seamless, flexible paying experiences through multiple channels. As payments become more integrated into the customer experience, the boundaries between consumption channels and payment devices are gradually blurring.

Electronic banking will be more popular and widely used

The percentage of consumers using mobile electronic banking as a daily banking tool will continue to increase. Online banking will find its way to more small- and medium-sized cities and rural areas. And many banks will transform from transactional providers into what Accenture describes as “Everyday Banks”—trusted, indispensable and central institutions that enable consumers to carry out their everyday financial (and nonfinancial) activities.

Businesses within the ecological value chain will cooperate and jointly develop markets

The payment services market in China is expected to maintain its rapid growth in the foreseeable future, as businesses cooperate in more diverse ways and provide consumers with more innovative payment services.

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17

18

22

Market ecosystem The easing of regulatory controls on the third-party payment market and booming online consumption set the stage for the digitally contestable market for paying. In 2011, The People’s Bank of China (China’s central bank) issued its first business license for third-party payment services. As of July 2014, that figure had soared to 269.

China UnionPay, a bank card association, and banks have been dominating the paying industry. The new ecological sector of payment services is now flooded with non-traditional players, including Internet companies, telecom carriers, retailers and

smart device manufacturers. For instance, each of the three e-commerce giants (Alibaba, Tencent and Baidu) has established its own entity to support payment services. The three major telecom carriers, as well as the local public transportation IC card companies in cities such as Beijing and Shanghai have been licensed. And independent third-party payment service providers have been established. These include YeePay, 99bill and ChinaPnR.

Emerging competitors can offer new—and superior—consumer experiences because they are willing to adopt innovative business models and entirely new digital payment methods. Consider Alipay Wallet, WeChat Payment and Lakala Payment. With these services, consumers can make payments not only through regular

channels such as bank cards and online banking, but also through text messaging, barcodes, quick response codes, prepaid cards, non-banking accounts, sonic payment and virtual currencies (see Figure 8).

The evolution of the payment services market is particularly important for traditional banks. Paying-related businesses accounted for 7.5 percent of public banks’ total revenue in 2013, up from the 4.9 percent in 2007. Revenue from these businesses experienced a CAGR of 26 percent over the past six years.

As new entrants in the payment services market, third-party payers represent a relatively small share of the entire paying ecosystem in China. In 2013, third-party payments totaled 18.2 trillion yuan (US$2.9 trillion), or a modest 1.1 percent of the transactions made through non-cash payment channels. However, the influence of third-party payments on traditional banks’ payment business (particularly for those businesses that target individuals and small and micro-businesses) is not negligible. In fact, the share of payments made via banks’ traditional payment instruments declined from 60 percent to 54 percent from 2009 to 2013. The impact of the expanding third-party payment market on banks’ consolidated income is quite clear.

Market structures are being affected, too. Currently, online payment, bank card payment and mobile payment account for 59 percent, 33 percent and 7 percent of the third-party payment market, respectively. While the rise in the use of the first two payment methods tends to be slowing down, mobile payment methods are experiencing explosive growth, with annual growth skyrocketing from 50 percent in 2010 to 694 percent in 2013. Clearly, mobile payments already have the potential to bring major changes to the financial services industry, in terms of both its traditional organizational structures and business models. If “Apple Pay”—a new payment service that allows iPhone, Apple Watch or iPad owners to issue payments from their devices simply and securely—is launched in China, as many predict, the mobile payment revolution will gain even more momentum.

Future trends Non-contact payments, such as mobile payments, are poised to become mainstream

The ongoing development of mobile communication technologies and devices, the popularization of smartphones and handheld computers, the mobile Internet, and the integration of multiple networks will all help to make non-contact paying universal. It is possible that physical bank cards might disappear altogether in the coming years as cloud solutions, electronic wallets and retailer apps become safer and easier to use.

Payments will be integrated into the more widespread end-to-end consumer interactions

Mobile payment and other non-contact payment services are interactive and buyer-driven, delivering seamless, flexible paying experiences through multiple channels. As payments become more integrated into the customer experience, the boundaries between consumption channels and payment devices are gradually blurring.

Electronic banking will be more popular and widely used

The percentage of consumers using mobile electronic banking as a daily banking tool will continue to increase. Online banking will find its way to more small- and medium-sized cities and rural areas. And many banks will transform from transactional providers into what Accenture describes as “Everyday Banks”—trusted, indispensable and central institutions that enable consumers to carry out their everyday financial (and nonfinancial) activities.

Businesses within the ecological value chain will cooperate and jointly develop markets

The payment services market in China is expected to maintain its rapid growth in the foreseeable future, as businesses cooperate in more diverse ways and provide consumers with more innovative payment services.

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20

21

23

Figure 9. Ecosystem of the digitally contestable market for shopping

2. Shopping

Source: Accenture analysis

Distributors

Internet companies (ecommerce platform, social media etc. )

Cross-border companies (such as banks/telcos/payment providers)

Manufacturers/ CG companies

Retailers

Logistics companies

Online

Offline

Mobile

Several factors contribute to the success of the digitally contestable market for shopping: a relatively low threshold for entry, a well-established infrastructure, and a vast consumer base that is ready to spend. As disposable incomes for Chinese households steadily rise, the Chinese retail market is expected to grow substantially. The consumer goods market in urban China has already topped US$3 trillion.

Market ecosystem The conventional ecological chain for shopping has a simple unilateral structure with clearly defined boundaries. However, as digitization forges ahead, the market is experiencing significant changes.

1) Major e-commerce platforms such as Taobao and JD.com have been growing rapidly since they were established. Their growth rate has accelerated since their adoption of an open platform strategy.

2) Digital shopping service providers have come to the fore via “group-on” websites, social media and map-guided shopping.

3) With sluggish sales of brick-and-mortar stores, traditional retailers are joining forces with Internet and IT companies to actively pursue online and mobile businesses.

4) Even enterprises at the upper and lower ends of the retail chain—including manufacturers and logistics providers—have entered the arena, attempting to secure sales through e-commerce platforms.

It is clear that the retail industry is now characterized by a diverse group of market players. The entire ecological chain for shopping has evolved; it is no longer simple and linear; rather, it is circular, multi-directional and interactive (see Figure 9).

A review of the new ecosystem for shopping reveals several key market trends and characteristics:

• Both online and offline, cross-channel integration has become common within the shopping ecosystem. Consider the shift among traditional retailers toward omni-channel capabilities. Accenture’s research indicates that 63 percent of traditional retailers are engaged in multi-channel sales. Even more telling, 78 percent of single-channel retailers are planning to follow suit.

• The distinctions between non-retail and retail enterprises have become blurred. Retailers are invading areas such as logistics, payment services and entertainment to improve their consumers’ experiences. At the same time, non-retailers enter the retail ecological value chain by relying on their existing resources and digital technologies to reach out to new customers. For instance, Shunfeng Express is combining online shopping with a traditional bricks-and-mortar environment. It is doing so by applying its strengths in logistics to create superior e-commerce experiences for its customers. Through its 500 Heike stores, Shunfeng allows customers to order goods via tablets and have those items either delivered directly to the customer’s home or to a Heike store without payment. The latter option is appealing for those buyers who want to see the goods first-hand before committing to a purchase.

Mobile Technologies

Big Data

Cloud

Social Media

• Because consumers can go shopping anytime and anywhere via different channels, shopping has become a fragmented and highly fluid behavior. Delivering against consumer value propositions is the key. In the new, “non-stop” shopping ecosystem, Chinese consumers must have their needs met at every step of the new, multi-directional experience. That’s one of the reasons that shopping through mobile channels and social media is becoming more and more prevalent.

As digital technologies develop and retail business models evolve, retailers and ecological value chain businesses have to undertake a total digital transformation. They need to enhance their abilities in multiple areas—from digital selling and enterprise operations to supply chain and customer relationship management. They also need to bring their capabilities in data integration and application to the next level.

Future trendsNew technologies will make shopping more intelligent and convenient

Technologies such as wearable gadgets will continue to advance and are likely to be a component of a “smart shopping” experience very soon. The digitization of physical stores and augmented reality (AR) technologies will profoundly enhance consumer experiences. And with constant progress in mobile payment technologies, near field communication (NFC) payments and biometrics, the payment process will become easier and safer.

Data analysis will help businesses better understand consumers

As the digital integration of the companies within the shopping ecosystem increases, businesses will be able to access and analyze cross-border consumer data from more channels than ever before. That will contribute to precision product development and marketing, as well as to the expansion of the customer base.

Consumers will become important participants in product design

In the future, consumers will have more input into product design by offering their opinions about things like color, taste, packaging or size. Thus, it is necessary to build digital platforms that facilitate these types of consumer-oriented product design interactions. Consumer data will also assist retailers in shortening product delivery cycles and improving product innovation.

A shared economy will emerge

Under a “shared living” paradigm, consumers have more ways to resell, share or exchange their products and services. The shared economy is still in its infancy and faces numerous challenges in China. However, as regulations ease and as the number of market players increases, the shared economy is expected to advance. As it does, more innovative businesses will be derived from it.

22

23

24

24

Several factors contribute to the success of the digitally contestable market for shopping: a relatively low threshold for entry, a well-established infrastructure, and a vast consumer base that is ready to spend. As disposable incomes for Chinese households steadily rise, the Chinese retail market is expected to grow substantially. The consumer goods market in urban China has already topped US$3 trillion.

Market ecosystem The conventional ecological chain for shopping has a simple unilateral structure with clearly defined boundaries. However, as digitization forges ahead, the market is experiencing significant changes.

1) Major e-commerce platforms such as Taobao and JD.com have been growing rapidly since they were established. Their growth rate has accelerated since their adoption of an open platform strategy.

2) Digital shopping service providers have come to the fore via “group-on” websites, social media and map-guided shopping.

3) With sluggish sales of brick-and-mortar stores, traditional retailers are joining forces with Internet and IT companies to actively pursue online and mobile businesses.

4) Even enterprises at the upper and lower ends of the retail chain—including manufacturers and logistics providers—have entered the arena, attempting to secure sales through e-commerce platforms.

It is clear that the retail industry is now characterized by a diverse group of market players. The entire ecological chain for shopping has evolved; it is no longer simple and linear; rather, it is circular, multi-directional and interactive (see Figure 9).

A review of the new ecosystem for shopping reveals several key market trends and characteristics:

• Both online and offline, cross-channel integration has become common within the shopping ecosystem. Consider the shift among traditional retailers toward omni-channel capabilities. Accenture’s research indicates that 63 percent of traditional retailers are engaged in multi-channel sales. Even more telling, 78 percent of single-channel retailers are planning to follow suit.

• The distinctions between non-retail and retail enterprises have become blurred. Retailers are invading areas such as logistics, payment services and entertainment to improve their consumers’ experiences. At the same time, non-retailers enter the retail ecological value chain by relying on their existing resources and digital technologies to reach out to new customers. For instance, Shunfeng Express is combining online shopping with a traditional bricks-and-mortar environment. It is doing so by applying its strengths in logistics to create superior e-commerce experiences for its customers. Through its 500 Heike stores, Shunfeng allows customers to order goods via tablets and have those items either delivered directly to the customer’s home or to a Heike store without payment. The latter option is appealing for those buyers who want to see the goods first-hand before committing to a purchase.

• Because consumers can go shopping anytime and anywhere via different channels, shopping has become a fragmented and highly fluid behavior. Delivering against consumer value propositions is the key. In the new, “non-stop” shopping ecosystem, Chinese consumers must have their needs met at every step of the new, multi-directional experience. That’s one of the reasons that shopping through mobile channels and social media is becoming more and more prevalent.

As digital technologies develop and retail business models evolve, retailers and ecological value chain businesses have to undertake a total digital transformation. They need to enhance their abilities in multiple areas—from digital selling and enterprise operations to supply chain and customer relationship management. They also need to bring their capabilities in data integration and application to the next level.

Future trendsNew technologies will make shopping more intelligent and convenient

Technologies such as wearable gadgets will continue to advance and are likely to be a component of a “smart shopping” experience very soon. The digitization of physical stores and augmented reality (AR) technologies will profoundly enhance consumer experiences. And with constant progress in mobile payment technologies, near field communication (NFC) payments and biometrics, the payment process will become easier and safer.

Data analysis will help businesses better understand consumers

As the digital integration of the companies within the shopping ecosystem increases, businesses will be able to access and analyze cross-border consumer data from more channels than ever before. That will contribute to precision product development and marketing, as well as to the expansion of the customer base.

Consumers will become important participants in product design

In the future, consumers will have more input into product design by offering their opinions about things like color, taste, packaging or size. Thus, it is necessary to build digital platforms that facilitate these types of consumer-oriented product design interactions. Consumer data will also assist retailers in shortening product delivery cycles and improving product innovation.

A shared economy will emerge

Under a “shared living” paradigm, consumers have more ways to resell, share or exchange their products and services. The shared economy is still in its infancy and faces numerous challenges in China. However, as regulations ease and as the number of market players increases, the shared economy is expected to advance. As it does, more innovative businesses will be derived from it.

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Figure 10. Ecosystem of the digitally contestable market for listening/watching

3. Listening/watching

Source: Accenture analysis

It appears the digitally contestable market for listening/watching is being mainly driven by the development of mobile Internet technologies and mobile devices. In 2013, Chinese citizens spent an average of 479 minutes per day on their TVs, computers, mobile phones and tablets—a figure higher than that in Japan, the United Kingdom and the United States. Consumers have become quite accustomed to switching screens—a behavior that has led to the fragmentation of consumers’ attention.

Market ecosystemIn the traditional listening/watching industry, content reaches consumers only after going through a series of steps and channels managed by content integrators, broadcasters and distributors (including TV and radio stations, cinemas, publishing houses and bookstores). Digitization, however, has changed the game. Different types of over-the-top (OTT) content can now be created, displayed and broadcast digitally, via high-speed broadband and interconnecting devices. A large number of Internet companies, telecom carriers and smart device providers are entering the listening/watching market. Conversely, digitization has enabled companies along the traditional value chain to establish direct ties with

Mobile Technologies

Big Data

Connected Devices

Social Media

Content producer

Traditional channels

digital platform

Integration/ broadcast control

Distributor

Internet company

Intelligent device manufacturer

Telco

consumers. As a consequence, conventional distributors are finding themselves either squeezed out or marginalized (see Figure 10).

OTT is noteworthy because it is also changing consumers’ listening/watching habits, allowing them to always find whatever they want on the Internet and enjoy it over multiple screens. The increasing use of multi-screen devices will connect even more users to more media sources, greatly enhancing the value of the screens.

Consumers also now expect their listening/watching experiences to be highly entertaining and interactive. Those demands have fostered the transformation of the existing advertising industry and given rise to a new digital marketing ecosystem. Video websites have adopted features of a TV station, including the ability to independently produce programs. By moving into program production, these websites are attracting ad dollars that traditionally were spent on TV programming. According to iResearch, the online video industry was worth only 3.14 billion yuan (approximately US$500,000) in 2010, but soared to 13.6 billion yuan (US$2.15 billion) in 2013. Part of the valuation increase reflected the three-year rise in advertising revenues, which climbed from 68.4 percent to 72.1 percent.

New entrants in the listening/watching industry—especially Internet companies—are trying to position themselves along the upper and lower ends of the industry chain through vertically integrated operations. Their innovative moves are convincing some leading players in traditional industries that it is time to change. Increasingly, traditional players are adapting to the Internet-based ecology with new business models, product configurations, organizational structures and broadcasting systems. In these ways, digitization has deeply influenced and changed the value chain of the listening/watching industry.

It should be noted that the digital listening/watching industry is facing myriad challenges. Most important, businesses within the industry chain are under enormous pressure to make money. But how can they monetize their digital business models? How can they put a price tag on online content that has been offered, until now, free of charge? Challenges are also coming from traditional providers. They are feeling the threat from emerging digital competitors and have, in response, put digital transformation on the table. Another challenge has to do with strict government regulations in China. Commercial digital players in the listening/watching sector are subject to strict regulatory policies regarding both content and channels that must be managed and adhered to.

Future trends Digital listening/watching devices will keep evolving

New search engines with IP functions will replace remote controls, allowing users to not only manage all kinds of home appliances, but also easily access a variety of content with a single click. Smart TV adaptors (i.e., set-top boxes) and smart TV sets may integrate all kinds of screens.

Content is still king

Quality content is the key to industry growth. The digitization of the listening/watching market has helped improve the quality of content considerably. The digital format allows the customer to like, share and provide feedback on the content and this in turn helps the providers fine-tune and improve the quality to the content. Businesses need to recognize this and make full use of the ubiquitous consumers in China who are more than willing to express their opinion of the content and user experiences. The growing recognition that content has value also plays a role in driving growth. Consumers are now more willing to pay for quality content and copyright protected movies and music.

Digital advertising will become mainstream

Dynamic advertisements based on consumer preferences will transform the advertising paradigm. The video advertising market, for example, will see changes in multiple areas—from ad content and payment methods to potential access to consumer data and the improvement of the consumer experience. Advertising content that is based on data analysis and precision placement techniques will become mainstream.

The value chain will be reshaped, and profits will be shared by a more diversified group of providers

Multi-screen marketing, entire industry chain operations and cross-sector joint operations will become some of the common characteristics of the listening/watching ecosystem. The media industry will be recreated as new entrants from various industry groups step in to take advantage of big data, analytics, cloud storage and distribution technologies. They will be attracted to this new media market’s potential for growth and profitability.

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26

It appears the digitally contestable market for listening/watching is being mainly driven by the development of mobile Internet technologies and mobile devices. In 2013, Chinese citizens spent an average of 479 minutes per day on their TVs, computers, mobile phones and tablets—a figure higher than that in Japan, the United Kingdom and the United States. Consumers have become quite accustomed to switching screens—a behavior that has led to the fragmentation of consumers’ attention.

Market ecosystemIn the traditional listening/watching industry, content reaches consumers only after going through a series of steps and channels managed by content integrators, broadcasters and distributors (including TV and radio stations, cinemas, publishing houses and bookstores). Digitization, however, has changed the game. Different types of over-the-top (OTT) content can now be created, displayed and broadcast digitally, via high-speed broadband and interconnecting devices. A large number of Internet companies, telecom carriers and smart device providers are entering the listening/watching market. Conversely, digitization has enabled companies along the traditional value chain to establish direct ties with

consumers. As a consequence, conventional distributors are finding themselves either squeezed out or marginalized (see Figure 10).

OTT is noteworthy because it is also changing consumers’ listening/watching habits, allowing them to always find whatever they want on the Internet and enjoy it over multiple screens. The increasing use of multi-screen devices will connect even more users to more media sources, greatly enhancing the value of the screens.

Consumers also now expect their listening/watching experiences to be highly entertaining and interactive. Those demands have fostered the transformation of the existing advertising industry and given rise to a new digital marketing ecosystem. Video websites have adopted features of a TV station, including the ability to independently produce programs. By moving into program production, these websites are attracting ad dollars that traditionally were spent on TV programming. According to iResearch, the online video industry was worth only 3.14 billion yuan (approximately US$500,000) in 2010, but soared to 13.6 billion yuan (US$2.15 billion) in 2013. Part of the valuation increase reflected the three-year rise in advertising revenues, which climbed from 68.4 percent to 72.1 percent.

New entrants in the listening/watching industry—especially Internet companies—are trying to position themselves along the upper and lower ends of the industry chain through vertically integrated operations. Their innovative moves are convincing some leading players in traditional industries that it is time to change. Increasingly, traditional players are adapting to the Internet-based ecology with new business models, product configurations, organizational structures and broadcasting systems. In these ways, digitization has deeply influenced and changed the value chain of the listening/watching industry.

It should be noted that the digital listening/watching industry is facing myriad challenges. Most important, businesses within the industry chain are under enormous pressure to make money. But how can they monetize their digital business models? How can they put a price tag on online content that has been offered, until now, free of charge? Challenges are also coming from traditional providers. They are feeling the threat from emerging digital competitors and have, in response, put digital transformation on the table. Another challenge has to do with strict government regulations in China. Commercial digital players in the listening/watching sector are subject to strict regulatory policies regarding both content and channels that must be managed and adhered to.

Future trends Digital listening/watching devices will keep evolving

New search engines with IP functions will replace remote controls, allowing users to not only manage all kinds of home appliances, but also easily access a variety of content with a single click. Smart TV adaptors (i.e., set-top boxes) and smart TV sets may integrate all kinds of screens.

Content is still king

Quality content is the key to industry growth. The digitization of the listening/watching market has helped improve the quality of content considerably. The digital format allows the customer to like, share and provide feedback on the content and this in turn helps the providers fine-tune and improve the quality to the content. Businesses need to recognize this and make full use of the ubiquitous consumers in China who are more than willing to express their opinion of the content and user experiences. The growing recognition that content has value also plays a role in driving growth. Consumers are now more willing to pay for quality content and copyright protected movies and music.

Digital advertising will become mainstream

Dynamic advertisements based on consumer preferences will transform the advertising paradigm. The video advertising market, for example, will see changes in multiple areas—from ad content and payment methods to potential access to consumer data and the improvement of the consumer experience. Advertising content that is based on data analysis and precision placement techniques will become mainstream.

The value chain will be reshaped, and profits will be shared by a more diversified group of providers

Multi-screen marketing, entire industry chain operations and cross-sector joint operations will become some of the common characteristics of the listening/watching ecosystem. The media industry will be recreated as new entrants from various industry groups step in to take advantage of big data, analytics, cloud storage and distribution technologies. They will be attracted to this new media market’s potential for growth and profitability.

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Figure 11. Ecology of the digitally contestable market for traveling

4. Traveling

Online

Offline

Mobile

In recent years, the evolution of smart mobile devices, smart sensors, machine-to-machine (M2M) communication and other information technologies has laid a solid foundation for the development of digital, or intelligent, travel.

Market ecosystem In the traditional travel market, infrastructure providers, public transport operators, automobile manufacturers, and hotels and restaurants are rarely connected. They operate independently according to their respective schedules,

which may not align with those of their customers. Today, digital technologies are changing people’s travel habits and bringing the vision of one-stop travel services to life.

Digital travel services currently consist of online booking (of flights and restaurants, etc.), shared travel (either modes of transportation or activities), interconnected driving services (such as maps, navigation and remote car services) and mobile payments. These services work together to offer end-to-end digital travel experiences. Digital travel service providers have already built a large and loyal customer base by continuously innovating their mobile strategies and business models.

At the same time, a new generation of digital technologies has transformed traditional travel businesses and connections among various industries and enterprises. The travel market now is part of a new ecosystem in which travel service providers cooperate and connect with each other to efficiently meet consumers’ travel needs, anytime and anywhere (see Figure 11).

Mobile Technologies

Connected devices

Big DataIntelligent identification

Transportation service provider

Internet company

Intelligent device manufacturer

RestaurantHoteltourism

Auto manufacturer

Infrastructure provider

Source: Accenture analysis

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Future trends Traveling will be smarter, safer, easier and more customized

Various travel apps will make travel more intelligent and convenient. As communication technologies evolve to support human-vehicle, vehicle-vehicle and vehicle-infrastructure interactions, safe driving may truly become a reality. Unmanned driving is likely to be commercialized before 2020.

A shared economy will emerge

Network technologies have considerably reduced travel costs. Short–term, network-based arrangements for renting, sharing, carpooling and group tourism will become commonplace. The person-to-person (P2P) rental market, which features light-asset operations, will expand rapidly to produce a new economic model. However, the sustainability of this market is uncertain due to the pending regulatory issues and resistance from traditional industries.

Business models will be more innovative

Subversive mobile Internet technologies will reshape the traditional travel channel system and provide smoother and more satisfying travel experiences. Specifically, the channels for travel booking will become flatter, with seamless connections to a host of back-office services. For mobile travel service providers, the next big challenge lies in figuring out how to further differentiate their operations. Innovative business models and platform strategies will take on new importance.

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III. Winning in the digitally contestable markets

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Business models are established for two primary reasons: 1) to guide the creation of value for customers (customer value propositions); and 2) to define how a company will create value for itself (making profits). These two factors are being changed by digitization. To win in digitally contestable markets, a business needs to fully understand how digitization is changing its own business model and the ecology of the industry to which it belongs.

Insights gained from digitally contestable markets By conducting a thorough comparative analysis of the digitally contestable markets in China, Germany, the United Kingdom and the United States, Accenture gained six key insights.

• Build best-in-class digital capabilities. To rise above competition, businesses need to develop leading edge digital capabilities. By exploiting technical innovations, they will improve their digital competitiveness not only in their own industry but also across industries. Long-standing enterprises and newly created businesses, alike, have the potential to rapidly undermine the existing market order. But so do their counterparts from neighboring industries. Those businesses are likely to obtain consumer insights through big data and analytics solutions and take actions that pose a challenge to the industry incumbents.

• Data is the lifeblood of the new competitive reality. Data that flows between businesses is now continuous and highly valuable. Those businesses that are able to make decisions based upon insights gleaned from that data and act on them quickly will be favored in digitally contestable markets. Businesses need to not only be able to deliver data to decision makers in the shortest time possible, but also have the processes in place to ensure that the decisions made can be acted upon quickly.

• Listen to you customers. Consumer insights will become an ever more crucial differentiator. For Chinese consumers today, a superior experience is valued above almost everything else. Preferences for (or loyalty to) specific products or service providers has become less important. Actionable consumer insights are critical for digital companies to understand their customers’ needs and expectations and in turn allow them to provide the best products and services that meet customers’ needs and exceed their expectations.

• Think like a Start-up. Incumbents need to learn from start-ups. As the new competitive environment unfolds, those companies that cling to traditional business models are likely to see their profitability fall. In the new digital reality, businesses need to reboot and start thinking afresh like a start-up. They need to think outside the box and view the business landscape and how to compete from scratch. Their company culture needs to embrace innovative thinking and agility , the key ingredients which are essential for success. Without these traits, incumbents will not be able to translate consumers’ digital needs into profitability.

• Cross the blurring industry boundaries. Chinese businesses that thrive in digitally contestable markets will be better than their competitors at working across industry boundaries. When it comes to planning operations that are focused on meeting consumer demands

and maximizing consumer value, the most successful companies will be able to extend their capabilities into multiple industries whenever necessary. They need to look outside their own industries to see new opportunities to create value. Digital technologies have broken down traditional industry boundaries and enabled cross-industry opportunities that were not possible before this.

• Go digital to improve traditional enterprise management capabilities. Non-digital capabilities are often a source of competitive advantage and will continue to be so in the future. As digital technologies become more easily accessible, winning companies will be those that seamlessly integrate traditional and digital technologies and organically combine technological advantages with human capital and organizational capabilities. At the same time, leading enterprises will use technologies to radically reshape existing work processes and organizational boundaries. For example, Chinese businesses need to explore and use digital technologies in managing their workforce. Various forms of working virtually and use of different technologies can be employed to reduce costs in travel and meeting in person. This is especially important as Chinese companies look abroad to grow and need these capabilities in order to be compatible with their customers and partners.

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Side-Bar

Critical questions for Chinese business executives

• What are digital’s disruptive opportunities, threats and outcomes?

• How do you assess competitive threats and opportunities from beyond your own industry?

• How will digital technology support differentiation and sustainable growth?

• Do you have the required capabilities, internally and externally?

• How well do you understand governments’ policy intentions—including latent policy intent that may emerge when new technology permits new interventions?

• How often and how closely do you assess the potential value of your data aggregates to companies outside your industry?

• Do you capture your customers’ experiences and have the capabilities to act on them? Are you using the insights gathered to differentiate from your competitors?

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ConclusionWinning in the digitally contestable markets by becoming digital players The age of digital consumerism has arrived in China. Consumer demand for new products, services and experiences has fueled the ongoing digital revolution. That demand is also encouraging cross-sector innovation.

To win in digitally contestable markets, Chinese businesses need to first become digital businesses. This means more than applying digital technologies to existing products and services (although this is a critical step toward digitization). It means identifying business strategies in an environment teeming with digital competitors and accurately positioning themselves in new markets. True digital businesses will grow by leaps and bounds. They will drive overall efficiencies. They will reshape organizational and operational processes. And they will redefine what it means to be a high-performance business.

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Appendix

Modeling digitally contestable markets: sector composition Shopping

Financial services

Reason for inclusion Methodology notes

Core sector Retail Core sector Oxford Economics global model

Ecological sectors

Electronic engineering

Telecommunications

Transportation

Non-residential construction

Reason for inclusion Methodology notes

Core sector

Ecological sectors

Electronic engineering

Telecommunications

Retail

Economic analysis methodology

Phase 1: Market selection

Based on Accenture's global research and our analysis of the Chinese market, we identified four digitally contestable markets that exemplify—to varying levels of maturity—different manifestations of digital disruption. For econometric forecasting, we selected two digitally contestable markets (paying and shopping) and four countries (China, Germany, the United Kingdom and the United States).

Phase 2: Sector identification

To enable econometric forecasting, we built a model of each digitally contestable market for each country. Each model comprised:

1. A “core sector” that has traditionally served the market in question. These are financial services (in the case of paying) and retail (in the case of shopping). We assumed that the entire core sector is amenable to digital disruption; 100 percent of the core sector is therefore included.

2. Ecological sectors, which consist of two sector groups. The first one is “digital enablement sectors,” which encompass hi-tech activities, products and services that enable digital contestability. These include providers of e-commerce and analytics platforms. The other sector group is made up of “halo sectors.” While distinct from the core sector, halo sectors can now compete in digitally contestable markets because of digital technologies. For example, in the case of shopping, a halo sector would be transportation. We included a proportion of ecological sectors that is equivalent to the core sector’s share in GDP.

Additional detail is presented in “Modeling digitally contestable markets: sector composition.” We worked with standard industry classifications at the

two- and three-digit NACE level. For some sectors, the Oxford Economics global model was employed. For others, customized data series were built.

Phase 3: Econometric modeling

Each model generated forecasts of gross value added and gross output terms for each year from 2013 to 2020. This is the central forecast cited in the report.

Phase 4: Scenario analysis

Recognizing the uncertainty surrounding the growth rate of digital technologies

and their multiplier effects, we created two scenarios for each model:

a. A “digital foundation” scenario, in which the core sector and the digital enablement sectors grow no faster than they would in the absence of digitally contestable markets; and

b. A “digital acceleration” scenario, in which the emergence of digitally contestable markets causes both the core sector and the digital enablement sectors to grow at rates faster than expected under the “digital foundation” scenario.

Hi-tech players: e-commerce, platforms, cloud and data storage

Digital enablement sectors (infrastructure, data services, and content)

Total sector size allocated to digitally contestable market based on share of core sector in GDP

Changing retail means changing patterns of building for shopping malls, retail units, warehouses, etc.

The ways in which physical goods are delivered from the producer to the consumer are changing (warehousing patterns, delivery demand, etc.)

Financial services (banking and insurance)

Include the entire financial sector, not just the payment transaction

Digital enablement sectors (infrastructure, data services, and content)

Captures the scope for e-commerce specifically targeted at purchase of financial services

Portion of total retail output ascribable to financial services

Total sector size allocated to digitally contestable market based on share of core sector in GDP

Oxford Economics global model

Hi-tech players: e-commerce, platforms, cloud and data storage

35

China¥

China¥

China Annual Growth

US$

US$

US Annual Growth

UK£

UK£

UKAnnual Growth

Germany€

Germany€

GermanyAnnual Growth

2013 2020 2013 2020 2013 2020 2013 2020

Core sector: Retail 838.3 1534.1 9.0% 719.9 903.5 3.3% 72.4 97.2 4.3% 67.7 72.7 1.0%

Ecological chain sectors 60.8 120.5 10.3% 57.6 80.4 4.9% 5.8 8.4 5.4% 5.7 6.9 2.8%

Digitally contestable market total

899.0 1654.6 9.1% 777.5 983.9 3.4% 78.2 105.6 4.4% 73.4 79.7 1.2%

China¥

China¥

China Annual Growth

US$

US$

US Annual Growth

UK£

UK£

UKAnnual Growth

Germany€

Germany€

GermanyAnnual Growth

2013 2020 2013 2020 2013 2020 2013 20202013 to 2020

2013 to 2020

2013 to 2020

2013 to 2020

2013 to 2020

2013 to 2020

2013 to 2020

2013 to 2020

2013 to 2020

2013 to 2020

2013 to 2020

2013 to 2020

2013 to 2020

2013 to 2020

2013 to 2020

2013 to 2020

Core sector: Retail 1428.8 2614.8 9.0% 1119.4 1406.3 3.3% 138.1 185.0 4.3% 123.2 131.9 1.0%

Ecological chain sectors 208.9 401.5 9.8% 105.6 147.1 4.9% 13.8 19.4 5.0% 14.4 17.3 2.6%

Digitally contestable market total

1637.7 3016.3 9.1% 1224.9 1553.5 3.5% 151.9 204.4 4.3% 137.7 149.2 1.2%

Shopping

Gross output at constant 2010 prices (billions)

Digital foundation: Forecasts generated based on standard assumptions in Oxford Economics global dynamic stochastic general equilibrium model

China¥

China¥

China Annual Growth

US$

US$

US Annual Growth

UK£

UK£

UKAnnual Growth

Germany€

Germany€

GermanyAnnual Growth

China¥

China¥

China Annual Growth

US$

US$

US Annual Growth

UK£

UK£

UKAnnual Growth

Germany€

Germany€

GermanyAnnual Growth

Digital acceleration: Core sectors grow 0.5% per annum faster than in digital foundation; digital enablement sectors twice as large as in digital foundation in each year 2013 to 2020

2013 2020 2013 2020 2013 2020 2013 2020

Core sector: Retail 1428.8 2706.3 9.6% 1119.4 1455.6 3.8% 138.1 191.4 4.8% 123.2 136.5 1.5%

Ecological chain sectors 311.2 628.2 10.6% 154.3 219.4 5.2% 16.5 24.0 5.5% 20.3 25.1 3.1%

Digitally contestable market total

1740.0 3334.5 9.7% 1273.6 1675.0 4.0% 154.6 215.4 4.9% 143.5 161.6 1.7%

Gross value added at constant 2010 prices (billions)

Digital foundation: Forecasts generated based on standard assumptions in Oxford Economics global dynamic stochastic general equilibrium model

2013 2020 2013 2020 2013 2020 2013 2020

Core sector: Retail 838.3 1587.8 9.6% 719.9 935.1 3.8% 72.4 100.7 4.8% 67.7 75.3 1.5%

Ecological chain sectors 89.8 187.1 11.1% 86.2 123.2 5.2% 7.3 10.9 6.0% 8.3 10.3 3.3%

Digitally contestable market total

928.1 1774.9 9.7% 806.1 1058.3 4.0% 154.6 111.6 4.9% 75.9 85.6 1.7%

Source: Accenture and Oxford Economics analysis.

36

Digital acceleration: Core sectors grow 0.5% per annum faster than in digital foundation; digital enablement sectors twice as large as in digital foundation in each year 2013 to 2020

2013 to 2020

2013 to 2020

2013 to 2020

2013 to 2020

2013 2020 2013 2020 2013 2020 2013 2020

4356.8 8104.5 9.3% 1875.8 2405.3 3.6% 185.5 214.6 2.1% 225.8 252.4 1.6%

729.7 1582.2 11.7% 190.5 263.2 4.7% 15.6 20.6 4.1% 24.2 29.5 2.9%

5086.5 9686.8 9.6% 2066.3 2668.5 3.7% 201.0 235.3 2.3% 250.0 281.9 1.7%

2013 to 2020

2013 to 2020

2013 to 2020

2013 to 2020

2013 to 2020

2013 to 2020

2013 to 2020

2013 to 2020

2013 to 2020

2013 to 2020

2013 to 2020

2013 to 2020

China¥

China¥

China Annual Growth

US$

US$

US Annual Growth

UK£

UK£

UKAnnual Growth

Germany€

Germany€

GermanyAnnual Growth

China¥

China¥

China Annual Growth

US$

US$

US Annual Growth

UK£

UK£

UKAnnual Growth

Germany€

Germany€

GermanyAnnual Growth

China¥

China¥

China Annual Growth

US$

US$

US Annual Growth

UK£

UK£

UKAnnual Growth

Germany€

Germany€

GermanyAnnual Growth

China¥

China¥

China Annual Growth

US$

US$

US Annual Growth

UK£

UK£

UKAnnual Growth

Germany€

Germany€

GermanyAnnual Growth

Source: Accenture and Oxford Economics analysis.

Financial Services

Gross output at constant 2010 prices (billions)

Digital foundation: Forecasts generated based on standard assumptions in Oxford Economics global dynamic stochastic general equilibrium model

2013 2020 2013 2020 2013 2020 2013 2020

Core sector: Financial services

4356.8 7830.5 8.7% 1875.8 2324.0 3.1% 185.5 207.4 1.6% 225.8 243.9 1.1%

Ecological chain sectors 402.6 870.0 11.6% 116.4 159.3 4.6% 11.5 15.0 3.9% 12.4 15.5 3.3%

Digitally contestable market total

Core sector: Financial services

Ecological chain sectors

Digitally contestable market total

Core sector: Financial services

Ecological chain sectors

Digitally contestable market total

Core sector: Financial services

Ecological chain sectors

Digitally contestable market total

4759.3 8700.5 9.0% 1992.2 2483.2 3.2% 196.9 222.3 1.7% 238.2 259.4 1.2%

Digital acceleration: Core sectors grow 0.5% per annum faster than in digital foundation; digital enablement sectors twice as large as in digital foundation in each year 2013 to 2020

Gross value added at constant 2010 prices (billions)

Digital foundation: Forecasts generated based on standard assumptions in Oxford Economics global dynamic stochastic general equilibrium model

2013 2020 2013 2020 2013 2020 2013 2020

2680.9 4818.4 8.7% 993.2 1205.6 2.8% 102.9 115.2 1.6% 89.8 97.2 1.1%

137.1 302.0 11.9% 71.1 97.5 4.6% 6.1 8.1 4.0% 5.9 7.4 3.2%

2818.0 5120.4 8.9% 1064.3 1303.2 2.9% 109.0 123.3 1.8% 95.7 104.5 1.3%

Digital acceleration: Core sectors grow 0.5% per annum faster than in digital foundation; digital enablement sectors twice as large as in digital foundation in each year 2013 to 2020

2013 2020 2013 2020 2013 2020 2013 2020

2680.9 4987.0 9.3% 993.2 1247.8 3.3% 102.9 119.3 2.1% 89.8 100.6 1.6%

229.9 511.4 12.1% 114.2 158.6 4.8% 8.4 11.2 4.2% 10.9 13.3 2.9%

2910.8 5498.5 9.5% 1107.4 1406.4 3.5% 111.3 130.5 2.3% 100.7 113.9 1.8%

37

About the research

During the implementation process of the project, we conducted three major surveys in support of our research:

1. Global survey of top executives: We conducted an online survey targeted at 500 top executives from various sectors of ten major economies.

2. Econometric modeling: We built econometric models for historical and future growth performance of the shopping and paying sectors of four major economies.

3. Interviews of industry experts: Accenture worked in conjunction with the Harvard Business Review (Chinese edition) to interview a number of industry experts, including Li Daxue, Senior Vice President and IT Director of the JD.com Group; Zhuang Chenchao, CEO and founder of Qunar.com; Zhao Yilu, Chief Strategic officer of Qunar.com; Tang Bin, CEO of YeePay.com; Li Yansong, President of iQIYI Motion Pictures; and Zhang Jun, President of Horizon China. We appreciate their contributions and their willingness to share their views and insights.

38

Reference1. Larry Downes and Paul Nunes, Big Bang Disruption, 2014.

2. CNNIC, 34th Statistical Report on Internet Development in China, July 2014.

3. Ministry of Commerce People’s Republic of China (News Release), “China now world's largest online retail market,” March 12, 2014. http://english.mofcom.gov.cn/article/newsrelease/counselorsoffice/westernasiaandafricareport/201403/20140300515815.shtml 4. CNNIC, 34th Statistical Report on Internet Development in China, July 2014.

5. iResearch, China Mobile Payment Report, 2012-2013. http://report.iresearch.cn/1876.html.

6. CNNIC, 34th Statistical Report on Internet Development in China, July 2014.

7. ifeng.com, "Tencent Q3 earnings: net profit rose 46%, and WeChat active users up by 39% year on year," November 13, 2014. http://finance.ifeng.com/a/20141113/13270843_0.shtml.

8. Data source: People's Bank of China.

9. Accenture Global Consumer Pulse Research, 2013.

10. Accenture China Consumer Research, 2013.

11. Milward Brown AdReaction, 2014.

12. Accenture China Consumer Research, 2013.

13. Accenture Global Seamless Retailer Survey, 2013.

14. Accenture (China) Co., Ltd., http://weibo.com/2822118855/Bl9J70NrG?mod=weibotime#_rnd1411361228418.

15. Accenture, Remaking Customer Markets: Unlocking Growth with Digital, 2014. http://www.accenture.com/us-en/Pages/insight-digital-technologies-drive-market-growth.aspx.

16. Caixin Online, “Central Bank Issues More Third-Party Payment Licenses,” July 16, 2014. http://english.caixin.com/2014-07-16/100705011.html

17. Bank payment-related income includes settlement and clearing fees, bank card fees.

18. Data source in this segment: People's Bank of China, Enfodesk, iResearch, Accenture analysis.

19. Data source: Enfodesk, iResearch, Accenture analysis.

20. Data source: Enfodesk, iResearch, Accenture analysis.

21. Accenture, The Everyday Bank: How Digital is Revolutionizing Banking and the Customer Ecosystem, 2014. http://www.accenture.com/us-en/Pages/insight-everyday-bank-digital-revolution-banking-summary.aspx.

22. National Bureau of Statistics of the People’s Republic of China.

23. Accenture Chinese Retailers Omnichannel Retailing Capacity Survey, 2013.

24. CCTV America, “Chinese delivery giant Shunfeng enters e-commerce using community stores,“ October 15, 2014. http://www.cctv-america.com/2014/10/15/chinese-delivery-giant-shunfeng-enters-e-commerce-using-community-stores

25. "Over The Top" (OTT) refers to a type of business that delivers its goods or services over the Internet. Its typical feature is that the service provider does not have to own a physical network, but delivers content directly to the end consumer on the public Internet. In the field of television broadcasting and distribution, OTT means the delivery of video and audio content via broadband.

26. iResearch, ”China online video market reached 13.59 billion in 2013, and mobile-end commercialization started off,” August 18, 2014. http://www.iresearch.com.cn/View/236618.html.

27. Harvard Business Review (Chinese edition), "Digital things connection disrupt the business," November 2014.

28. Accenture, Remaking Customer Markets: Unlocking Growth with Digital, 2014. http://www.accenture.com/us-en/Pages/insight-digital-technologies-drive-market-growth.aspx.

39

14-6107

Executive Sponsors:

Gong Li, Luis Ceniga

Program Director:

Xuyu Chen

Research Team:

Sherry Gao, Sheryl Yu, Daniel Yang, Tengyue Xu

Acknowledgements:

Chan Tzeh Chyi, Yuelong Fan, Jeremy Huo, Ted Liu, Archie Maitland, Qian Wei, Matthew Robinson, Jun Shen, Jiahua Wang, Roger Yu, Quanwei Li, Gening Zhao, Zhengzheng Liu, Xinye Kang, Chunmei Wu, Wenjing Niu

About Accenture

Accenture is a global management consulting, technology services and outsourcing company incorporated in Ireland, with approximately 319,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world’s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$30.0 billion for the fiscal year ended Aug. 31, 2014.

Accenture has been operating in Greater China for more than 25 years. Today, the Greater China practice has approximately 10,000 people servicing clients across the region and has offices in Beijing, Shanghai, Dalian, Chengdu, Guangzhou, Shenzhen, Hong Kong and Taipei.

For more information about Accenture, please visit its corporate homepage www.accenture.com and its Greater China homepage www.accenture.cn.

Copyright © 2015 Accenture All rights reserved.

Accenture, its logo, and High Performance Delivered are trademarks of Accenture.

Disclaimer This report has been prepared by and distributed by Accenture. No part of this document may be reproduced in any manner without the written permission of Accenture. The estimation of digitally contestable market is based on Oxford Economics’ economic model. The modeling and collection of raw data were completed by Oxford Economics. Accenture does not in any way guarantee the accuracy, completeness, timeliness, validity and usability of the data and modeling. All viewpoints, researches, analysis herein are for reference only and should not be considered as the basis for government policy-making or any investment recommendation to the public.