As smartphone penetration in emerging markets rapidly intensifies, business is increasingly taking place through online platforms. According to Credit Suisse, online sales or E-Commerce in emerging markets (EEM) (VWO) as a proportion of total retail sales is likely to exceed the corresponding ratio in developed countries. This outlook was mainly due to a comparatively underdeveloped brick-and-mortar retail sector and the rapid increase of Internet use on smartphones in emerging markets.
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E-Commerce companies in emerging markets are bypassing the big box retail store model prevalent across developed economies. They’re offering a new shopping experience to emerging market consumers.
Buoyed by the sharp growth of E-Commerce in emerging markets, many companies have witnessed significant revenue growth. The revenue of the Emerging Markets Internet Index (EMQQ) jumped from $13 billion in 2009 to $74 billion in 2014—a five-year growth of 468% and an average annual growth of 41.5%. As the market matures, the growth rate is likely to slow over time, though it was still higher at 40% in 2014.
The annual revenue of Alibaba Group (BABA), the Chinese E-Commerce giant, has risen more than ten times over from 6.7 billion yuan in 2010 to 76.2 billion yuan in 2015. The company expects its revenue to grow around 33% in 2016. Jack Ma, the company’s co-founder, targets gross merchandise volume of $1 trillion by 2020 and 2 billion customers by 2036. The company seeks to become the fifth-largest economy in the world in 20 years.
Similarly, the annual revenue for Baidu (BIDU), the Chinese search engine, swelled more than ten times over, from $1.2 billion in 2010 to $10.3 billion in 2015. The growth story isn’t limited to China. It’s also widespread across emerging countries. The annual revenue for Yandex (YNDX), the Russian search engine, rose 5x over the past five years, from 12.5 billion rubles in 2010 to 60 billion rubles in 2015.