The Future of Retail: Asias Ecosystems Melanie Sanders is a Bain Alibaba with RT-Mart, Ling Shou Tong, Intime; Tencent with Yonghui. Ecosystems vary by market The evolution of retail ecosystems will not be uniform. Ecosystems will take different forms in different places. They will be more disruptive in some markets than others. They will develop faster in some markets than in others. Ten factors spanning country and retail market characteristics shape the growth trajectory of ecosystems (see Figure 4): Urban density Age of the population Smartphone penetration Delivery costs Logistics maturity Data regulatory environment Online trust concerns Prevalence of legacy bricks-and-mortar stores Scale and maturity of bricks-and-mortar retailers Scale and maturity of online retailers5 The Future of Retail: Asias Ecosystems Source: Bain potential platforms emerging Early signs of ecosystem development; slower evolution expected Archetype B: Scale proprietary ecosystems Archetype D: Nascent ecosystems South Korea US Germany Brazil Philippines Vietnam Indonesia Malaysia India China France Australia Canada Russia Spain Italy Mexico UK Japan Thailand Sources: Euromonitor; Demographia; Newzoo; World Bank; DLA Piper; International Association of Privacy Professionals; various postal sites; Bain analysis Figure 5: Retail market conditions will determine the extent of ecosystem development7 The Future of Retail: Asias Ecosystems Emerging ecosystems. Countries like India and Indonesia lag in smartphone penetration and logistics infrastructure. As a result, their online retail penetration is relatively low. Yet, their lack of scale bricks- and-mortar retailers, combined with high density, means that they can potentially develop competing ecosystems rapidly as smartphone penetration, logistics networks and consumer trust in online shopping a big issue in Indiaall improve. For example, India could see online retail grow 30% annually in the coming ve years. As country conditions improve, developing markets in Asia most likely will follow the winner-takes-all path of scale open ecosystems. India may leapfrog to a model of ecosystem development that will be similar to Chinas, but much slower to form. It is one of the few markets where Walmart, Amazon, Alibaba and Tencent all compete and are actively investing in domestic partners. Walmart now owns 77% of Flipkart, while Tencent owns a small stake. Amazon competes directly and plans to buy a minority stake in the Future Group, complementing its investment in the More supermarket chain. Meanwhile, Alibaba has invested in several businesses, including Paytm and BigBasket. All are establishing ecosystems that will give them access to data that will help them lock in customers. However, these multinationals must compete with domestic companies. For example, Reliance Industries, the $66 billion domestic conglomerate with businesses in telecom and retail, is a serious contender for market leadership in retail. As one of Indias largest of ine retailers, Reliance is both cash rich (from its oil and gas assets) and experienced in disrupting markets. It recently gained ground with its fast-growing mobile service, Jio, which has more than 250 million subscribers, and is planning to boost its sales through an of ine-to-online (O2O) marketplace. Moreover, a series of government interventions could hurt multinationals chances in India. For example, complicated foreign direct-investment rules on online trading and inventory-based e-commerce may hold online back. India imposes regulations against overseas investment in multibrand retail and bans the inter- national transfer of data generated by Indian e-commerce users. A similar Reserve Bank of India policy pro- hibits companies from sending nancial data abroad; it is seen as a move to keep out foreign competition. Nascent ecosystems. Countries like Australia and Japan exhibit a combination of characteristics that make them less favorable for ecosystem development. Those conditions may include low population density, an aging population or a mature bricks-and-mortar presence. Unless scale online insurgents emerge to spur rapid changes, retailers in these countries will likely become followers in omnichannel innovation, taking the path of scale proprietary ecosystems. New rules of the game As ecosystems become an important part of the retailing landscape, companies need to rethink the assumptions that have helped them grow in the past. The rules are changing (see Figure 6). Rule 1. Relative scale has always been important for leadership economics now scale can be virtual and asset-light. You no longer need to own the assets yourself; you can more easily plug into someone elses platform. Consider how both Walmart and Yonghui joined with JD (and Tencent) to expand their last-mile delivery networks by using Dada-JD Daojia instead of building delivery networks from scratch.