THE BLOG
09/24/2014 10:51 am ET Updated Nov 24, 2014

As E-commerce Grows Around the World, China Leads

John Lamb via Getty Images

The worldwide spread of Internet accessibility via smartphones is driving an expansion of e-commerce that is changing the retailing landscape forever. Nowhere is this clearer than in the explosive growth of e-commerce in China, where there is a fairly large middle class concentrated in big cities and relatively inexpensive labor to transport goods the last mile.

The historical, "linear" business model, in which consumers shopped only in stores they could walk or drive to, in which manufacturers conducted business only via retailers, and in which retailers served customers within a certain distance of each store, has been altered out of all recognition.

Today, almost everywhere, there are no other limitations on where things can be bought and sold than the extent of Internet penetration and the cost and practicality of shipping. In this hyper-connected world, e-commerce is already big business, and research shows it is shifting into a yet higher gear. Growth estimates from eMarketer suggest business-to-consumer (B2C) e-commerce sales worldwide will reach $1.5 trillion this year, a 20 percent increase over last year.

Globally, consumers' enthusiasm for online shopping is on the rise. According to a Nielsen survey of more than 30,000 online respondents in 60 countries, the percentage of consumers who plan to browse or buy online in the next six months has doubled in just three years in more than half the categories measured. Even more striking is the data on Millennials, who are about to become the primary starters of new households. In the survey, Millennials made up over half of those willing to buy online - utterly outstripping Boomers. Given that the Boomers are aging out as the Millennials age in, e-commerce is likely to receive a powerful demographic boost on top of those that will come from technological advances and the development of new habits.

In short, e-commerce promises to be a global phenomenon that will continue to trigger transformative changes and create new opportunities in the years to come. Today, the hottest spot on the planet for e-commerce is China. It is the market to watch as we continue to undergo unfathomable changes in technology, media and, most importantly, consumer habits.

To begin with, China's sheer size made it a natural contender for the world's key player in the e-commerce revolution, and its 630 million-strong Internet audience is the world's largest. A U.N. report estimates that by the end of this year, 3 billion people worldwide will have Internet access. By that count, China's share of the audience will be over 20 percent. And there is still plenty of room to grow: Internet penetration in China is just shy of the halfway mark.

China also has the most mobile phone users in the world, and has been the world's largest smartphone market since 2011. The number of active smartphones broke the 700 million mark at the end of last year.

That massive number is still trending upward. Nielsen reports, from the survey above, that smartphone penetration among mobile users in China jumped to 72 percent in 2013, up from 50 percent in the previous year.

This trend extends beyond the Tier 1 and Tier 2 cities, with high penetration rates in Tier 3 and Tier 4 cities as well as less dense urban areas. Among white collar workers and students, penetration percentages are in the high 80s. But even farmers are making the switch: about one-third are choosing smartphones.

Of course, e-commerce isn't just about access; it's about buying and selling. Some Internet users do much more browsing than buying. What makes Chinese consumers the world's trendsetters in e-commerce is that China's huge online and mobile Internet audience are buying things at staggering rates. This year, for the first time, Asia-Pacific e-commerce purchases will outstrip those of North America. Within three years, the region's numbers will dwarf North America's, and 75 percent of that spending will happen in China.

The biggest impediments to digital purchases are typically privacy and fraud. The same Nielsen research shows that Chinese consumers are the world's most confident in making online purchases. More than 70 percent feel comfortable shopping online on either a smartphone or a tablet, as long as they feel that their personal information is protected.

This confidence is evident when you look at online purchase intentions for the next six months: China exceeds the global average in all categories measured in the Nielsen e-commerce survey, often by a large margin.

The top online categories are clothing and accessories; airline tickets; hardcover and paperback books; tours and hotel reservations; and sporting goods -- all of which have experienced double-digit percentage point growth over the past three years.

But the hottest growth since 2011 has centered on babies and children. Purchase intentions in the toy and doll category are up 33 percentage points, from 21 percent of respondents in 2011 to 54 percent today. Baby supplies are a similar story: purchase intentions are up 25 percentage points in three years, from 13 percent to 38 percent.

In terms of online purchase intentions, China is clearly several steps ahead of the rest of the world. But we believe what is happening in China will quickly happen elsewhere. We are moving toward a world in which online access -- whether through smartphones, tablets or computers -- will become a fundamental barometer for what constitutes economic opportunity. Once, development was measured by running water, radio, television or access to an automobile. But the measure of the future will be connectivity.

By this measure, China is the world leader -- and the market to watch as the digital expansion continues to transform the ways we do business.

John Burbank is president of strategic initiatives at Nielsen.