Element 1.

The Development of the Digital

Economy
——Alibaba and the Digital China: Two Parallel Histories
 1.2 The Development of the Digital Economy
Key Knowledge Points

1. Alibaba and the Digital China: Two Parallel Histories

Alibaba has evolved from an e-commerce company into a digital economy that is unique, energetic and
innovative, with its businesses spanning commerce, logistics, entertainment, cloud computing and finance,
among other sectors.
Alibaba business evolution reflects China’s emergence from developing economy to global digital
powerhouse. In many ways these are parallel stories.
Analyzing the business evolution of Alibaba helps to summarize the key elements of China's digital
economy development.
This also indicates that analyzing the development of a digital company is helpful to analyze the elements
of a country's digital economy development.
 1.2 The Development of the Digital Economy
Key Knowledge Points
2. Analyzing a country’s digital economy using the PEST Framework
The PEST analysis is a useful tool for understanding market growth or decline, and as such the position, potential and
direction for a business. PEST is an acronym for Political, Economic, Social and Technological factors, which are used to
assess the market for a business or organizational unit. Sometimes it's expanded to include legal and environmental
factors and called a PEST analysis.
PEST Analysis provides an understanding of the wider business environment and Can help an organisation to identify
and exploit opportunities.
PEST Analysis Template

P E S T
Political Economic Social Technological

• Technology and
• Government policy • The country’s competency in • Culture and sub-cultures
• • communications infrastructure
Political stability or instability certain industries Age distribution
• consumer access to
in overseas markets • economic growth • Health consciousness
• • technology
Foreign trade policy or trade • Global environment Lifestyle trends
• competitor technology and
restrictions • Leapfrogging opportunities • Health consciousness
• development
• Employment laws in underdevelopment sectors Population growth rate
• emerging technologies
• Environmental regulations • Labor cost • Age distribution
• Automation
• … • Disposable income of • Career attitudes
• intellectual property regulation
consumers and businesses • Emphasis on safety
• technology incentives
• … • …
• …
1.2 The Development of the Digital Economy
Alibaba and the Digital China: Two Parallel Histories

Alibaba was established in

1999 by 18 people led by Jack
Ma, a former English teacher
from Hangzhou, China.
Introduction to
Alibaba

To make it easy to do
business anywhere
 1.2 The Development of the Digital Economy
Alibaba and the Digital China: Two Parallel Histories

10+ Million 711 Million 824 Million

Annual Active Sellers Annual Active Consumers Mobile Monthly Active Users

US$ 853 Billion 38% 80%

Annual GMV YoY Revenue Growth Mobile GMV Share

Source: Alibaba Group June and December Quarter 2019 Results Financial Results, released May 15 2019 and February 13, 2020.
1.2 The Development of the Digital Economy
Alibaba and the Digital China: Two Parallel Histories

The Evolution of Alibaba

11.11 Shopping Festival

Taobao Village
Alibaba.com Ali Cloud T-mall Global New Retail
Created Alipay Cainiao Rural Taobao Hema
1999 2004 2009 2013 2014 2017

2003 2008 2011 2012 2015 2018

Taobao Taobao Mall AliExpress Changed Taobao Ali-health New
Juhuasuan Mall to T-mall Ali-Entertainment manufacturing
1.2 The Development of the Digital Economy
PEST Framework

PEST Analysis

Political Economic
Factors Factors

PEST

Social Technological
Factors Factors
 1.2 The Development of the Digital Economy
PEST Framework Explained

Political Factors
The political arena has a huge influence upon the regulation of businesses, and the spending power
of consumers and other businesses. You must consider issues such as:

1.Will government policy influence laws that regulate or tax your business?
2.What preferential policies does the government provide to help my business development
3.What is the government's policy on the economy?
4.Does the government have a view on culture and religion?
5.Is the government involved in trading agreements such as EU, NAFTA, ASEAN, or others?

These are all about how and to what degree a government intervenes in the economy: government
policy, political stability or instability in overseas markets, foreign trade policy, tax policy,
labour law, environmental law, trade restrictions and so on.

Organisations need to be able to respond to the current and anticipated future legislation, and adjust
their marketing policy accordingly.
1.2 The Development of the Digital Economy
China Described in the PEST Framework

1. Stable governance ： the nature of the Chinese

model of governance means that oriented around
long-term goals, big investment in infrastructure,
Political education, technology development.
2. Light regulations in the initial stage to create
room for innovation
 1.2 The Development of the Digital Economy
China Described in the PEST Framework - Political factors

Stable governance

Chinese government oriented around long-term goals:

 The Two Centenaries

 China’s Five-Year Plans

 Big investment in infrastructure, education, technology development.

 1.2 The Development of the Digital Economy
China Described in the PEST Framework - Political factors

Education

 Chinese universities started offering e-commerce

degrees from 1998.

 In 2000, China's Ministry of Education approved the

pilot run of an e-commerce undergrad program in 13
universities.

 In 2003, higher education institutes were given

approvals to recruit e-commerce master and doctoral
students.
 1.2 The Development of the Digital Economy
China Described in the PEST Framework - Political factors

Education

 Spending on education has grown by

20% per year since 1999, now reaching
over $100bn.

 The World Economic Forum reported

that China had 4.7 million recent STEM
graduates in 2016. India, another
academic powerhouse, had 2.6 million
new STEM graduates last year while the
U.S. had 568,000.
 1.2 The Development of the Digital Economy
China Described in the PEST Framework - Political factors

Infrastructure construction

 Chinese government invest 4 trillion yuan 4G can even be used in remote 99.7% of remote villages can
in infrastructure and social welfare by the end rural villages benefit from highways in China
of 2010.

 Since the start of 2018, the National

Development and Reform Commission (NDRC)
has approved 27 infrastructure projects, totaling
US$219.43 billion

Import and export from Chinese high speed railway by

Chinese ports have reached operational miles have reached
number one in the world. world No.1
 1.2 The Development of the Digital Economy
China Described in the PEST Framework - Political factors

Light regulations in the initial stage to create room for innovation

Chinese government adopted light regulation at the early stage

eCommerce

With the emerging eCommerce, On January 1, 2019, China's first e-commerce law to discipline
at the end of December 2008, market growth:
Zhejiang Industry and Commerce
E-commerce operators must meet their tax obligations and are
Bureau put forward a policy
now required to issue a tax invoice.
clearly stipulating that:

It will not enforce licenses for

individuals to open stores online.
 1.2 The Development of the Digital Economy
China Described in the PEST Framework - Political factors

Light regulations in the initial stage to create room for innovation

Chinese government adopted light regulation at the early stage

Fintech development Ant Financial to Evolve Into A Global Leading Fintech Company

While Taobao introduced online payment

transactions in 2003, the government did
not release licenses to third party
payment businesses until 2010.
 In mobile payments, government policy left space for innovators to experiment
Commercial move Regulation event

Selected examples 2000 2005 2010 2015

Money-Transfer cap 2005 11 years 2016

Alipay’s unlimited online money-transfer Online money-transfer cap imposed by the

service(from debit card to Alipay account) government

Customer protection 2005 9 years 2014

(escrow and goods claims)
Alipay’s launch of escrow services E-commerce requirements for consumer-goods claims

Online payment 2003 7 years 2010

Taobao’s first online payment transaction Payment business license to third party
passed by the government

Barcode-based 2011 5 2016

years
mobile payment
Alipay’s launch of barcode- Barcode payment standard
based payment services released by the government

Online payment transactions <1 2 149 1811

$ billion
Source: Official regulatory announcements; SAIC and Ministry of commerce; Alibaba, Baidu, and Tencent annual reports; McKinsey Global institute analysis
1.2 The Development of the Digital Economy
PEST Framework

PEST Analysis

Political Economical
Factors Factors

PEST

Social Technological
Factors Factors
1.2 The Development of the Digital Economy

PEST Framework Explained

Economic factors have a significant impact on how an

organisation does business and also how profitable they are.
Factors include:
1. The country’s competency in certain industries leads to its
advantages in the global market.
2. Economic growth & Global environment.
3. Different strategies during different economic development

Economical
phases:
 Growing middle class, consumption upgrade
 Revitalizing rural economies in lower-tier cities
4. Leapfrogging opportunities in underdevelopment sectors,
such as finance and retail
5. The role venture capital plays in digital economy
development
6. Disposable income of consumers and businesses
7. Labor costs
1.2 The Development of the Digital Economy
China Described in the PEST Framework - Economical factors
Economic growth & Global environment
The Big Internet Brands of The '90s in the US

The Big Internet Brands of The '90s in China

2000 Dot-come Bubble Burst

The dot-com craze (Yohoo was founded in 1995) migrated to

China, stired an upsurge of Internet entrepreneurship in China.
Chinese elites studying in the US witnessed the legends in
Sillicon Valley. They then returned to China and copied the
Americans model, resulting in the founding of the three major
Internet portals (sina, sohu, netease). Most of the major Internet
players that are shaping the Chinese Internet were founded
between 1996 to 2000.
1.2 The Development of the Digital Economy
China Described in the PEST Framework - Economical factors
The country’s competency in certain industries leads to its advantages in the global market.

China joined WTO in 2001 SMEs lack experiences in cross-border

"Made in China" going global trade and a client base
 1.2 The Development of the Digital Economy
China Described in the PEST Framework - Economical factors
The country’s competency in certain industries leads to its advantages in the global market.

China has the most complete

supply chain system in the world,
and out of more than 500 major
industrial products, more than 220
industrial products from China top
in sales globally(e.g., steel,
cement, automobiles, etc.).
 1.2 The Development of the Digital Economy
The establishment of Alibaba.com is based on China's macroeconomic background

In 1999, Jack Ma returned to his hometown

Hangzhou, and together with 17 partners, clubbed
Alibaba.com
Created 500,000RMB together and founded Alibaba,
1999 which was his third entrepreneurial project.

Alibaba.com is a global wholesale B2B network

for buyers and suppliers of raw materials,
component parts and finished goods
.
Mission Statement:

To make it easy to do business

anywhere
 1.2 The Development of the Digital Economy
China Described in the PEST Framework - Economical factors
The role venture capital plays in digital economy development

1997 Asian Financial Crisis

The economy slowed in the late-90s, Alibaba received investment from Goldman
influenced in part by the Asian Financial Sachs(5 million) + SoftBank(20 million) + Yahoo (1
Crisis, SMEs need help to export Billion) [all in USD, might be their most successful
Chinese products to the global market  investment in the history]
 1.2 The Development of the Digital Economy
China Described in the PEST Framework - Economical factors
The role venture capital plays in digital economy development
Venture capital investment in leading technologies, 2016
$ million

Fintech Virtual reality Autonomous driving China is in the global

China 7,158 United States 1437 United States 582 top three for venture
United States 5,437 China 1312 China 357
capital investment in
United Kingdom 1,793 Japan 166 Japan 268
Germany 688 United Kindom 73 Australia 264
key technologies
Japan 493 France 20 Unitied Kingdom 142 China is also a leading
Wearables Education technology Robotics and drones
global investor in key
United States 1724 United States 1282 United digital technologies. The
728
China 992 China 681
States
China 227 venture capital (VC)
Germany 170 Japan 217 Japan 129 industry in China has
Canada 134 United Kingdom 163 Singapore 96 grown rapidly, and
United Kingdom 95 India 145 Canada 59
increasingly focused on
3D printing Big Data AI and machine learning the digital sector.
United United United States 3782
602 6065
States States United
China 221 1222
1673 Kingdom
Germany 182 China 900
China 942
Japan 181 Japan 473
651
Russia 181 Australia 329
Russia 554

Source: McKinsey Global Institute - DIGITAL CHINA: POWERING THE ECONOMY TO GLOBAL COMPETITIVENESS
 1.2 The Development of the Digital Economy
China Described in the PEST Framework - Economical factors

The internet penetration in China Rapid Development of

(1997-2007) China’s Internet Industry
250,000

210,000 Since 1997, the development of

200,000 Internet in China has taken up a
rapid pace. There came the first
150,000 137,000
Internet wave of China.
111,000
94,000
Chinese e-commerce was extend
100,000
79,500 from enterprises to individual
59,100 consumers.
50,000
33,700
22,500
8,900
620 2,100
0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Thousands
1.2 The Development of the Digital Economy
China Described in the PEST Framework - Economical factors
Leapfrogging opportunities in underdevelopment sectors, such as finance and retail

Outside China’s
major urban
conurbations,
consumers were not
well served by offline
traditional retailers
1.2 The Development of the Digital Economy
China Described in the PEST Framework - Economical factors
Leapfrogging opportunities in underdevelopment sectors, such as finance and retail

Lower Barrier for Starting Up

a Business Powered by
eCommerce Platforms
Powered by the Internet, a considerable wave of
entrepreneurship has emerged in the field of e-commerce.
The opportunities provided by the Internet and e-commerce
for entrepreneurs may lead to the lowest entry barrier for
entrepreneurship and start-ups in the history. "Opening a
shop online" has become one of the most common forms of
entrepreneurship.
 1.2 The Development of the Digital Economy
The establishment of Taobao.com is based on China's macroeconomic background

On May 10th, 2003, Taobao was launched.

2003 The first commodity successfully traded on

Taobao Taobao was a sword.

China’s largest online shopping

destination

Taobao Marketplace facilitates consumer-to-

consumer(C2C) retail by providing a platform for
small businesses and individual entrepreneurs to
open online stores.
 1.2 The Development of the Digital Economy
China Described in the PEST Framework - Economical factors
Economic growth & Global environment

2008 Global Financial Crisis InMan

During the global financial crisis, OEM factories who  An online appeal brand born on Taobao
had the production capabilities were receiving less and platform.
less orders from abroad; therefore, they turned to the  Former OEM factory
domestic market and e-commerce for new  Reached 1.12 billion RMB in 2013
opportunities. By creating their own brands through
their technology and craftsmanship, these enterprises
found the direct selling through Taobao Mall the most
convenient methods for their transformation.
1.2 The Development of the Digital Economy
China Described in the PEST Framework - Economical factors
Labor cost

Rapid urbanization and low cost of the labor

The Number of the rural migrant workers Massive supply of low-cost labor
(1997-2007)
Average courier salaryNumber of couriers
2016($/hour) 2016(10K)
14
Number (Million) 250
140 131.81 12
125.78
200
120 113.9 118.23 10
104.7
100 89.61 8 150
78.49
80 72.23 13
6
60 100 203
4
40
50
20
2 4 72

0 0 0
1997 1998 2000 2001 2002 2004 2005 2007 China US C US
Number (Million)
 1.2 The Development of the Digital Economy
The establishment of Tmall.com is based on China's macroeconomic background

2008
Changed Taobao Mall
to T-mall

Tmall.com is China's largest business-to-consumer (B2C)

platform enabling businesses world-wide to reach China's vast
and growing consumer market.
 1.2 The Development of the Digital Economy
China Described in the PEST Framework - Economical factors
Economic growth & Global environment
With the soaring cost of traffic acquisition, starting from 2014-2015, the cost of traffic acquisition online is higher than that
offline, and online channels no longer possess absolute advantages. From 2015-2016, large-scale offline distribution of e-
commerce has become the prevailing trend.

Growth of Chinese Internet users slowing down Cost of Traffic Acquisition on Chinese E-
YoY growth in no. of Internet users
commerce Platforms
% 250
53.30% 223
200

150 146
28.90%
100
90
68 66
50
12.20%
9.50%
6.10% 5.60% 0
2012 2013 2014 2015 2016
2007 2009 2011 2013 2015 2017 RMB
1.2 The Development of the Digital Economy
China Described in the PEST Framework - Economical factors
The role venture capital plays in digital economy development

Compared to their US counterparts, Chinese Internet giants are moving

offline more proactively and investing more in offline retailers
# of domestic offline retailers with investments …total retail sales of domestic offline
by top 5 Internet e-commerce players… retailers with investments
# of offline retailers with investments Bn USD
2015 - 2018 2017

Investments
in non-US
retailers are 101
15 not included

16
1
 1.2 The Development of the Digital Economy
The establishment of HEMA is based on China's macroeconomic background

Based on the demand of

consumers within the store’s three-
kilometer radius, Hema offers free
delivery of groceries as fast as in
30 minutes

New Retail
Hema
2016

Hema launched its first store in January 2016 in Shanghai

and so far has owned 171 stores across China by 2019.
It was defined as a "Pathfinder of Alibaba's New Retail"
through technology and data in a bid to merge online and
offline retail, according to public corporate information.
1.2 The Development of the Digital Economy
PEST Framework

PEST Analysis

Political Economic
Factors Factors

PEST

Social Technology
Factors Factors
1.2 The Development of the Digital Economy
PEST Framework Explained
Social factors are the areas that involve the shared belief and
attitudes of the population. These factors include:
1. Homogeneous population and shared currency, language,
and values make up an integrated market
2. Culture and sub-cultures
3. Age distribution
4. Health consciousness
5. Lifestyle trends

These factors are of particular interest as they have a direct effect

on how marketers understand customers and what drives them.
Social  Factors to be considered include:
1.What is the dominant religion?
2.What are attitudes to foreign products and services?
3.Does language impact upon the diffusion of products onto markets?
4.How much time do consumers have for leisure?
5.What are the roles of men and women within society?
6.How long are the population living? Are the older generations
wealthy?
7.Do the population have a strong/weak opinion on green issues?
1.2 The Development of the Digital Economy
China Described in the PEST Framework - Social factors
Hofstede index can explain the underlying cultural factors of the development of digital enterprises

The Hofstede's Cultural Dimensions Theory – China index

China has a low score on Uncertainty
Avoidance. The Chinese are comfortable with
ambiguity; Chinese are adaptable and
entrepreneurial.

China is a highly collectivist culture China is a restrained society; in contrast to indulgent

where people act in the interests of the societies, restrained societies do not put much em-
group and not necessarily of themselves. phasis on leisure time and control the gratification of
their desires.
 1.2 The Development of the Digital Economy
China Described in the PEST Framework - Social factors

Collectivism reflected in the story of Taobao

In May 2003, an Alibaba employee showed symptoms of
SARS. As a safety precaution, all 400 staff were sent home
to stay in a self-imposed quarantine.
“When SARS happened, it was a big hit for the company
because we didn’t know if our business will actually be
around tomorrow. There were so many uncertainties,”
recalled one staff member.
While the employees did head home to protect themselves
and their families, they took their work with them. And their
computers and paperwork and phones. For eight days, their
homes were the office.
Family members also pitched in. Some helped answer
customer calls, while others cooked meals or watched
children so that Alibaba staff could focus on keeping the
company afloat.
Customers never noticed the difference. In fact, as SARS
kept people home, the need of online shopping increased.
 1.2 The Development of the Digital Economy
China Described in the PEST Framework - Social factors

“Adversity is a necessary ingredient in the making of great people and companies,” Jack Ma
wrote to staff on April 20, 2005, announcing the launch of Ali Day, an annual celebration of
Alibaba employees and their families set on the anniversary of a critical time in Alibaba history. 

The highlight of Ali Day is the celebration of love,

a group wedding of Alibaba staff, often officiated
by Jack Ma.

On Ali Day, family and friends are invited to Alibaba’s offices around the world to celebrate the spirit that drove
18 founders to build a multibillion-dollar company.
1.2 The Development of the Digital Economy
China Described in the PEST Framework - Social factors

On May 10th, 2003, Taobao was launched.

At that time, eBay is the Goliath of the e-commerce world, with its
legendary success in the US and other international markets and
prowess in marketing and operations, in addition to its army of top
developers and deep pockets.
In China, eBay occupied 90% of China's C2C market share.
while Alibaba, was just an Internet start-up known more to a few
international venture investors than to most Chinese consumers
and still struggling to survive in the aftermath of the dot com crash.

Taobao front page in 2003

1.2 The Development of the Digital Economy
China Described in the PEST Framework - Social factors

Unit ： 100 million CNY

Taobao v.s. eBay GMV

500
450 433.1
400
350
300
250
200 167
150
100 80.2
49.9 60
50 25 40
0.9 8.4 10
0
2003 2004 2005 2006 2007
Taobao eBay
 Taobao is like a Chinese teahouse

The Newspaper Seller The Peanut Seller

The cigarette Seller

 1.2 The Development of the Digital Economy

China Described in the PEST Framework - Social factors

Localization strategies of Taobao

eBay Taobao
Charged commission fees Adopts a ‘free of charge’ strategy

Prohibited direct communication between buyers and Encourages direct communications between buyers
sellers and sellers before a purchase ：
BBS ， Aliwangwang(The instant chat box)
EBay's online payment is based on the virtually perfect To overcome a deficit of user trust in online
credit system in the United States, where there is few trust purchases, Taobao created Alipay, a payment tool that
issues in payment between buyers and sellers. As for would hold money from purchases in escrow until the
Chinese consumers, no special accommodations were buyer confirmed the receipt of goods.
made to facilitate the financial transactions between
buyers and sellers, other than offering the credit-card
backed PayPal service almost one year later.
 1.2 The Development of the Digital Economy
China Described in the PEST Framework - Social factors

Compared with eBay, which hinders direct real-time communication between sellers and buyers, Taobao developed tools to encourage
real-time communication between buyers and sellers to help buyers communicate product specifications and sizes at any time, and even
bargain with sellers. This is more in line with the shopping habits of Chinese consumers.

V.S

Aliwangwang
Taobao instant Chat Box Customer Q&A
 1.2 The Development of the Digital Economy
China Described in the PEST Framework - Social factors

Cultural Dimension eBay Taobao

Internal • Semi-formal • Informal

Communications • Corporate hierarchy is perceived • Direct communications encouraged

How Organizational • Highly educated and experienced

• Highly motivated college graduates
Employees • Consider each other as sisters and
Culture Shapes • Professional elite
brothers
Competitive • Experienced and western educated • Local college graduates
Executives • Hired from all over the world • Mostly promoted from within the company
Strategies
• Integrated China operation into the • Improvised and experienced based
eBay global platform • Policies and procedures are adapted
Operational strategy • Implemented corporate policies and quickly based on market and technology
procedures in China operations environment
V.S. • Centralized and analytical • Decentralized and semi-analytical
Decision making • Relies on professional market research • Relies on customer feedbacks and focus
reports and data groups
• Treated as external entities • Treated as part of the company
Customers • Emphasize customer services • Emphasizes co-development
• Negative • Positive
Attitude toward media • Avoid if possible • Embrace and take advantage of
Table: Comaring Operational Styles of eBay vs. Taobao

Source: How Organizational Culture Shapes Competitive Strategies: A Comparative Case Study Of Two Ecommerce Firms In China Association for
Information Systems AIS Electronic Library (AISeL)
 1.2 The Development of the Digital Economy
China Described in the PEST Framework - Social factors
Homogeneous population, language, and values
make up an
integrated market
China's population China's nationalities

8%
18%

82% 92%

China World Han Chinese Ethnic minorities

Han Chinese occupy 92% of the total population,
China’s population totals 1,43 billion,
while 55 other ethnic minorities occupy 8 percent.
accounting for nearly 20% of the world total
 1.2 The Development of the Digital Economy
China Described in the PEST Framework - Social factors

Internet Users in China

1999 2008 2018

Less than 10 million, China has surpassed the United 802 million people are now actively
0.7% of the population States to become the world’s largest using the internet, 57.7% of the
Internet-using population population.
 1.2 The Development of the Digital Economy
China Described in the PEST Framework - Social factors

China's mobile internet penetration

800 752.6
695.3
700
619.8
600 556.7
Chinese internet users are digitally
500
500 savvy and tend to use mobile as an
419.9 integral part of their daily lives.
400 355.5
302.7 More than 99% of the internet users
300
233.4 are connected by mobile phone.
200
117.6
100

0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Chin's mobile internet penetration

Source: CNNIC
 1.2 The Development of the Digital Economy
China Described in the PEST Framework - Social factors
The growing middle class in metropolitan areas and the urbanization of lower-tier cities

Higher Chinese residential density

greatly boosted logistics efficiency
China vs. US: population density 2018 (ppl/km²)
160

140

120

100
Cities also contribute to China’s scale advantages.
There are 22 cities with populations of more than 80
five million (2018), compared with just one in the 148
60
United States (2020) and four in the EU (2020).
The large scale and dense populations of China’s 40
cities attract investors and entrepreneurs and
enable a great deal of digital experimentation. 20 36

0
China US
 1.2 The Development of the Digital Economy
China Described in the PEST Framework - Social factors

The scale of urban China fuels O2O consumption

Online-to-offline (O2O) commerce is growing rapidly in

China.
Delivery of food and Restaurant
O2O commerce in China is a broad term that mainly refers fresh produce booking
to services ordered and paid for via digital, but which are
delivered in the physical world.

O2O enables consumer and retail companies to maximize

their selling potential by using “scenario-based
shopping”—solutions that facilitate a smooth transition
from daily life scenarios to retailing that help to capture
demand.
On-demand manicure service
 1.2 The Development of the Digital Economy
China Described in the PEST Framework - Social factors

Alibaba Local Service

Taobao Movie is an online ticketing platform founded by Alibaba in 2014

Koubei is a joint venture founded in 2015 by Alibaba and Ant Financial, Koubei is
a life search engine providing living consumption information, restaurant, house
renting, and buying, travelling, and more.
2014 年
Eleme is a platform that offers online food delivery service, which was acquired
by Alibaba on 2018.

AutoNavi is a Chinese web mapping, navigation and location-based

services provider, which was acquired by Alibaba in 2014.

Fliggy, Alibaba's online travel agency platform.

1.2 The Development of the Digital Economy
PEST Framework

PEST Analysis

Political Economical
Factors Factors

PEST

Social Technological
Factors Factors
1.2 The Development of the Digital Economy
PEST Framework Explained

We all know how fast the technological landscape changes

and how this impacts the way we market our products.

Technology that can affect the way you make, distribute, and
market your products and services:
1. New ways of producing goods and services
2. New ways of distributing goods and services
3. New ways of communicating with target markets

Technological Examples include:

 Technology and communications infrastructure
 consumer access to technology
 competitor technology and development
 emerging technologies
 Automation
 intellectual property regulation
 technology incentives
 etc.
 Number of Internet Users
(in ten thousand)
350.00%

73125 80200
Population Dividend 68826 300.00%
Period of the Internet 64875
64750
250.00%
56400
51310
200.00%
45730
38400
150.00%
27000
21000 100.00%

13700
9400 11000 50.00%
5800 6800
3370 单位：万人
2250
210 890
0.00%
19931994199519961997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
The 1st The 2nd In- The 3rd The 4th
Internet Wave ternet Wave Internet Wave Internet Wave

PC Internet Online Payment Mobile Internet AI

Search Engine Logistics QR Code IOT

Key Technologies
1.2 The Development of the Digital Economy
China Described in the PEST Framework – Technological factors

The Search Engine Era The first iMac was released in 1998
Yahoo! Search was launched in 1995. It
is a search function that allows users to
search Yahoo! Directory.
It becomes the first popular search
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1.2 The Development of the Digital Economy
China Described in the PEST Framework - Technological factors

1st IPhone, 2007

Mobile internet
1.2 The Development of the Digital Economy
In 2009, the development of
China Described in the PEST Framework - Technological factors Internet started to pick up,
and the transition (and
liberation in a sense) from PC
Internet to mobile Internet
brought about tremendous
2012 changes. The landmark is
when the Ministry of Industry
380 million 388 million
and Information Technology
of China has issued 3G
licenses to China Mobile,
Telecom and Unicom, and
China’s telecommunication
industry has officially entered
the 3G era.

SNS social networking sites

3G were unprecedentedly active.
In 2012, the number of
mobile netizens surpassed
Number of PC Number of mobile that of computer netizens for
netizens netizens the first time.

Source: iiMedia Research

 1.2 The Development of the Digital Economy
China Described in the PEST Framework - Technological factors

TD-LTE License FDD-LTE License

In 2015, 4G licenses were issued,

and China established the world's
largest 4G network. In the same
year, the "Internet +" national
strategy was put forward,
signifying China entering the era
of big data.
2015
Number of 4G 390 million
2018
users in China 1.17 billion

Apps with more than

one hundred million ··· Source: iiMedia Research
monthly active users
1.2 The Development of the Digital Economy
China Described in the PEST Framework – Technological factors

Alibaba “All in Mobile” strategy in 2013

In 2013, Alibaba Group created a special in-house team to speed the
transition of its flagship C2C e-shopping site, Taobao Marketplace, to mobile
e-commerce by creating a dedicated smartphone app called Mobile Taobao.

Under our all-in mobile strategy, Alibaba has become the leading player in
digitizing commerce. It has developed the most-sophisticated AI algorithms to
serve consumers on the platform, which results in an ever-improving user
experience as well as increasing monetization opportunities.
 1.2 The Development of the
the Digital
Digital Economy
Economy
China Described in the PEST Framework – Technological factors
QR code boosts China's digital economy

QR code
application in China

QR code boosts China's digital economy

China’s mobile internet usage and O2O wave make QR code a valuable
tool for platforms to connect offline and online world, to merchants in
creating business opportunities, and to consumers in improving the
quality of life. Its application and placement enable a great deal of
possibilities.
 1.2 The Development of the Digital Economy
China Described in the PEST Framework - Technological factors

Development of technical solutions

Payments Computing power

Processing capacity of payment solutions, 2016
Thousand transactions per second Evolution of world record in computing power
Terabytes processed in one minute
3x 61 Facing huge technical
challenges in scale and
volatility compared with
the United States,
Chinese companies
120 18 have developed greater
38 1
8 processing capacities

2013 14 15 2016
Alibaba Leading US World Yahoo Baidu Alibaba Tencent
Payment system online record
payment system holder
1.2 The Development of the Digital Economy
China Described in the PEST Framework - Technological factors

Alibaba's business grew rapidly from 2006 to 2007, but

it also faced a huge problem - the problem of
expansion with the growing size of the database.

eCommerce business naturally faces the problem of

fast development and large concurrency volume of
business data processing. Wang Jian, Alibaba‘s CTO
at the time, once told Jack Ma that if Ali did not master
technology, in the future, the rapid growth of industry
will lead to the cost of IT infrastructure to bring down
Alibaba. This is also the fundamental reason why
super eCommerce companies such as Amazon and
Alibaba all invest in cloud computing.
1.2 The Development of the Digital Economy
A PEST Analysis – Technological factors

In the early days, Ali Cloud was developing through trials

and erros. Nobody could tell clearly what cloud computing
was, and it had experienced many failures.

Faced with internal and external doubts about AliCloud,

Jack Ma personally stood up to support AliCloud
Ali Cloud
2009

“ I will invest 1 billion yuan in Alicloud every year

for ten consecutive years. Let's see results and

”
have the discussion after ten years.
1.2 The Development of the Digital Economy
China Described in the PEST Framework - Technological factors

In the next 10 years, the digitization of the economy will be further accelerated by the advent of 5G
connection and the proliferation of Internet-of-Things devices. This will have far-reaching implications
for all industries and processes, including public services, manufacturing, supply chain, distribution,
product development and marketing.

Trace the origins of Precision Biological

their purchased marketing recognition collaborative supply chain
products
1.2 The Development of the Digital Economy
China Described in the PEST Framework - Technological factors
 1.2 The Development of the Digital Economy
China Described in the PEST Framework - Technological factors

WHAT IS 5G ？

The fifth generation of mobile

technology means more than just faster
data speeds and greater network
capacity. It also provides a foundation
for connecting an unlimited number of
machines to one another for day-to-day
communication. A 5G network will
support: a million connected devices
per square kilometer; transmitting a
package of data with a delay of just 1
millisecond and peak data download
speeds of up to 20 gigabits per second.
1.2 The Development of the Digital Economy
China Described in the PEST Framework - Technological factors
1.2 The Development of the Digital Economy
China Described in the PEST Framework - Technological factors
1.2 The Development of the Digital Economy
China Described in the PEST Framework - Technological factors
Founded on October 11th, 2017, Alibaba DAMO Academy
is dedicated to exploring the unknown through scientific
and technological research and innovation. The driving
force behind the Academy is the pursuit of the betterment
of humanity.

Over the next two decades, Alibaba Group’s goal is to

become the world's fifth-largest economy by creating 100
million jobs worldwide, serving 2 billion people, and
maintaining a profitable platform for 10 million companies.
However, achieving these goals and serving the global
economy requires solving countless challenges. The
Alibaba DAMO Academy was founded to address these
challenges through the philosophy of "research for solving
problems with profit and fun".

Jack Ma, has laid out a framework of three guiding

Alibaba DAMO Academy
principles for the development of the academy : "DAMO
must outlive Alibaba" , "It must serve at least 2 billion
people worldwide" , "DAMO must be future-oriented and
use technology to solve the challenges of the future".
Content localization tips:
Use PEST analysis to analyze the opportunities, advantages, and
challenges for your country to develop the digital economy.
Supporting Materials
UNCTAD, Digital Economy Report 2019
https://unctad.org/en/PublicationsLibrary/der2019_en.pdf

IFM, Measuring the Digital Economy, 2018

https://www.imf.org/en/Publications/Policy-Papers/Issues/2018/04/03/022818-measuring-the-digital-econo
my

UNCTAD – Leapfroging: Look before you leap, 2018

file:///D:/GET/GET%E8%AF%BE%E7%A8%8B%E7%A0%94%E5%8F%913.0/Part1/Unit1%202020.11/UNCTA
D%20-%20Leapfroging%20-%20Look%20before%20you%20leap.pdf

McKinsey & Company, China’s digital economy - a leading global force, 2017
https://www.mckinsey.com/~/media/McKinsey/Featured%20Insights/China/Chinas%20digital%20econom
y%20A%20leading%20global%20force/MGI-Chinas-digital-economy-A-leading-global-force.ashx

KPMG & AliResearch, Embracing the Global Digital Wave: 2018 Global Digital Economy
Development Index Report
https://i.aliresearch.com/img/20190226/20190226154618.pdf