Huge and potentially very profitable. Barely digitized. Complex and underserved, at least so far. This describes the state of the global business-to-business (B2B) e-commerce market. Few providers have mastered the beast. Even fewer are focusing their energies on small and medium-sized enterprises (SMEs) trying to find their way into the digital B2B space.
This is the perfect place for Alibaba.com, the B2B e-commerce unit of Chinese group Alibaba Group Holding Ltd. (NASDAQ: BABA). The parent company was founded in 1999 as a B2B e-commerce provider. It eventually became the world’s largest electronic wholesale market, although it remained focused on China. Alibaba has remained true to its knitting for the past two decades, although it has created a significant B2C offering in China.
In July 2019, Alibaba.com first opened its platform to US-based B2B sellers, with a focus on digitizing the segment’s SME operations. In June, the unit added three offers to its US customer base. Most notable has been a merger with the international electronic freight market Freightos.com to provide unit clients with the reservation and management of air and sea shipments. The other two were cash flow facilitation solutions and virtual trade show capabilities bringing together businesses that can no longer meet in person due to the coronavirus pandemic.
The United States remains its primary market, but the unit is also considering points overseas, said Jamin Dick (pictured above), who heads Alibaba.com’s North American supply chain. “We see this as a anywhere-to-anywhere type business,” Dick said in a telephone interview in late August.
The unit’s goal is to help small businesses grow profitably through digitization solutions that were never before available to them, Dick said. The unit does not and does not want to control any physical assets. Instead, it relies on Freightos and a network of freight and warehouse providers to help customers run physical distribution, usually heavy freight. Alibaba.com does not offer sourcing services except for what has been a new foray into personal protective equipment (PPE). He recently launched what Dick described as a “concierge” service, Alibaba.com Select, for business buyers in and out of healthcare seeking large amounts of PPE.
The model served Alibaba.com well during the April-June period – the company’s first fiscal quarter – a time when B2B activity came to a halt as businesses closed their doors due to the pandemic. In June, he announced that overall transactions for U.S. companies had grown by more than 100%, albeit from a very small base, as the North American operation was less than a year old. The number of US sellers grew at the fastest rate of any part of the Alibaba network, while the number of US buyers grew 70% year-on-year. (The company declined to provide specific numbers because they were skewed by the nascent nature of the North American business.) The global “gross value of goods” – the dollar value of every B2B transaction – soared 85% during the quarter, Alibaba said.
Long track, attractive profile
The B2B digital market is huge. According to a 2017 report by the United States International Trade Commission, the global addressable B2B e-commerce market was $ 23.9 trillion, roughly six times the size of the global B2C market. In 2019, around $ 1.8 trillion of global B2B e-commerce was processed, an 18.2% increase year-over-year, according to a January 2020 report from Digital Commerce 360, a company of research.
For carriers, the B2B e-commerce market presents the same attractive management characteristics as traditional B2B. Shipments tend to be heavier than typical B2C shipments, allowing carriers to charge more for delivery services. B2B deliveries often involve multiple shipments to the same destination, creating favorable unit costs and bottom line profits. Unlike consumers who might abandon their carts if they don’t benefit from free shipping, commercial buyers working with corporate budgets are not as price sensitive in their delivery requests, especially when deliveries can be critical. maintaining a supply chain or assembly line.
Yet B2B has largely been left behind amid the mad rush to enter the generally less profitable B2C space. Although it may seem irrational, the phenomenon is based on rational thought and action. Unlike B2C, B2B sourcing and commerce is complex and unstructured. Small players were excluded from the market, leaving the playing field open to a select group of very large trading houses. With fewer participants, the market had little momentum and activity would decline.
In short, not everything that made B2C vibrate was widespread in B2B, according to Eytan Buchman, Marketing Director of Freightos. “A dearth of international B2B sourcing platforms that fully facilitate all sourcing and sourcing operations was part of the cycle of keeping freight offline,” said Buchman.
The inherent differences between consumer and business behavior have also made B2C the path of least resistance for the e-commerce ecosystem, according to Dick. “Consumers are often able to change (their) behavior relatively quickly because they are the sole decision makers of their own purchases,” he said in the interview. “Businesses are more complex and often require more internal changes to adopt digitized services. It can therefore take longer for companies to go digital, even when the desire for change is there. “
The catalyst was COVID-19, which triggered large-scale business changes almost overnight. SMEs suddenly stepped out of their normal operational world realized that digitization had become a necessity, not a luxury. “We have seen companies undergo 20 years of transformation over the past few months, and we were well positioned to help them digitize their business and go global,” said Dick.
Alibaba’s quarterly gains were largely attributed to companies revolving around its model, as they knew a post-COVID-19 environment required a change in their operations, according to a company insider.
Jim Tompkins, founder and chairman of supply chain management consulting firm Tompkins International, said COVID-19 has accelerated global trends in B2B e-commerce by three years. The speed of adoption is part of what Tompkins said was a natural fusion of B2B and B2C commerce into one channel serving a common customer. “Of course there are differences in credit, logistics and support, but in reality B2C and B2B are merging into what I call ‘B2Me’,” Tompkins said in an email.
Buchman said the pathways to making B2B e-commerce feasible for all businesses began to converge even before the pandemic. “The barriers to integrated sourcing, shipping, sales and last mile delivery had started to fall, and fast,” he said. Platforms similar to Alibaba’s enabled global sourcing model, easily accessible global cargo reservation and management, and the reach of Amazon.com, Inc. (NASDAQ: AMZN) have become the keys to sales online reach more than half of American households, Buchman said.
“Anyone, anywhere, can now, from the comfort of their basement, agile create a global supply chain,” said Buchman. “While big box retailers struggled to keep up with toy follies like choppy spinners, small businesses had already bought them and sold them online.”
With the increase in demand due to the ease of use, large companies have started to digitize. This created a virtuous circle, according to Buchman. “As importers demanded faster digital solutions, logistics providers, carriers and platforms all started to adopt digital commerce capabilities,” he said. The company’s electronic air cargo bookings on its freight forwarder-airline platform WebCargo rose 1,000% in July from 2019 levels, he said.
B2B from A to Z?
Alibaba.com isn’t the only dog in the hunt for B2B e-commerce. There’s Amazon, which after spending nearly 20 years trying to break into the market, broke through in 2013-14 by attacking distributors and wholesalers in the industrial supply space. Dean Maciuba, director of consulting services at Logistics Trends & Insights, a consulting firm, estimated that Amazon’s B2B business is typically around $ 15 billion in sales per year. The company is keeping a low profile with B2B as it doesn’t want to further anger regulators already concerned about its dominance in its core B2C business.
Amazon, Alibaba and other digital vendors have a common goal: to disintermediate traditional distributors and wholesalers from the B2B chain. The old middlemen have outdated systems, processes, and technologies, and haven’t done a remarkable job migrating themselves or their customers to the digital world, Maciuba said. This segment of the B2B market is ripe for digital picking, he said.
Alibaba’s Dick said his company respects Amazon’s B2B efforts, but doesn’t fear them. “Everything that Amazon gets involved in, you have to take it seriously,” he said. “But we feel like we’ve been built from day one for our B2B clients, and we understand the segment better than anyone.”