Business-to-business, B2B for short, is the selling of products between two businesses, typically a manufacturer to a wholesaler or a retailer. One good way to think of B2B transactions is when a manufacturer purchases for raw materials for their specific products – like soy wax for candles or steel for kitchen knives.
The rise of the B2B e-commerce model, along with the B2B platform infrastructure and the digital trends of the last decade or so have come together. The effect is more and more companies are looking to online for both sales and purchases. It makes perfect sense why as it is a strong way to develop successful trade relationships with overseas manufacturers and exceptional cost saving measures.
Currently, the COVID-19 pandemic continues to have significant effects on the global market. This means there are serious difficulties within the supply chain. Specifically, all links in the industrial chain struggling to fill needs of the customers downstream all the way to the end-user consumer.
The epidemic has made many B-end merchants shift sales more to online and thus meeting the specific needs of its customer base. This means once well-established with a trade agreement, payments and proper logistics, the entire system can be automated and work with little to no human input. Even when the pandemic wanes and passes, the online buying habits of many will not change. The entire supply chain will grow from the raw material producer to the end consumer.
In some ways, the epidemic has been a boon. The development of B-end online sales and purchases means the base growth those suppliers higher in the supply chain, such as the raw material producers, and the rest in the B2B chain have seen positive changes in their sales and profits.
Comparative analysis of the needs of small retailers and large buyers
The nicest element to the B2B e-commerces sales platform is the ease with which customers can buy their products. There is also a better opportunity for people to purchase well-made Chinese products online, and it is all because of the rise of B2B platforms.
Many in the supply chain close to the consumer are moving away from middlemen buyers and buying groups. These businesses, often distributors or retailers with no contact with the manufacturer, are going directly to China and the manufacturers for their products.
Let’s switch to the small business retailer. They obviously cannot compete with large conglomerate companies with huge purchase power. The smaller business cannot compete at their levels as they are differentiated in all aspects of their business and have a different demand focus. The dropshipper, as an example, cannot make many requests very far up the supply chain because their business model is much too weak to command much from the manufacturer. Whereas professional purchasing agents with experience in the industry pay more attention to the competitive supply chain for better prices and pricing.
Here are the primary small retailers.
Retailers who are new and starting in the e-commerce world and run independent sites often use drop shipping as a standard model. While some drop shippers do have business experience, they lack the financial strength, supply chain capabilities and other requisites to do much more.
Dropshippers often do not have direct contact with much of the supply chain. This means their options for products are low and can only sell products from their suppliers. Dropshippers do not have the ability to bargain with suppliers for products or deals on shipping. Dropshippers, since they do not negotiate for products, rarely are able to build a private brand and brand label. The dropshipper accepts orders and processes payments. The remainder of the order, fulfillment and after-sales capabilities, are dependent on the supplier of the dropshipper.
Moreover, if there are any taxes and customs assessed on the purchase, the end consumer will be responsible for those as the dropshipper does not have any direct contact with customs agencies.
The online distributor has moved up to a professional level with e-commerce platforms and independent websites. Consignment sales are their go-to model. Consignment offers a more competitive supply chain and increased utilization of funds.
These sellers have supply chain manufacturer capabilities, start and enter the product development process, can negotiate prices and build brands. They often use the services of a professional product sourcing company like Sourcing Nova and can differentiate much better for their customer base.
Small and medium-sized businesses within traditional international trade often use product sourcing services and purchasing agents. Offline sales and businesses need more local services than the other two business models for success – warehousing, after-sales service centers, exchange meetings and the like. These companies are looking for competitive supply chains within similar markets and manufacturers for better sales, gross profit margins and capital utilization rates.
The supply chain management capabilities, fulfillment and after-sales capabilities of these companies are often B2C or B2B e-commerce models with similar goals as their closest competition.
Cross-border large purchasers
These businesses deal in traditional foreign trade with strong bargaining power and high requirements in both product and transaction security. The sourcing at this stage is ‘high amounts with low frequency.’ This means at the outset when working with larger purchasing companies, it is common for their to be “growing pains” within the supply chain. After some time and both sides adapt to the specific needs of the other, the supply chain stabilizes and has regular frequency. This makes the entire process faster and more streamlined.
Rather than a sourcing company, these large and medium businesses find their manufacturers via exhibitions or branch offices within China for their product sourcing needs. There is deep supply chain management, fulfillment and after-sales services.
B2B website classification
Since the beginning and after several years if not decades of development, the B2B meaning has splintered into several different types. Based on the specific models, there are two types: plaform and self-operated.
Each has its own set of characteristics,and different competition barriers.
The differences between the platform and self-operated are best described as follows:
Ownership of commodities
- Platform – These are in the supply chain as service providers with other businesses selling products on their platform
- Self-operated – They self manufacture and sell products in direct competition with downstream distributors and wholesalers
- Platform – The primary costs are in construction and services with a relatively light model – requiring little in terms of capital and labor
- Self-operated – Companies do almost all of the work independently: R&D, production, purchase, involvement in the entire supply chain and performance costs; there is considerable labor and capital input necessary
- Platform – Commissions from upstream sellers or value services: advertising, marketing, finance and data analysis
- Self-operated – Sales spreads as a general rule
The platform models for B2B are groups like dhgate and Alibaba. Keeping assests light means the platform is richer in categories and business diversity. This leads to more stability in capital flow and rapid expansion.
These B2B e-commerce platforms arose from other companies specializing in commodities trades. The original export business design moved to an online model with their own websites.
Represents the website
alibaba.com, Made-in-china.com, 1688.com, GlobalSources, HKTDC, Tradekey, Amazon Business, dhgate, aliexpress
There is considerable information available about these specific websites. Please refer to: https://sourcingnova.com/blog/chinese-wholesale-websites/ for that information.
These are direct B2B models, meaning they sell directly to the end customer and work within the wholesale industry.
B2B e-commerce warehousing and fulfillment
As the pandemic continues in the U.S. and Europe, the necessity for local warehousing services is growing to a certain extent. The decline in international logistics capacity during the pandemic, price increases, warehouse accidents, container shortages and dropship capabilities in China are all factors in this need. The advantages of local warehousing is more clear during the pandemic, raising the popularity and growth of the warehouse model.
For the U.S. e-commerce professional, the dropship model from locations like Aliexpress can prove to have issues. You may have 100 packages sent directly from China to 100 different customers, and 20 of them may have to pay customs taxes. This is certainly not going to satisfy the majority of your customer base. This is why Sourcing Nova has a complete, functional and successful dropship model in place, relieving the business of this burden.
The issues are also hitting Amazon as well. Liquidation incidents have sellers with no products in their e-locations. They, too, are in dire need of a successful alternative situation for this issue.
B2B marketplace vs traditional offline B2B
B2B marketplace advantage
Identify high-quality counterparties
The advantage of online sales and service means a plethora of useful data via credit and digital technology. Those in the B2B e-commerce marketplace can quickly and inexpensively identify Chinese manufacturers and businesses with a good credit score and history. Conversely, the same information goes the other way. Sellers on the B2B platform can make determinations of the buyers and decide if and how to negotiate trade.
Identify changes in purchasing requirements
The B2B can further capitalize on the data, cloud computing and A.I. This can lead to changes in sourcing requirements and speed responses. This means Chinese manufacturers have better opportunities for business success.
Promote cost reduction and efficiency increase for both sides of the trade
The better marketplace also helps parties in transactions. This builds a better trust, completed transactions and payments. This allows both sides of the B2B to reduce costs and build a more efficient supply chain.
Ecological coordination of the entire industry chain
All of these mean China’s B2B e-commerce platform enters and integrates well with cross-border logistics, creditmanagement and e-commerce operation services. This is accomplished via new-generation technologies like big data, cloud computing and A.I.
Additionally, these platforms become one stop cross-border services for both sides, upstream and downstream, of the industrial supply chain.
B2B marketplace disadvantages
For the seller on these sites, the marketplaces are expensive. The marketing fees and some packages have costs up to three million yuan annually. These prices can be stiff for some manufacturers, particularly the smaller ones. However, the fees cover membership, bidding promotions, consulting services, information display, transaction commissions and value-added service fees.
B2B e-commerce platforms try to use a monopoly-like advantage specifically to master core secrets of manufacturers and keep them from making profitable business decisions.. Many Chinese manufacturers take umbrage with this fact.
The ranking rules of the B2B e-commerce platforms are highly inconsistent with what is and what is not ranked. It is common for the staff to inform the trading groups one thing and then change it later on to something completely different. For example, there is product information specific to Plan A. Six months later, Plan A has some negative qualities or is unfavorable to the ranking algorithm. The trading company has to upload products and descriptions again to meet the new requirements. Most manufacturers on the site are not willing to devote both the time and energy to learn all of the platform rules because of this.
The B2B can change threshold to match buyers and manufacturers easier, but this cuts significantly into the quality of the buyers available – something many Chinese manufacturers have dealt with and been cheated. This is why an overwhelming number of Chinese manufacturers believe customers from a B2B platform are not the ideal customer type. This means: no loyalty as a return customer, fussy about prices, low MOQ and negigible professionalism. The influx of novice buyers into the B2B sphere brings a false sense of success and prosperity. Most of these looking to buy on these sites are amateur business owners. They will offer very little to the manufacturer outside of increased costs to do business.
Theory states a buyer can contact the manufacturer directly on a B2B site, and this will cut out the middleman for better profits. What they do not realize is most of the sellers on the platforms are trading companies – middlemen.
The sellers on these B2B sites are trading companies and not manufacturers. The platforms command high marketing fees, and these costs will translate to the buyer’s prices.
Better Chinese manufacturers have left the B2B platform concept behind in favor of their own decentralized channels.
Analysis of Technology Driving Factors
The rise of new technologies – big data, A.I. and the Internet of Things, IoT, have integrated easily into cross-border e-commerce R&D, production, logistics, distribution and precise marketing.
Big data technology means the platform becomes more efficient with supply and demand matching. Information opacity due to long intermedieate circulation paths and complicated cross-border responsibilities in cross-border trade is also cleared up nicely.
A.I. has algorithms that help with operation management, business prediction and decision-making.
The IoT provides smart warehousing, efficient contract performance, communication and 5G technologies. All of these give a more visual and convenient service experience in logistics and after-sales.
Blockchain technology cuts the issues with trusting partners in cross-border trade.
Big data technology is the comprehensive management of multiple data assests. This includes order information of the customer, logistics information and capital flow information. The data also gives an idea of demand forecasting and price prediction.
A.I. is an incredible tool. B2B number crunchers can use algorithms to summarize and analyze the data from both the platform and from the manufacturers who use the platform. This means promoting related products within each industry such as intellegence customer service, marketing, product decision-making and order matching in the future.
Internet of Things
The IoT has lots of identification technologies available like RFID/NB-loT/EPC, QR codes, various sensor sensing technologies, scene recognition, product traceabilty, safe transportation and schedule optimization of cross-border logistics. All of these are automatic as well.
This is a voluminous amount of data. The IoT needs intelligent computing, 5 G mobile smart terminals for digitizing, informatizing and networking physical objects.
Communication and 5G
The upgrades in communication technolgoy means that data moves in real time from one location to the smart terminal.
The RFID technology allows for real-time monitoring of cargo transportation and storage to improve the use of that storage.
The 5G and VR technologies allow cross-border e-commerce consumers with a better visual, convenient and immersive shopping experience.
Blockchain is ideal for the information itself. The information can be self-verified, transmitted and managed. Cross-border agencies can take this data along with capital flow through public interfaces.
Blockchain allows users to trace the entire life cycle of asset circulation process. This includes storage entrance and exit, cargo rights transfer, pain points of ownership with cargo rights and rapid mortgage and transaction.
B2B platform ecology
China has shifted its B2B platform systems from a simple location to match and allow for communication between manufacturers and their customer base. The goal is complete ecosystem within the supply chain.
In essence, the ecological platform will facilitate transactions based on the product information, advertising and online transaction services for supply and demand parties, more related industries outside of the basic transaction services.
The transaction services include warehousing, logistics, promotion, marketing, supply chain finance and more. To this, value-added innovation services are added into the trading activities of the platform.
There are then supporting services that allow the platform to provide manufactuers with one-stop services, a shorter trade chain, easier trade links and improved trade efficiency.
There is real synergy here from this integration and optimization of the B2B platform and other service platforms. The result is exponential business growth for the B2B platform. Add to this the external advantages and resources. Now, the B2B platform can provide one- stop services and large-scale bargaining. The bargaining allows for more expansion of upstream, downstream and the transactional scale.
Services providers working within the B2B platform can optimize their business process with the data. It is easier to link to more upstream suppliers to increase business revenue.
Based on this information, it becomes obvious the e-commerce platform is the most powerful element in the electronic ecosystem and the biggest beneficiary of external collaboration.
Payment financial link
The B2B e-commerce platform takes the place of most financial institutions, third-party payment groups and crdit management services. The B2B will also handle receipt, payment, credit financing, credit management, foreign exchange settlement, customs inspection and tax refund services for suppliers.
Warehousing and logistics links
The B2B e-commerce platform handles all of the primary logistics including domestic transportation, 3PL/4PL service providers and international transportation. The platform also includes dynamic route planning, waybill tracking, air/sea transportation and overseas warehousing.
The B2B e-commerce platform takes care of the following: the traffic for the platform, ERP services, advertising alliance and digital marketing services. There is store management, agency operation, supply and demand matching, digital operation, customer management, advertising and content marketing services.
The duality of monopoly
For positivity, the B2B platform gives assistance to the supplier for digital development and improving work efficiency.
Sadly, the negatives are considerably greater. The degree of financial burden is significant, particularly for the smaller suppliers. Some of the platforms will link “value-added” services to rankings, and this is beneficial to those suppliers who use them, bringing higher rankings and exposure to more potential customers.
Those who do not elect these services are limited or eliminated from decent exposure opportunities to potential customers. This means there is a chance for a serious loss in terms of investment for the supplier. Many suppliers across China whose income is based on B2B platforms rarely offsets costs paid. The platforms are pulling in huge profits with the suppliers being nothing more than cash cows for the profit margins of the platform.
The ERP and CRM systems within the platform have created serious trust issues between the suppliers and entire B2B platform. Some of the platforms collect sensitive information from the suppliers and sell that information for additional profit. There are some instances of skipping the supplier entirely and directly contacting the supplier’s buyer pushing hard for sales of self-operated products.
The platform expands the ecosystem with establishment or acquisition of third-party companies. These are tied to the platform’s own fundamental business, forcing suppliers to leave behind the cooperative relationships previously established with other business partners. The fallout is a waste of resources and unfair competition across the board. Many of the small and medium-sized suppliers who cannot compete with the larger suppliers waste away.
The fees many suppliers have to pay just to gain entrance onto the platforms means their operating income is less than their expenditures. Rather than continue to pay for services that do not work in their favor, more and more suppliers are choosing their own private domains and platforms over that of the B2B model.
Decentralization is the future trend of B2B
The B2B platform is not conducive to suppliers in two ways: collection of traffic and building customer loyalty. More and more Chinese suppliers are recognizing the decentralization of traffic. They are building their own platforms and marketing to “private domain traffic.” This construction is specifically designed for growth and building trust in new customers.
This concept of “traffic” works well with current users and helps guide those same to repurchases and recommendations. The cross-border export e-commerce companies that are working for decentralized traffic channels help when it comes to seizing development opportunties and strengthening their position within their specific industry cluster.
For the Chinese supplier, this one-stop, omni-channel marketing thinking strategy leads to better data retention and customer feedback. This can be used for product design that is closer to overseas markets and localized consumer preferences. It should be noted that there are significant pain points and the need of strong SEO skills when operating an independent website. Marketing is not a priority in China, so there are real marketing shortages for pushing independent websites.
The pain points and operational problems of small and medium-sized sellers using B2B websites
Small and medium-sized purchasing agents have in-place processes for product sourcing, a long time span and low bargaining power. The ability to oversee the entire process and supply chain is weak as well.
The B2B platform does provide pain point solutions when dealing with overseas buyers, but this only increases the dependency on the B2B platform for those same businesses.
Here are the primary pain points to consider.
Pain point one
Working with a traditional sourcing process is both complex and requires considerable time, particularly with international trade. This means anytime there is a serious or swift customer demand, meeting those needs in a timely manner is difficult. The pattern follows the following: customer order → retailer purchase → contact logistics for shipping → domestic distribution → overseas distribution → customer. This will take 15 days to a full month for products to arrive.
A purchasing agent can solve most of these problems from supply to after-sales, ease the procurement process and reduce the cycle.
Pain point two
The bargaining power of small and medium-sized buyers is weak, particularly with upstream suppliers. The supply stability and price stability of traditional acquisition channels are equally weak. A single retailer has limited purchasing power and a small, one time purchase provides no price advantage. This, along with low bargaining power with suppliers upstream decreases profit margins.
Professional purchasing agents have built relationships and have bargaining powers with upstream suppliers. These agents have the power to lock in a steady stream of products with long-term agreements. This means a more stable supply and price. The supplier’s confidence goes up as well since there is an opportunity for long term cooperation.
Pain point three
The differences in geography, language and culture cannot be overlooked. Small and medium-sized purchasing agents have serious issues with making determinations on qualifications, strength and reputation of suppliers based on these factors.
The better purchasing agents leverage local advantages for comprehensive evaluation of the overall strength of the supplier and risks of each individual transaction.
Pain point four
The small and medium-sized companies and freight forwarders often have a temporary contractual relationship. This means no control over product quality testing, fulfillment and after-sales.
A professional freight forwarder can rely on the local operation teams and overseas warehousing for the ideal product performance and after-sales service.
B2B online procurement vs offline procurement
The global customer and buyer will find the B2B platform the most convenient way to find Chinese suppliers and products. It is important to recognize that many Chinese suppliers are leaving these B2B platforms in favor of their own websites. There are still plenty of suppliers still on the B2B platforms, but they are actively moving in that direction.
However, it is important to recognize that the Chinese model for websites is not as developed as it is elsewhere. There are several factors and deficiencies in SEO and SEM that keep the better manufacturers off of the vaulted first page of Google’s SERP. In other words, Google is not going to find the best suppliers for your products and needs.
There is an advantage to the offline channel. It is more conducive to enhancing the buyer experience and building trust for all transactions with Chinese suppliers. Face-to-face communication is always better and more natural than clicking keys and staring at screens.
This is where your better Chinese purchasing agent will excel for you and other overseas buyers. The purchasing agent has little to no problem finding the better manufacturers of specific products. The buyer should also be able to find a sourcing company’s website with an easy Google search as well.
A bit of communication later, and the purchasing agent can make direct, face-to-face communication with a Chinese supplier. These meetings will determine if the supplier meets the specific needs of a customer. Make no mistake: It is easy to find a supplier in China. It is not easy to find the best supplier for your specific needs.
The B2B platform may work well for some, but Sourcing Nova knows you are not the majority but the minority. The minority of businesses who are looking for the best possible manufacturers, the ones that work with global businesses and offer OEM products.
Contact us when you are ready for your first product order placement. We are excited to help you with your business.