To Be or Not to B2B in China?
April 7th, 2008 | by This is China! |Business-to-business (or B2B) is a relatively new concept in the internet world in China. For most companies in China, the websites are little more than brochures for brick-and-mortar operations that provide a service or product that is paid for in ways other than the internet (for instance, bank transfers, Letters of Credit, etc). B2B in the form of e-commerce has been more difficult to monetize - especially in China - because the products on offer have to go through a manufacturing process that may or may not involve design, testing and quality checks. “Seldom are orders that come to Chinese manufacturers like ordering a book: you choose the book, pay with your credit card, and then receive your book,” Joseph Huang, General Manager of Made-in-China, told me during a recent visit to the company’s Nanjing headquarters. Made-in-China (MIC) is the second largest internet portal for manufacturers in China after Alibaba.
B2B in China is further complicated as far as international transactions are concerned because currency conversion issues: a company cannot simly wire money to a Chinese bank if the supplier does not have a foreign currency account at the bank. The supplier also requires permission to convert the payment into RMB that the bank will hold in the company’s RMB account. Such complexity and sophistication are beyond the reach of most suppliers, which are miles away from banks that likely do not support such services in the countryside anyway.
Alibaba’s Alipay is China’s first attempt at an online payment system. Alibaba created Alipay to support the company’s investment in Taobao, which sold products through online auctions in much the same way as Ebay. However, there was no domestic system to transfer payments from seller to buyer, as in the Paypal system that supported Ebay. Alibaba offered Alipay to Taobao users without charge - no service fee, no commission. It was a terrific draw for Chinese buyers, who are deeply averse to accepting costs that chip away at their hard-won purchases. Ebay bowed out of the Chinese market in 2006, leaving the field to Taobao.
Industry analysts believe Alibaba will eventually integrate Alipay into its own B2B model, which is increasingly becoming more an offline business. Portals like Alibaba and Made-in-China are increasingly inserting themselves into the transactions between the buyer and portal suppliers. Currently, almost all revenue for the Directories come from membership fees and advertising fees from suppliers. The companies want to work their way more deeply into the buyer-seller relationship by providing such amenities as supplier-quality approval services, supplier seminars, physical meeting space for buyers and suppliers and the like. Online, suppliers provide Bulletin Board Sytems (BBS) through which buyers can discuss issues and ask questions of a purchasing expert, and guides and handbooks about trade. Ultimately, the B2B’s want a piece of that commission that goes into ensuring a great purchasing experience for buyers.
What do you think are some of the ways these portals can add value to the buyer experience?
