Friday May 5 2017

East Meets West How the eCommerce Giants are Attacking the UK B2B Market

Mark Thornton, Marketing Director at Maginus, examines the looming possibility of Alibaba entering the UK wholesale and B2B market as it simultaneously faces new competition from Amazon

East Meets West How the eCommerce Giants are Attacking the UK B2B Market

Amazon is one of the great success stories of the internet era. A great many of its achievements have been down to its ability to innovate, to identify opportunities and maximize them faster than anybody else. The latest opportunity it has spotted is in the B2B retail supply chain.

In 2015, Amazon launched B2B offering Amazon Business in the US – and it has managed to maintain an impressive 20 per cent monthly growth rate that led to sales of $1 billion in its first year. Amazon Business now has 300,000 registered business accounts in new and growing customer segments, enabling it to serve almost any business type working in any business sector, covering everything from education and health to construction and science. With its own products, fulfilled by Amazon, its own warehouses and its own logistics, Amazon Business is effectively a formidable wholesaler in its own right.

And in April 2017 it launched the service to the UK market. The development will undoubtedly cause seismic changes in the sector, altering the expectations of wholesaler’s and 3PL’s customers that will now have the option of working with a recognised eCommerce brand. Ultimately this means that existing organisations in the supply chain will have to adapt how they conduct business.

However, Amazon isn’t in the only retail behemoth eyeing up the UK B2B marketplace. An equally formidable opponent is casting longing glances at the UK from the East: Alibaba.

The Eastern Amazon

The rise of Alibaba has been as impressive – if not more so – than that of Amazon, leading to the Chinese business becoming the world’s largest retailer in April 2016. Unsurprisingly, the company is already active in the UK retail market. In October, it signed an agreement with UK Trade and Investment (UKTI) to give UK businesses access to its eCommerce platform in China. This enables UK businesses to sell to its 100 million customers. On face value this poses little threat to the UK wholesale and supply chain market, but once you begin to scratch beneath the surface of fabric of Alibaba it should be viewed as the first warning shot that the UK B2B market is firmly in its sights.

In an interview in 2015, Alibaba’s UK MD Amee Chande stated that it is committed to “putting itself into its customers’ shoes and delivering accordingly” – an indicator that perhaps offering the platform to UK businesses to sell into China has more than one motivation. It isn’t a huge leap to suggest that this initial offering is part of a phased approach aimed at creating an opportunity to better understand the market and enable customers to become familiar with Alibaba ahead of a direct entry into the UK B2B market. Indeed, a Forrester report has shown that 82 per cent of business buyers will use a familiar online marketplace simply because of the broad range of products available, which underlines just why Alibaba’s strategy to gain brand awareness with UK businesses and familiarise them with its platform could be a powerful one.

Understanding the Alibaba model

So what might Alibaba do next in the UK? We can make some educated guesses based on what the business has done to date in other markets. In December 2015 the company announced it was planning to more than double the count of Indian B2B merchants on its platform from 4.5 million to 10 million. Globally, there are around 40 million B2B merchants using the Alibaba platform, and this number is rapidly increasing. The company has even created an online platform called SMILE, or Small and Medium Industries Leveraging Export, specifically to provide these small businessmen with a global network of potential customers.

We can also turn directly to Alibaba’s enigmatic founder, Jack Ma. His biography, written by one of his advisors, notes that the company is built on a strategic ‘iron triangle’ of eCommerce, logistics and finance. It also underlines that while “American B2B sites are whales, […] 85 per cent of fish are shrimp sized” – hence, the core of Alibaba’s target audience is SMEs. One of Jack Ma’s mantras is “nobody knows the future, you can only create the future”, which goes some way to describing how Alibaba views its own destiny.

In short, Alibaba has already enjoyed great success throughout Asia, including China and India, and its outstanding sales performance and innovative - even maverick - approach should certainly be taken seriously by UK wholesalers. In contrast to Amazon, which is looking to launch its own competitive wholesale offering to the market, Alibaba is pursuing a strategy that ‘removes the middle man’ (yes you, the UK wholesaler) by offering a direct sales channel from Eastern manufacturers and suppliers to UK retailers and consumers. Its laser focus on the 85 per cent suggests that the Eastern giant could look to exploit the SME segment of the UK B2B market in the not too distant future – offering them access to the ‘iron triangle’ in the process.  

Preventing Alibaba becoming the Prince of Thieves in the B2B market

What, then, can UK operators do to meet the Alibaba threat head-on? They certainly can’t compete in terms of scale, so where can they compete? The answer is – in more places than you might think.

Firstly, technology. Contrary to common belief, small businesses can compete on a technological level with the internet giants. Specialist B2B eCommerce products for wholesalers and distributors incorporate the same – and even additional – functionality as those offered by the likes of Amazon and Alibaba. Account management, real-time stock enquiries, live order tracking, click and collect –are all achievable for small wholesalers and distributors with the right tools. Technology can enable SME wholesalers and B2B operators to build multiple digital ‘touchpoints’ with each customer – essentially turning themselves into ‘omnichannel’ rather than strictly online or offline businesses. This drives flexibility and stronger customer relationships.

Secondly – and a related point – using data to add value. This is where technology can really help drive business strategy. Massive organizations like Alibaba are highly effective at mining large quantities of customer data and using it to develop special offers and to trial new services – but now, with scalable software-as-a-service (SaaS) and cloud-based data mining technologies, there’s no reason why smaller businesses can’t do the same. Understanding individual customers’ behaviours is the key to delivering better service, driving efficiencies and increasing profitability.

Thirdly, customer service. This is a powerful opportunity for small businesses to differentiate themselves, because companies on the scale of Alibaba simply cannot offer the personalised approach that smaller companies can – they work on scale and volume, not personalisation. SMEs can develop truly personal customer relationships with features like customer-specific pricing, advice helplines and really in-depth product knowledge. If they have physical outlets, they can develop face-to-face relationships too, something that can’t be replicated online.

Alibaba – along with Amazon Business – undoubtedly represents a huge challenge to the UK wholesaler and B2B market, but there are still opportunities for differentiation and innovation. Smaller players can learn from Alibaba’s successes – its willingness to embrace new technologies and to shape its own future – while still maximising their unique flexibility and agility as smaller operators. And, by doing so, the UK B2B retail market will avoid being squeezed out of business by interlopers – be they from the East or West.

Mark Thornton is the Marketing Director at Maginus, one of the UK’s leading eCommerce technology providers for the retail sector. For more information visit www.maginus.com.

"The rise of Alibaba has been as impressive if not more so than that of Amazon, leading to the Chinese business becoming the worlds largest retailer in April 2016."
Mark Thornton

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