There’s a new online business-to-business competitor in town, one with the potential to be a dominant presence in the North American and European markets in the next five years. It’s also one that wholesale distributors need to be including in their market strategies today, if they hope to be in business themselves in five years.
Why? Because Alibaba.com—the Chinese-based B2B marketplace owned by Alibaba Group—has quickly become the largest and fastest growing ecommerce company in the world. Alibaba.com facilitates the buying and selling of thousands of products from more than two million suppliers. Jim Tompkins, CEO of Tompkins International and a supply chain expert, estimates Alibaba already holds 81% of the $540 billion Chinese market.
Businesses and consumers can purchase everything from Alibaba from auto body parts, police and firefighting equipment, and LED displays, to polymer gels, copper wire, and crude oil. Offering every conceivable product or part, Alibaba’s international business is growing fast as well. There are 7 million-plus B2B customers of Alibaba in the U.S. and 1.5 million in the U.K.
Tomkins estimates the company facilitated $450 billion of the $540 billion Chinese e-commerce sales in 2014. By contrast, Tompkins estimates e-commerce sales in the U.S. were approximately $475 billion. (Other figures from Forrester Research Inc. and Gartner Inc. have estimated U.S. B2B e-commerce sales are at least $590 billion and approaching $1 trillion.)
While Alibaba is entering U.S. markets now, it already dominates B2B e-commerce in China. So any North American distributor who buys or sells Chinese goods already competes with it.
“It’s your competition today if your customer is interested in buying parts from China,” Tompkins said in his recent webcast, “Making Room for Alibaba: The New Powerhouse in e-Commerce,” noting that Alibaba is located near the majority of the world’s manufacturing assets in Asia, with connections to many Asia suppliers.
Its Chinese location alone gives Alibaba a big edge over non-Chinese distributors, and when combined with its knowledge of the Chinese business culture and Chinese markets, that makes it a formidable competitor for anyone doing B2B e-commerce with China. In fact, the major reason for its enormous popularity with suppliers, both in and out of China, is its Asian setting, which AmazonSupply and other B2B marketplaces don’t have.
To create trust between foreign buyers and sellers, Alibaba provides services such as its e-Credit Line, escrow accounts, business verification, shipping services, and even factory inspectors who can be hired to visit a supplier’s factory and report on production quality.
So if Amazon can’t top Alibaba’s act, what’s a lone wholesaler to do to compete?
The key first step is to recognize that Alibaba is a resource as well as a competitor. So while distributors and wholesalers must develop a competitive strategy to counter Alibaba.com, they should also consider what Alibaba can bring to their business. Having access to the huge number of Asian suppliers and buyers that trade on the Alibaba network is itself a major competitive benefit. U.S. companies can leverage the access to low-cost Chinese suppliers and eager Asian buyers to save on supplier costs and to expand their international business.
U.S. distributors and wholesalers should also evaluate how to use Alibaba and other B2B marketplaces as their own virtual warehouse. The sheer volume and diversity of products is a huge advantage which even small distributors can leverage to provide just–in-time delivery for customers—without having to maintain inventory at their own warehouses. No matter where the customer is located, there is probably an Alibaba.com seller who has the needed product at the desired price. The distributor needs only to act as the middleman.
Finally, from a competitive standpoint, U.S. companies need to remember that while price is a top priority for B2B customers—it isn’t the only key factor. Knowledge of regional laws and government regulations is one big advantage that local distributors have. In addition, local providers can often provide guaranteed, reliable delivery and prompt customer support that a more remote provider can’t. Service and delivery is usually a high priority for many B2B buyers, which have been burned by late delivery and poor service. For them, getting the lowest possible price is no longer the deciding factor in choosing a supplier.
Distributors and wholesalers who offer reliable, and personal, customer service—and which focus on anticipating and filling the unique needs of its customers—will always have that as a competitive advantage.