B2B eCommerce Series Part 1: Digital Transformation in China

Rick O'Neill Rick O'Neill

The COVID-19 pandemic that struck the globe in 2020 caused B2B companies worldwide to press the pause button. For those that rely heavily on offline transactions, the effects of the pandemic have been particularly stark. It’s fair to say that, with offline channels hindered, the pandemic has accelerated the process of B2B eCommerce companies’ digital transformation in China, and indeed, worldwide.

Prior to the pandemic, and over the last 10 years, the rise of eCommerce platforms such as Taobao had seen B2C companies be pioneers in eCommerce digital transformation in the middle kingdom.

But for traditional B2B companies, the process of digital transformation has not been as straightforward. Many have traditionally relied on offline channels, but the pandemic has highlighted, and hastened, the need for change.

So, how can such companies devise a successful digital transformation strategy? And how can you find digital transformation solutions? In this series of articles from TMO Group, we’ll give you the answers to these questions.

In this first of eight articles on B2B eCommerce digital transformation in China, we’ll look at the following points:

What is Digital Transformation?

So what exactly is digital transformation? Does it involve the brand’s new website or the implementation of some company-wide software? Is it about consumers wanting to interact with the brand in a completely different way? Or, about using new technology to re-adjust the way we do business?

It is basically all of these things. The true essence of digital transformation should be a comprehensive form of digitalization, using big data, artificial intelligence, (AI), Internet of Things (IoT), cloud computing and other new technologies to completely reconstruct the customer experience, as well as the business model and operation methods of a company.

All of this should form part of an adoption of a new and efficient model to create value and increase business, while at the same time enhancing the brand image, and becoming more than a brand that sells ‘just’ products – but also a service. It is not only a technological transformation, a business transformation, but also a work culture transformation, and the final result is a complete transformation of the business model.

In summary, digital transformation mainly focuses on the following four aspects:

(1) Core operation transformation

Shifting the core operations from traditional offline channels to online.

(2) Experience transformation

Obtain continuous feedback from the experience of customers/partners and employees, and shift from not just providing products, but to also providing services.

(3) Building a digital architecture

Use cloud technology to run software, build and seamlessly integrate applications, store, retrieve and calculate data, and break through the digital barriers of various departments.

(4) Information management and analysis

To build a data-driven organization, with decisions based on data rather than preconceived assumptions. Decision-making is based largely on the insights gained from the collected data, and the use of AI and big data for higher-level analysis.

The State of China’s B2B eCommerce Landscape

China’s digital economy is accelerating at an exponential rate, occupying an increasingly important position in the Chinese economy as a whole. Studies have shown that the scale of China’s digital economy reached around 39.2 trillion yuan in 2020, with its share of GDP increasing from 14.2% to 38.6%, and the growth rate of the digital economy reaching more than three times the GDP growth rate.

In terms of B2B eCommerce, the explosive growth of the digital economy provides a market growth point for corporate procurement. It is estimated that by 2022, the size of the eCommerce market for B2B Chinese companies will exceed 1 trillion yuan.

According to the data as shown in the figure above, in 2019, the proportion of Chinese companies purchasing online was 24.2%, offline procurement accounted for 34%, and 41.8% of companies adopted a combination of online and offline procurement methods for business. After the onset of the COVID-19 pandemic in 2020, by April 2021, we had observed a leap in this trend, with companies choosing online procurement methods reaching 70%.

The model above shows the results of a survey of B2B brand suppliers in China. It shows that by February 2021, 83% of respondents looked upon online procurement favorably, compared to 54% in April 2020 (in the early stages of the pandemic).

China’s Market Environment

What factors have affected the online penetration rate of China’s B2B procurement?

There are numerous factors that have contributed to its increase, such as:

  • The favorable policies towards digital procurement that the Chinese government advocate;
  • Because of the effects of the pandemic, companies have been looking at ways to reduce their costs, with online procurement being one way to do this;
  • More and more companies have gradually developed the habit of corporate online purchases;
  • New technologies that facilitate online procurement such as cloud computing, big data, the IoT, and AI have continued to develop;
  • The digitalization of Chinese Internet users, especially the entry of those born in the 80s and 90s into the job market, who have grown up in the digital era. This has changed the overall pattern of social consumption habits.

Despite the positive factors, there are still some drawbacks, namely:

  • The advantages of still using offline traditional channels for some product types remain obvious, especially products with complete offline distribution channels and a high demand for services, such as the chemical industry;
  • The construction speed of supporting facilities and services of suppliers may be slower than expected, making it difficult to meet the needs of purchasers.

The Classification of B2B eCommerce Platforms

As shown in the model above, China’s B2B eCommerce platforms can be roughly divided into three categories:

  • The first category is procurement platforms derived from traditional B2C eCommerce, such as Taobao, Tmall and JD.
  • The second category is B2B eCommerce subsidiary platforms. This type of platform can be further subdivided into comprehensive and vertical B2B eCommerce procurement platforms, such as 1688.com, and various industry platforms such as those focusing on easy-to-buy products, and industrial products.
  • The third category is platforms coming from the brand itself, such as Gree, Haier’s corporate shopping, Schneider, and 3M. More and more companies are developing these B2B platforms. This type of platform relies on brands and manufacturing. Such a company has already established a good brand reputation and appeal, as well as a stable source of customers. These types of companies may face competition between the first two types of platform merchants or the low-pricing of the platform’s self-built brands.

Directly facing the customers will give companies the opportunity to directly obtain real-time information from them. This was difficult to achieve with the channel models of the past. This information will help companies gain customers with personalized services, and in turn, hopefully increase sales, customer satisfaction and loyalty.

In addition, the ecosystem of B2B brand self-built eCommerce platforms is still being improved, which is mainly reflected in the following aspects:

(1) Payment methods are becoming more diversified: It can support online payment such as Alipay and WeChat Pay. At the same time, it can also support traditional offline payments, such as bank transfers, and credit limits. Companies can customize exclusive payment methods for customers according to different situations and transactions. For instance, there are a few B2B transactions methods that are more widely recognized by the tax authorities in China.

(2) Logistics channels are becoming more convenient: Cainiao, JD Logistics, Zhongtong Express, SF Express, Deppon Express and other common logistics companies have all thrown out olive branches, which facilitates the process for both companies and customers.

(3) Financial services are becoming more comprehensive: they provide a range of services including financing, payment, company credit and other infrastructure support.

(4) Services are becoming more mature, with services such as Tianyancha ( 天眼查), enabling online enterprise verification checks to be done quickly and efficiently.

Regarding these specific points, we will look into them in more detail in subsequent articles, so stay tuned.

Common eCommerce models of B2B companies

Branded B2B platform model (B2B)

This type of model is mainly based on eCommerce (on the official website of the brand). The common B2B model requires the company to organize a service team to solve customer related product problems and service needs.

The advantage of this model is they can control quality themselves as everything is done internally. However, it may take time to implement, and scalability may not be quick. An example of this model is Adobe Commerce, a platform which offers personalized solutions to the needs of B2B customers.

Distribution model (B2B2C)

By cooperating with local partners to reduce the consumption of the company’s own labor costs, it has evolved into a dealer platform model, namely B2B2C (business to business to consumer). Brands provide products, and dealers select products based on their own advantages, as well as generating their own sales leads.

Sometimes this model also allows distributors to list their own products, but not products which are a direct competitor to the company itself.

Brand B2B + distribution model (normally in the form of O2O)

Combining the strengths of the two not only guarantees the professionalism of products and services, but also saves on manpower and time. It can also use the advantages of local partners to meet the needs of localized services.

In a common O2O model, (a term mostly used in China – meaning a model that draws consumers from online to offline – into physical stores) companies provide products and take advantage of their suppliers’ geographical advantages (being in close proximity to customers) to provide localized services, while helping companies with the fulfillment and maintenance of customer relationships.

The Process of Digital Transformation

Digital transformation is a long and difficult road, and is by no means a short-term process. It requires intricate planning at every stage. Therefore, this process can take a long time. There are different pillars to digital transformation, which, depending on the company and industry, may take varying periods of time to implement. We can classify the process of digital transformation as being segmented into four pillars, as visually demonstrated in the model below, and elaborated on further down in the article.

1. Data Collection, User Adoption and User Education

(1) Collect information with eCommerce as the main focus point

As the initial stage of digital transformation, eCommerce is undoubtedly the focus here. By using eCommerce platforms built by, for example, Adobe Commerce (Magento Commerce), a range of functions including online communication, browsing, order placement, online payment, historical orders and logistics can be realized.

(2) Companies gradually learn from feedback to reshape new experiences that meet customer expectations

Differing from the traditional life cycle method of obtaining feedback, it challenges the company to transform from an independent process to an end-to-end process (for example, the marketing and sales departments from the previous operation separately to coordinate adjustments in a feedback and decision-making process), in eCommerce operations.

(3) Integrate the data flow of the entire supply chain

Real-time monitoring of the supply chain will enable the company to better respond to changes in consumer demand, improve the logistics efficiency of suppliers and distributors, allow companies to manage effective inventory more effectively, and achieve more agile and flexible production requirements.

(4) Continuously instill digital concepts into the habits and concepts of end users

We have observed that in this process, sometimes companies will lose customers due to the fear of changing the traditional sales model, and hesitate about the pace and speed of the digital transformation process.

In reality, there is no need to worry. Users are actually more adaptable than you may imagine, and in reality, traditional sales models can co-exist with newer sales models.

2. Data Management, User Personalization and User Activation

(1) Manage digital assets

Companies moving into this stage will develop a relatively complex data management system that transforms decision-making based on experience and intuitive assumptions into data-driven decisions and actions. Companies accept front-end feedback and use big data and analytical capabilities to promote insights into consumer data. In these data-driven times, the ability to obtain, effectively manage and use customer data can often bring huge potential value to companies.

(2) Provide a personalized customer experience

This involves optimizing existing processes through data management and analysis to reduce costs and provide a more personalized experience. From product prices to logistics channels, payment methods and even discounts, consumers can now be given a retail experience unique to them.

(3) Data privacy and transparency

With the increase in data breaches in various industries, data privacy has become an area of ​​increasing concern for consumers. This has especially been the case in recent years, with several high-profile retailers suffering data breaches, resulting in millions of debit and credit card records being leaked.

Incidences of other customer data (such as email addresses) being stolen have also occurred. While negatively affecting a large number of consumers, it also raises the public’s awareness of the risks caused by data security vulnerabilities. Data breaches have also brought punitive economic consequences to companies.

Although companies use data to improve services and personalized experiences, they must ensure the security and privacy of users’ online information. As a result, data protection and privacy regulations are being deepened worldwide.

Adhering to data security and data transparency regulations is of the utmost importance, because most customers will turn to companies that provide them with trust.

Another way to win trust for companies is to promote the transparency of information and data by disclosing product and supply chain information, such as providing traceability of product raw materials.

This is also important when taking into account the fact that young Chinese consumers pay more attention to the social impact of their purchase decisions than any parent. They are more willing to pay for products made with environmentally friendly materials.

So by providing information transparency and adhering to data regulations, companies can boost their reputation as well as leaving an ecological footprint – a win-win situation.

(4) Cultivation of digital talents

Digital talents are no longer confined to the IT department; rather every department should have digital talents with a digital mindset, so that the entire company can operate efficiently – whether it is internal management or the external-facing side of the business.

(5) From product to service

The shift from a product to more service-based sales experience is now becoming a reality. The desire of the consumer has moved from not just buying products, but also buying the services of a brand, so naturally this has increased brand loyalty.

At the same time, the transformation from providing a single product to a continuous, multi-faceted service enables companies to establish a more long-term and stable relationship with their customers.

An example can be seen with CaoCao Chuxing (a subsidiary of Chinese multinational automotive company Geely) a ride-hailing service in China. At present, they offer ‘green’ ride-hailing services using low-carbon emitting vehicles. In the future, however, they also plan to provide autonomous driving vehicles to their customers, which will extend the range of services provided by the company.

In the B2B field, many companies have also begun to explore how to use IoT technology to help their users predict failures and preventive maintenance. For example, a commercial printer equipment company may use IoT to provide value-added services such as fault prediction, auxiliary material estimation and the ordering of new parts through chip detection and applications.

3. Smart Technology

When a company has entered this period of digital transformation, every department is data-oriented and focuses on cultivating digital talents. The biggest change in this period is the digitization of the source of production. Through smart supply chains, the consumption behavior of end consumers is fed back to the intelligent supply chain and factory through the digital footprints that consumers leave behind, and then products can be produced accordingly based on demand trends.

The move towards smart factories is another key component of the maturity period of digital transformation. Smart factories operate on IoT technology to produce a more sophisticated production line. With a greater and greater emphasis on consumer personalization, smart factories can help to facilitate production lines and make products easier to reformulate and quicker to produce.

Additionally, more and more companies will no longer be solely based on the pursuit of profit, but gradually transform to provide goods and services driven by human health and well-being.

Mobile phone manufacturers have already moved into this area. For example, Samsung has embarked on developing health-related sensors, such as pedometers, in some of its latest smartphones. These phones help users track exercise plans, food intake, weight, sleep patterns and heart rate. Fitbit, a health wearable device company, allows their users to share their health results and compete in exercises with friends.

4. Big Data, Internet of Things, and Artificial Intelligence

Advancing technological trends are leading to an increasing prevalence in the application of big data, IoT, and AI in digital transformation. But how can these factors play a part in the process?

1. Big Data

With the increasing amounts of data that needs to be processed on a daily basis by companies, the value of big data for companies involved in the digital transformation process cannot be overestimated. It can help to:

(1) Realize the visualization of transaction data, order data, and logistics data – all crucial types of data in the B2B field.

(2) Understand your customers better. By analyzing customer data and trends, companies are better positioned to devise strategies that will better serve the needs of their customers.

(3) Improve the efficiency of supply chains and company operations – By analyzing transaction data, order data and logistics data, better-informed decisions can be made on how to make supply chains, and company operations as a whole, more efficient.

2. Internet of Things (IoT)

IoT technology can help companies with the digital transformation process in the following ways:

(1) To enable companies to implement more sophisticated ways to acquire real-time information. This may be done in several ways, for example through the use of:

  • Proximity sensors. They are used for example in assembly lines of different industries to ensure the efficiency of operations.
  • Temperature sensors. They may for example be used in manufacturing to ensure machinery is kept at a specific level.
  • Cameras. In offline stores, smart cameras can be used to identify where certain groups of individuals tend to move around in, and product ranges and goods appealing to their demographic then be positioned accordingly.

(2) To enhance the customer experience

Through the use of IoT technology, companies can enhance the customer experience in ways that were just not possible before. This may be done for example through the use of:

  • Smart digital wireless price tags. Price tags are updated in real-time. This can be particularly useful for items such as seafood, which may perish throughout the day.
  • Self-scan checkout machines. You can now go shopping without the need to interact with anyone else thanks to self-scan checkout machines. Using the self-scan checkout machines, shoppers can simply scan the products and pay as they go.

Both these features have been pioneered by Hema, a chain of supermarkets owned by retail giants Alibaba, in China. The chain has been labeled ‘the future of retail.’

3. Artificial Intelligence (AI)

AI technology can help companies with the digital transformation process by:

(1) Providing intelligent chatbots. By using AI intelligent decision-making technology, AI can offer instant solutions and a 24/7 service. This can be done in the form of answering queries, or automated messages.

(2) Implementing data-driven smart pricing systems. AI technology can be used to implement smart pricing systems (using data collected through big data analytics), to cater to specific groups of customers, or even individuals.

(3) Personalizing the shopping experience for consumers. Retail giants Amazon have been one of the pioneers in utilizing AI to personalize the shopping experience for consumers. Amazon Personalize uses AI technology to deliver real-time personalized recommendations, such as products, offers and content (banners and call to actions).

More traditional avenues of operation, such as R&D and design, production and manufacturing, marketing and sales, will all still play a big part in day-to-day operations in the coming years, but every department in a company will need to go through the process of digital transformation to some extent.

Be sure to check in on our later articles as we look into how B2B companies can successfully launch a eCommerce strategy in China.

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