Business to Business (B2B) E- Commerce in India

Context

Indiamart pulled off a successful stock market listing—the rarest of rare achievements for an Indian internet firm.

Background

Electronic commerce is popularly known as e-commerce. An e-commerce business model enables a firm/individual to conduct business over an electronic network, typically the Internet. Electronic commerce can be classified into four main categories. The basis for this simple classification is the parties that are involved in the transactions.

Types of electronic commerce models:

• Consumer to Consumer( C2C)

Here the consumers are in direct contact with each other. No company is involved. It helps people sell their personal goods and assets directly to an interested party. E.g. OLX, Quikretc .

• Consumer to Business (C2B)

This is the reverse of B2C; it is a consumer to business. So the consumer provides a good or some service to the company. E.g.- An IT freelancer who demos and sells his software to a company.

• Business to Consumer (B2C)

Here the company will sell their goods and/or services directly to the consumer. The consumer can browse their websites and look at products, pictures, read reviews. Then they place their order and the company ships the goods directly to them. Popular examples are Amazon, Flipkart, Jabong etc.

• Business to Business (B2B)

Here the companies are doing business with each other. The final consumer is not involved. So the online transactions only involve the manufacturers, wholesalers, retailers etc.

About B2B E-Commerce:

This includes firm to firm economic interactions or business using all round electronic methods and procedure.

Some examples of B2B E-Commerce platforms:

• Indiamart: A marketplace for business as well as payment services.
• UDAAN: It facilitates buying and selling of fashion, groceries and electronics between manufacturers, brands and retailers.
• NinjaCart: The Tiger Global-backed firm was founded in 2015 as a consumer internet firm but shifted to B2B e-commerce later. The platform now enables retailers and merchants to source fresh produce directly from farmers daily. NinjaCart eliminates middlemen by allowing farmers to directly deal with establishments.

Udaan and Indiamart are examples of horizontal platforms and there are many other B2B startups which are called vertical platforms.

Difference between horizontal and vertical E-Commerce platforms:

Horizontal E-Commerce

• Horizontal e-commerce businesses are those that sell products from a large number of categories. Basically it serves retailers across industries. The most famous horizontal e-commerce business is Amazon.com. It sells books, furniture, food, grocery, apparel, toys, software, music, gadgets, and a whole lot more.
• Horizontal e-commerce businesses present themselves as a one-stop shop and communicate convenience as a strong benefit. They also tend to find supply chain or scale advantages that help them offer great prices.

Vertical E-Commerce

• Vertical e-commerce players are specialists which focus on specific regions or categories. So an online retailer that only sells baby products is a vertical e-commerce business.
• Vertical e-commerce players rely on being able to showcase the product better. Since they focus on one, or few, product categories, they can engineer the user experience in a way that highlights the special features of the product category.

Factors responsible for growth of B2B E-Commerce:

Until recently, B2B e-commerce start-ups failed to make a dent in the largely-unorganized market. But they have found success at a time when the country’s informal economy is in bad shape.The revival of B2B e-commerce has been driven by structural changes in the industry brought about by following macro factors:

• The launch of 4G services led by Reliance Jio:4G services provided stable and fast internet connections that made businesses more willing to use the internet to conduct business.
• The introduction of a goods and services tax (GST): The introduction of GST made it convenient to transport goods between states.
• Demonetization: Demonetization compelled businesses to experiment with digital payments.

According to experts by damaging the informal economy, the last two changes have contributed to the present economic slowdown. But one sector has benefitted immensely from them is B2B e-commerce.

Governments Initiatives:

• GeM(Government E-marketplace) Portal: It is a platform to make procurement by public sector enterprises more efficient.It facilitates online procurement of common use Goods & Services required by various Government Departments / Organisations / PSUs.
• In order to increase the participation of foreign players in the e-commerce field, the Indian Government hiked the limit of foreign direct investment (FDI) in the E-commerce marketplace model for up to 100 per cent in B2B models.
• The heavy investment of Government of India in rolling out the fiber network for 5G will help boost ecommerce in India.

Achievements:

• Udaan, a B2B online trade platform that connect small and medium size manufacturers and wholesalers with online retailers and also provide them logistics, payments and technology support, has sellers in over 80 cities of India and delivers to over 500 cities.
• According to the UN’s e-governance index, India has jumped 11 positions to 107 in 2016 from 2018 in 2014.
• Under the Digital India movement, government launched various initiatives like Udaan, Umang, Start-up India Portal etc.

Significance of B2B E-Commerce:

• For retailers: It was generally believed that Indian businesses were unwilling to pay for using a digital platform and other technological services. But now retailers are willing to pay for e-services because the value that E-commerce companies are providing, be it credit, or price discovery and transparency or logistics, has transformed their businesses. Not only do they earn more revenues and can expand into other categories, they are also seeing an increase in profit margins.
• For wholesalers: Currently, the most profitable players in the ecosystem are wholesalers. Retailers make very less margins. Wholesalers enjoy a far higher return on capital than retailers. Therefor E-commerce can cut short wholesalers revenue.
• The global B2B market size is expected to be around $700 billion by 2020, according to an April 2016 report by the Confederation of Indian Industry and Deloitte.
• As a higher number of MSMEs come online, the digital services market serving these firms will increase to $10 billion in 2023 from $1.5 billion according to an estimate.
• India’s internet economy is expected to double from US$125 billion as of April 2017 to US$ 250 billion by 2020, majorly backed by ecommerce.
• The Indian e-commerce industry has been on an upward growth trajectory and is expected to surpass the US to become the second largest e-commerce market in the world by 203

Challenges for B2B E-Commerce:

• Micro, small and medium enterprises (MSMEs) in India spent $1.5 billion on digital services in 2018. On the whole, only 6% of all MSMEs in India paid for digital services in any form in 2018, the others have still not taken to the internet because of a lack of knowledge about how to use software, low awareness about B2B platforms and unwillingness to pay for such services.
• The online B2B market will grow primarily through the displacement of wholesalers.
• Most customers of the B2B internet platforms do not pay for value-added services such as online advertising and analytics
• Contract based pricing: B2B sales sector deals with significantly larger volumes and more complicated transactions than B2C, including multi-level approval processes, negotiations, etc.
• Order Approval process: Unlike B2C, which works directly with end-buyers, B2B often deals with a whole chain of negotiations and approval processes. So an e-commerce platform needs to be able to support approval process with different roles.
• The FDI provision restricted to Indian firms may Influence the much needed FDI in general and e commerce industry in particular.

Suggestions:

• E-Commerce should be included in the National Integrated Logistics Plan being prepared by the Department of Commerce, which would focus on faster delivery with emphasis on lower costs.
• Continued focus on Digital India initiatives by the Government will help in the development of B2B e-commerce sector.
• Early roll out of 5G services would boost internet speed which will ensure faster service delivery.
• As digital transactions will increase in the near future there is need of comprehensive data storage of B2B transactions for smooth functioning.
• Most of the B2B e-commerce businesses are fundamentally financing engines. For qualitative value addition there is a strong need for effective management of working capital.

Road ahead:

Thee-commerce industry been directly impacting the micro, small & medium enterprises (MSME) in India by providing means of financing, technology and training and has a favourable cascading effect on other industries as well.Technology enabled innovations like digital payments, hyper-local logistics, analytics driven customer engagement and digital advertisements will likely support the growth in the sector. The growth in B2B e-commerce sector will also boost employment, increase revenues from export, increase tax collection by ex-chequers, and provide better products and services to customers in the long-term.

Practice Question:

What is B2B E-Commerce? Discuss its significance and factors responsible for its growth. Also suggest some measures to boost B2B E-Commerce in India.