Posted by Ranga Bodla, Wholesale Distribution Industry Lead at NetSuite
There’s a new competitor in town, one with a 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—a Chinese-based marketplace that facilitates buying and selling of thousands of B2C and B2B products from suppliers in more than 20 countries—has quickly become the largest and fastest growing ecommerce company in the world. Jim Tompkins, CEO of Tompkins International and a supply chain expert, estimates Alibaba already holds 81 percent of the $540 billion Chinese market. Wall Street has already signaled its faith in Alibaba in September after the company’s IPO became the world’s largest with an offering of $25 billion.
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. Acting as a one-stop-shop for 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. Tompkins estimates the company will do $450 billion worth of sales in 2014, which is slightly less than all of the ecommerce sales estimated for the U.S. last year.
While Alibaba is entering U.S. markets now, it already dominates Chinese and other Asian markets. 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," said Tompkins 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 Asian suppliers.
One major reason for its enormous supplier base is that it targets the Chinese, and other Asian sellers that AmazonSupply and other marketplaces don't. 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.
As author Erin Griffith observed in a September 8, 2014 article in Fortune, "It opens up the world of international suppliers to people who wouldn’t normally have access to it. They can buy in bulk through Alibaba, which acts as a trusted third party, vouching for the transaction."
So if Amazon can't top Alibaba's act, what's a lone wholesaler to do to compete?
First, recognize that Alibaba is a resource as well as a competitor. So consider what Alibaba can do for your business. Having access to so many Asian suppliers and buyers on the Alibaba network should be a part of your own supply chain and international sales strategies. Leverage the marketplace to save costs on supplies and expand into new international markets.
Second, evaluate how to use Alibaba and other B2B marketplaces as your own virtual warehouse. The sheer volume and diversity of products is one huge advantage for Alibaba. But even small distributors can piggyback on that by creating relationships with marketplace suppliers that allow you to use them as "just in time" providers for your own customers -- without having to actually store products at your sites.
Finally, keep in mind that, while price is the big factor in B2B sales, customer service will always be a critical element. Regional suppliers who provide personalized, high-touch customer service have that competitive advantage.