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Business Model Innovation (Part 2)
Winnie Lo
E-com
merce . B
usin
ess Mo
dels . In
no
vation
s August 2020
Overview of the innovative B2B business models in China
040301
Key takeaways
2
Unlike the winner-takes-all B2C market, B2B market is fragmented and distinctly characterized. Digitization and innovation in B2B businesses in China are in progress, with different paces in various supply chains, verticals and support services. No single service provider can dominate all market segments for the time being. Huge growth in China’s B2B market is expected.
Key drivers of innovation in China’s B2B business:
Zoom in: A lot of B2B business innovations aim at solving the pain-points facing supply chains and streamlining the four flows in supply chain
What’s next: Some buzzwords are frequently mentioned by China’s B2B business guru in the midst of the Covid-19 outbreak, e.g. digitization, supply chain resilience, B2B (export) e-commerce, branding, mergers and acquisitions, etc.
Map 6: Digitization in financial sector
Map 3: Supply chain visibilityMap 4: Enterprise digitization
Source: Fung Business Intelligence
Changes in consumer expectation drive B2B business transformation
02
The government supports B2B business innovation and acceleration of industrial upgrading
Internet giants eye on the next blue ocean market, B2B business
Technological advance leads to digital transformation
Map 1: Distribution in FMCG Map 2: Apparel supply chain
Process flow Information flow
Map 5: Innovations in B2B logistics
Logistics flow Cash flow
B2C business innovations emerged at the “consumer”, “product” and “channel” levels*. B2B business operators have to satisfy the changed consumer demand by reforming product and channel management, with the aid of various support services and technology
3* For detail of innovative B2C business models, view also Fung Business Intelligence’s Report, Jan 2020: “Overview of the innovative B2C business models in China” Source: Fung Business Intelligence
B2C commerce
DATA
B2C innovations
Consumer
Channel
Product
B2B commerceB2B production
B2B services Logistics services Financial servicesEnterprises services
B2B infrastructure (AI, Blockchain, Cloud services, Data)Technology
Sourcing & distribution
Marketing
Branding
Customer relationship
Product design
Manufacturing
Order management
ABCD
Changed
consumer
demand
Changed
consumer
demand
Changes in product management Changes in channel management
Vertical platforms
Digitization and innovation in B2B businesses in China are in progress, with different paces in various supply chains, verticals and support services. Unlike the winner-takes-all B2C market, no single B2B service provider can dominate all market segments. China’s B2B market has huge potential
4* IOT = Internet Of Things; BOM = Bill Of Materials; MRO = Maintenance, Repair and Operations* Selected innovative companies in China’s B2B market* Icon source: Internet Source: Fung Business Intelligence
B2B commerceB2B production
B2B services Logistics services Financial servicesEnterprises services
B2B infrastructure ABCD (AI, Blockchain, Cloud services, Data)Technology
Integrated marketplacesSmart Manufacturing
FMCG Fresh produce CommodityFabric/ Apparel(including BOM, MRO & distribution)(including automation, robots, machine tool,
IOT, manufacturing software, etc.)
Innovation in China’s B2B business
Key drivers of innovation in China’s B2B business:
1. Changes in consumer expectation drive B2B business transformationChinese consumers today are empowered by mobile technology and have different lifestyles and consumption practices from those of their previous generations. To differentiate from the competitors, many B2C operators are exploring various ways to enhance their supply chain capabilities. Some of them engage in upstream B2B business. Some seek assistance from innovative “to B” solution providers.
6*MOQ = minimum order quantitySource: Fung Business Intelligence
Upstream Downstream
Upstream Downstream• Accept small quantity, rapid replenishment orders
• Mass production• Accept large-size orders with certain MOQ* requirement• Long production lead time
Supply driven
Demand driven
• Demand for diversified, customized goods/ services• Demand for short production and delivery lead time
Pas
tN
ow
& F
utu
re
Box 1. Different buying behaviours of B2B and B2C customers
7
SupplierCompany/ Group
Individual/ family
Buying decision:Complex, tendering for high value order
is needed
Product price:Lower unit price (wholesale price)
Product quantity: Higher, meet with
suppliers’ MOQ
B2Bbusiness
Source: Fung Business Intelligence
B2Cbusiness
Buying expectation:Good quality and
services experience, quick response
Buying expectation:Good quality,
specialized services and efficiency
Buyer’s loyalty:Higher, stick to trusted
supplier base
Transaction risk:Higher for bulk order
Product quantity: Lower, as low as
single unit
Buyer’s loyalty:Lower, relatively
price sensitive
$
Transaction risk:Lower for buying
single unit
Product price: Higher unit price
(retail price)
Buying decision:Instant, straight
forward
Key drivers of innovation in China’s B2B business:
2. The government supports B2B business innovation and acceleration of industrial upgrading
8
Pain points facing the traditional B2B business in China:• Aging labour force and increasing production costs• Provision of low value-added services along the global value chain
without owning the core technologies, earning a very thin margin• Homogeneous competition in local market• Severe international competition in the globalized era
Made in China 2025
By The State Council2015
A number of regulations promulgated in the recent years are conducive to the development of B2B business in China
To climb from the bottom of the global value chain, B2B business operators have to explore innovative models and transform from being OEM to become ODM or OBM
Product development
& design
Product processing &
assembly
Productbranding
Technical development
Productdistribution
OEM OBMODM
Most of the B2B business operators in
China
Val
ue
-ad
ded
*OEM = original equipment manufacturers; ODM = original design manufacturers; OBM = original brand manufacturersSource: Fung Business Intelligence
Guiding Opinions of the State Council on Deepening Integration of Manufacturing Industry and Internet
By The State Council2016
Integration and Development Plan of Informatization and Industrialization
By Ministry of Industry and Information Technology 2016
Guiding Opinions of the General Office of the State Council on Vigorously Advancing the Innovation and Application of Supply Chains
By The General Office of The State Council2017
Key drivers of innovation in China’s B2B business:
3. Internet giants in China have become more conservative about investing in B2C startups since 2018. They eye on the next blue ocean market, i.e. B2Bbusiness
9Source: Datagoo, Time data, Tianyancha, Wind, itjuzi, compiled by Fung Business Intelligence
In 2019, 8 internet giants newly invested in over 400 startups in China and overseas
10 8 4 4 4 2 11 3 1 1 1 1 1
21 11 12 14 9 7 5 5 1 1 5 6 1 2
20 9 21 16 5 11 9 8 7 8 2 2 2 3 2
9 4 6 7 3 4 1 1 2 2 1
3 4 8 1 1 4 4 1 3
2 1 1 1 1 1
1 1 1 1
7 26 5 5 13 2 9 1 5 1 1 3 4
Baidu
Alibaba
Tencent
JD.com
Bytedance
Meituan
Didi
Xiaomi
Enterprise services
Information technology
Media & entertainment
FinanceLifestyle services
TransportB2B/ B2C
e-commerceMedical &
healthEducation Gaming Logistics
Propertyservice
Social network
Advertising& marketing
AgricultureNew
industryTravel
*number of investment projects
Big data analytics Cloud computingBlockchainArtificial Intelligence
Key drivers of innovation in China’s B2B business:
4. Technological advance leads to digital transformation
10
D A T A
Source: Fung Business Intelligence
Product development and design
• Virtual Design• 3D scanning• 3D printing
• Internet of Things• Augmented Reality/ Virtual Reality• Robotics• Automation
Manufacturing and Quality Control
• Online marketplace• Supply chain finance platform• Sale/ Inventory management system
Sourcing/ Distribution
• Automation • Robotics• Augment Reality/ Virtual Reality• Internet of Things• Unmanned vehicles• Sharing platform
Logistics
Mobile technologyAnytime (24 hours x 7 days); Anywhere (shop, restaurant, home, office, on the road, etc.)
• Product research • Order placement • Consumer financing• Product reviews
Consumers
D A
T A
D A
T A
Software as a Service (SaaS)
• Human resources management
• Enterprise resources management
• Financial management• Supply chain management
• Logistics management• Customer relationship management • (Remote) Office assistance
• E-contract
Zoom in: B2B Business Innovation in terms of the 4 Flows of Supply Chain
A lot of B2B business innovations aim at solving the pain-points facing supply chains and streamlining the four flows in supply chain
12* A supply chain manages four flows, including process flow, logistics flow, information flow and capital flow.Source: Fung Business Intelligence
B2C commerceB2B commerceB2B production
Process flow
Cash flow
Information flow
Logistics flow
1. B2B innovation in process flow
Map 1: E-commerce giants tried to reform distribution processes in China by becoming one-stop-shop intermediates and replacing existing traditional multi-tier intermediates. Many FMCG distribution e-platforms have emerged, linking brand owners and retail stores in cities and villages. It takes time for the downstream users to become familiar with the new tools and compare the quotes from new intermediates and the grandfather pricing offered by traditional distribution partners
13
Source: iResearch, compiled by Fung Business Intelligence
Brand owners
Retail stores/ mom-and-pop stores
Traditional distribution process
Digitized distribution process
Regional distributor
Local agent
Provincialagent
Markup Markup
One-stop-shop services:
Transparent information sharing, order management, consumer relationship management, retail data analytics, logistics management, etc.
FMCG e-platforms
Marketplace Self-operated
Markup Markup
Lingshoutong• Launched in 2016• Parent company:
Alibaba
Yijiupi• Established in 2014• Obtained Series-D
funding (2018) and Series-E funding (2019) from Tencent & VCs
Ule.com• Launched in 2017• Parent company:
China Post
Xintonglu• Launched in 2015• Parent company:
JD.com
Huitongda• Launched in 2010• Parent company:
Fivestar Holdings• Invested by Alibaba in
2018, after obtaining Series-C funding from VCs
Huimin• Established in 2013• Obtained Series-C
funding in 2019 from VCs
Principal distributor
Markup
1. B2B innovation in process flow
Map 2: China’s apparel sector is highly fragmented and consists of millions of small-size operators. Some innovative fabric/ apparel B2B models have emerged to tackle pain points facing the industry
Icon source: InternetSource: Fung Business Intelligence
Pain points facing the traditional apparel stakeholders in the non-digitized era
• High level of safety stock and slow cash flow return
• No guarantee on product quality & delivery lead-time
• Long production lead-time of fabric
• Mismatch of demand & supply of fabric & accessories
• Small orders & rapid replenishment requested by downstream operators
• High cost incurred in product personalization
• Long lead-time spent on obtaining design and sample approval
• Discrepancy between design and samples
• Non-standardized products with short shelf-life
• Low digitization level of supply chain (esp. small-sized factories)
• Customers always expect for new design • Small orders & rapid replenishment
requested by downstream operators
• Multi-tier small-sized distributors incurred high transaction costs
• Intellectual property issues in fashion design
• Resistance on digital/ automated changes by factory supervisors & workers
• Keen competition as low entry of barrier
Product design ManufacturingRaw material
sourcing Distribution
Baibu• Fabric sourcing platform• Established in Guangzhou in 2013• Obtained Series-D funding in Dec 2019
Fuliaoyi• Accessories sourcing platform• Established in Shanghai in 2016• Obtained Series-A+ funding in Mar
2018
Lianshang• Fabric & accessories sourcing platform
with QC services• Established in Shanghai in 2015• Obtained Series-Pre-C funding in Jul
2017
Yunejian• Designer platform, order
management and distribution • Established in Hangzhou in 2015• Obtained Series-A funding in Sep
2017
Linctex• 3D design platform• Established in Shanghai in 2015• Obtained Series-A+ funding in Dec
2019
ShenShangTech• Design solution backed by AI• Established in Beijing in 2019• Obtained Angel fund in Dec 2019
Ymhc• Distribution platform• Established in
Guangzhou in 2017
Haoyihulian• Distribution platform• Established in Beijing in 2016• Obtained Series-C funding in Apr 2018
PPwang• Distribution platform• Established in Guangzhou in 2015• Obtained Series-B funding in May 2019
YSD• Smart factory solution• Parent company, Cimpress: established
in Paris in 1995 & listed in Nasdaq: CMPR
Kuaiyi• Manufacturers and buyers matching
platform for kidswear• Parent company, Weilan Technology:
established in Hangzhou in 2019• Obtained Angel fund in Feb 2020
Taofactory• Manufacturers and buyers matching
platform• Parent company, Alibaba: established
in Hangzhou in 1999 & listed in NYSE: BABA; HKSE: 9988
Levels of digitization of the various sectors along apparel supply chain are different. For the time being, no single third-party service provider dominates the market and controls the entire supply chain
14
2. B2B innovation in information flow
Map 3: Internet giants offer digitized solutions enhancing supply chain visibility of small- and medium-sized factories. For instance, Alibaba set up 1688.com, aiming at bridging factories and downstream sellers. The B2B platform is empowered by data analytics services with data sourced from its B2C marketplaces, logistics and financial platforms
15
Source: Fung Business Intelligence
Factories E-sellers& web celebrities
Taofactory• Match Taobao sellers and factories,
who are willing to handle small orders, able to offer rapid replenishment with production capacity reserved
• Offer factory inspection services• Pilot run of factory transformation in
2018
Chengxintong• Setup e-store for factories• Offer marketing, customer services
and order management• Establish factory credit system • Provide data analytics services
Manufacturers and buyers matching platform
Changhuotong• Provide digitized distribution
solution for factories, based on the data from various B2C platforms under Alibaba group
• Suggest product and pricing strategies
• New product launch services
DATADATA
DATA
Different functions under 1688.com
2. B2B innovation in information flow
Map 4: Apart from supply chain visibility, many companies seek new solutions to enhance their operational excellence and flexibility. A lot of SaaS startups emerged in China
16* SaaS = Software as a Service. According to Microsoft, SaaS allows users to connect to and use cloud-based apps over the Internet. The service provider manages the hardware and software,
and with the appropriate service agreement, will ensure the availability and the security of the app and data as well. ** CRM = Consumer relationship management, ERP – Enterprise resources planningIcon source: InternetSource: iResearch, compiled by Fung Business Intelligence
Development of SaaS market for enterprises servicesin China (RMB billion)
71%
6
65%
10
29%
13
29%
16
48%
24
40%
34
39%
47
38%
65
2014 2015 2016 2017 2018 2019e 2020e 2021e
CRM SaaS* accounted for around 20% of the entire vertical SaaS market in 2018, followed by customer services and call centre (~15%), ERP (~11%) and enterprise communication (~11%).
CRM (~20%)** Customer services & call centre (~15%)
ERP (~11%)**
Enterprise communication (~11%)
Human resources management (~9%)
Office assistance (~9%)
Accounting/ Tax (~9%)
E-contract (~6%)
Others (~10%)
3. B2B innovation in logistics flow
Map 5: With the aid of data analytics tools, AI, IoT, robotics and other advanced technologies, innovations in various B2B logistics segments have developed
17*AI= Artificial Intelligence; IoT = Internet of ThingsSource: Fung Business Intelligence
Innovation in warehouse operations and management
Robotics & automation Warehouse solutions
Pain points• Low efficiency of manual operations• Capacity and labour shortage during peak period• No real-time information sharing between stakeholders• Error incurred and inefficiency of data double handling
Innovation in transportation
Truck matching platformsUnmanned vehicles (drones, trucks, etc.)
Pain points• Low level of cargo tracking and tracing• Mismatch of consigners/ consignees and truckers• Imbalance in inbound/ outbound traffic flow• High operation costs
AI/ IoT solutions
Logistics information system
4. B2B innovation in cash flow
Map 6: Digitization in China’s financial sector enhanced transparency and efficiency of supply chains and reduced risk and cost of B2B financial operations
18
Source: Fung Business Intelligence
Difficult for SMEs without sufficient collateral to obtain bank loan
High financial risk if any supply chain partners with low financial credibility run out of cash
Complex inter-companies financial processes, especially no data synchronization among different systems
Difficult for banks to control supply chain risk by simply examining the financial statements of loan applicants
Inefficient financial operations, as manual and double handling are common
Pain point 1 Pain point 2 Pain point 3 Pain point 4 Pain point 5
Financial challenges facing the stakeholders in the non-digitized era
Thir
d-p
arty
fin
anci
al
serv
ice
pro
vid
ers
Tech
no
logy
co
mp
anie
s
AI Blockchain Cloud services Big data
Innovative financial companies supporting B2B business
Integrated solutions Loan solutions Payment solutions
Stakeholders worry about data security and information leakage
Pain point 6
What’s next?
Here are the main buzzwords in China’s B2B business in the midst of the Covid-19 outbreak
20
Big data analyticsBlockchain
Cloud computing
5GVirtual design & sampling
Smart factory Brand management
Fintech
Digitization
Resilience supply chain
SaaS
Trade war
Enterprises sourcing
B2B live-streaming
New infrastructure
Sustainability
Automation
Robotic Artificial Intelligence
Innovation
Risk management
Crisis management
Healthy cash flow
Private labels
Merger and acquisition
B2B (export) e-commerce
Supply chain finance
Internet of Things
Lower-tier market
Mass customization
Government sourcing
Operational excellence
Data security
Data API*
*API = Application programming interfaceSource: Fung Business Intelligence
Real-time visibility
Remote work
O2O integration
Business reengineering
Ecosystem
Consumer-driven
Value creation
Prospects of China’s B2B business in the post-Covid-19 era
21*ROI = Return on investmentSource: Fung Business Intelligence
Lockdowns have accelerated technology adoption and digitization of companies. Many companies strive for balance between their business transformation plans and ROI of technological projects
Companies make efforts on increasing supply chain resiliency and visibility. More stakeholders are willing to collaborate with each other and act fast, so as to survive in the volatile business environment, and respond quick to the changes in consumer demand and regulatory shifts
More B2B customers expect not only sustainable and quality products, but also excellent producer services. In return, more B2B companies invest in product design and brand building, with ultimate goals of climbing the value chain and earning higher margin
Internet giants keep on enlarging their B2B ecosystem through acquisition, and eye on certain startups of various verticals
There has been a shift from traditional sales to digital sales by B2B companies. On top of domestic B2B e-commerce, the growth of B2B export e-commerce was remarkable. More resources and favourablepolicy supports in B2B e-commerce and export e-commerce are expected
22
Contact
Winnie LoSenior Research Manager Tel: (852) 2300 2488Email: winnielowl@fung1937.com
Edited by Denise Cheung
Designed by Chung Cheng
Fung Business Intelligence
1/F, LiFung Tower, 888 Cheung Sha Wan Road, Kowloon, Hong Kong
Tel: (852) 2300 2470 Fax: (852) 2635 1598
Email: fbicgroup@fung1937.comhttp://www.fbicgroup.com/
© Copyright 2020 Fung Business Intelligence. All rights reserved.
Though the Fung Business Intelligence endeavours to have information presentedin this document as accurate and updated as possible, it accepts no responsibilityfor any error, omission or misrepresentation. Fung Business Intelligence and/or itsassociates accept no responsibility for any direct, indirect or consequential lossthat may arise from the use of information contained in this document.
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