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December 18, 2009

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Online companies going offline in bid for growth

By Ding Yining | December 18, 2009, Friday | Print Edition

BUSINESS-TO-BUSINESS (B2B) online trading in China is gathering pace, but in a country where commerce is rooted in face-to-face relationships, Websites are going offline to promote their services in more traditional ways.

US-based MFG.com, which targets buyers and sellers in the manufacturing realm, held a trade fair in Shanghai last month to give Website users some of the personal contact that develops into business trust. Alibaba.com, China's highest-profile e-commerce company, will hold its third Net Goods Trade Fair this weekend in Sichuan Province, after a successful offline fair in Hangzhou in September.

"Offline trade fair events provide additional services for buyers and help more suppliers to meet potential business contacts," said Wang Fang, an analyst with iResearch, a Shanghai-based Internet consultancy.

China's B2B market was valued at 171 million yuan (US$25 million) at the end of the third quarter, and its momentum is expected to continue.

"More and more small and medium-sized companies will continue to gravitate toward in e-commerce as they realize the importance and high efficiency of online business," iResearch wrote in a separate report.

Offline fairs attract people like Su Junhong, a salesman from a stainless steel casting factory for valves and machinery spare parts about 150 kilometers from Shanghai.

He said his company, Cixi Jubaopeng Metal Production Factory, registered on the MFG Website about six months ago and has received one order from a Chinese buyer. He didn't specify how big the order is. The company is intrigued by the prospects.

"This kind of offline meeting can raise our efficiency and help us target offers more specifically to buyers' needs," he said. "We can make actual quotations to buyers on the platform."

MFG is targeted at buyers looking for customized accessory parts. Members registered on the site can post the specifications of products they are seeking and request quotes on their orders.

The company, based in Atlanta, Georgia, reported transaction volume of US$22 billion since it was founded in 2000, with about US$4.4 billion of that related to Chinese suppliers at the end of June.

Suppliers can choose which regions they wish to target. They pay annual fees that vary from US$5,000 to more than US$15,000, depending on regions.

The company said it's hoping to raise the number of suppliers using its site. It currently has about one-fourth of a global supplier base estimated at 5,000. More than 200,000 buyers have posted requests for products.

"The offline trading fair provides face-to-face communication between buyers and suppliers, giving participants information they can use in online trading," said Stephen Cook, chief operating officer for MFG and a former supply-chain manager for Dell Inc.

China's Alibaba.com vowed to be the largest online wholesale B2B marketplace in the world when it was established 10 years ago.

The Hangzhou-based company, which allows small manufacturers to post their products online, has been attempting to expand its reach to other Asian markets and to Europe.

It reported a 20 percent drop in third-quarter profit to 236 million yuan, its worst performance in three quarters, after lowering fees for Chinese members in an attempt to capitalize on the nation's early recovery from the global downturn.

The number of its China Gold Supplier members stood at about 85,000 at the end of September. Subscription fees range between 20,000 to more than 100,000 yuan a year.

The company said its second Net Goods Trade Fair in early September in Hangzhou resulted in signed contracts valued at 198 million yuan.

At the fair, more than 1,000 Alibaba registered members mingled with about 50,000 wholesalers from Taobao.com. China's leading online retail shopping portal. Taobao is the business-to-consumer (B2C) arm of Alibaba, part of an effort to tap growing retail spending online. Taobao is popular with consumers because they can buy products stripped of traditional marketing costs.

Figures supplied by iResearch show that revenue from online shopping reached 128.18 billion yuan in 2008, more than double a year earlier. That includes 99.96 billion yuan of trade through Taobao.

Multinational companies have generally been more cautious about online commerce in China.

France's Schneider Electric uses MFG's sourcing platform for all its online procurement in Europe and other Western countries. But in China the company is more circumspect.

"We have a very strict quality-control process about sourcing, and most of our suppliers have been doing business with us for a long time," an official at the sourcing department of Schneider's Shanghai office said.

The company sent eight officials to the Shanghai offline fair but only made tentative contacts with suppliers. "We are seeking to establish stable business relationships because we have to ensure that we are getting high-quality service," said the official, who declined to be identified.

The future of online commerce in China may depend on how effectively B2B Website operators are in marketing their services to small businesses, which are the backbone of China's economy.

"Our paying members in China rose up to fivefold every year since we entered the market in 2006, and we hope to see that continue in the next few years," said James Jin, general manager for MFG Asia Pacific. "We expect more Chinese suppliers in the manufacturing sector to seize the opportunity to tap the international market."

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