by chiefstaff

July 18, 2014

Now that all the factories have moved to China (or some such places as Vietnam, Bangladesh, Taiwan), and all the customers have moved to the PC (or some such places as mobile phones or tablets) what will happen to all the middlemen?

The retailers, the wholesalers, the shopping centres, the warehouse parks, the dealers, the brands, the long established cosy relationships, the long martini lunches, the twice weekly afternoon golf games and the executive chefs in the board rooms?

Many people are asking this question in many different ways. While the scenario above has not fully transpired yet, and, may indeed never transpire in such a stark detail, many companies are starting to ask “what if that happens”.

Consider, for instance, all the happenings at Alibaba. The Chinese e-commerce giant went public in the US with an IPO that stirred the world at large and the online retailing world in particular. If you are wondering about the reason, then look at the numbers below. As per Wall Street Journal

In 2013, the combined transaction volume of Taobao and another Alibaba-run shopping site called Tmall reached $240 billion, says a person with knowledge of the figure.

The total is more than double the size of Amazon.com Inc, triple the size of eBay and one-third larger than the value of all the transactions last year at the two U.S.-based e-commerce giants combined.

People stood up to take notice only when there were widely reported news reports that just in one day (the Chinese version of Black Friday), Alibaba achieved nearly $5.75 billion in sales (on just one of its website), which was three times more sales than the entire country of USA achieved on Black Friday.

Reportedly, almost the entire valuation of Yahoo is based on the value of the shares it holds in Alibaba.com.

More such amazing facts are available from this report on Business Insider. As per The Economist, analysts predict that the Alibaba IPO will value the company somewhere between $55 billion and more than $120 billion.

That would make it the most valuable 5-STAR Business Network on earth – with transactions reportedly surpassing $1 Trillion a year soon.

Lately, Alibaba has partnered with US company ShopRunner to bring American goods to China. It has also been active in “shopping” for lucrative relationships with retailers, buying shares instead of acquiring the whole business.

This is obviously only the beginning of its full potential – although B2B exchanges have been in the offing for nearly 15 years now. Many are warning that as B2B exchanges mature into adulthood, they could easily start to restructure the whole global supply chains. No wonder the entire media world is going gaga over Alibaba’s prospects.

Even those who recognise the hype cannot help but wonder if the sad state of retail is somehow connected to the seemingly unstoppable Alibaba force and the trend it heralds. For example, one highly respected fellow blogger (Steven Dennis) recently stated in his blog,

As a former Sears senior executive I’ve followed the once mighty brand’s journey from mediocrity to bad to just plain sad. What a long strange trip it’s been.

When I left in late 2003 we were gaining traction in our core full-line department store business and piloting several important growth initiatives. To be fair, whether we could pull off the necessary transformation was highly questionable. But one thing is now certain. The subsequent actions taken under a decade of Eddie Lampert’s leadership have assured the retailer’s demise.

So, what will happen to the retailers, the shopping malls, the brands and the dealers? Will Alibaba, and its Chinese direct suppliers kill all these? Not so fast! While e-commerce is changing the face of corporate America, there are many reasons Alibaba will not be as successful as projected by the alarmists.

Firstly, there is another company to think about – a home-grown version of it. A yet unknown part of Amazon is AmazonSupply.

Predictive shipping and unmanned drones are made more prominent in the news agenda.

Meanwhile, Amazon’s “unsexy” B2B business, a “$8 trillion bet”, has been growing silently in the background, perhaps making it eight times bigger than Alibaba and the biggest 5-STAR Business Network on earth.

will-alibaba-amazonAmazonSupply, a wholesale and distribution hub, started in 2005 and has grown to carry 2.2 million products, ranging from office equipment to industrial components, materials and more.

After nearly 15 years of languishing on the wayside, the B2B exchanges are finally coming true, slowly. Already, wholesalers are whispering about the threats from AmazonSupply; although many specialty wholesalers and distributors are somewhat confident that their turf is safe from the giant’s claws due to their highly segmented market.

Nonetheless, nobody knows what will happen in future.

AmazonSupply, Alibaba, or B2B exchanges, could become so powerful that they will suck small players into their enormous vacuum of suppliers. The process can even accelerate if trust keeping mechanisms are built into B2B exchanges. Seller and buyer ratings, as well as seller/buyer protection seen on sites such as eBay and PayPal are not enough to cover the sheer size of B2B transactions.

Even the current rating system on Alibaba will not suffice, should this attractive market grow in the years to come.

The current trust keeping mechanism in international trade is Letter of Credits, which has been around for hundreds of years.

It is defined by Investopedia as: “A letter from a bank guaranteeing that a buyer’s payment to a seller will be received on time and for the correct amount. In the event that the buyer is unable to make payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase.”

To keep up with the pace of change, new supply chain finance mechanisms must evolve, something that can deal with the increasingly globalised supply chains. Only with sustained focus on supply chain finance, can B2B exchanges morph into true 5-STAR Business Networks.

While traditional sources of supply chain finance have a vested interest in keeping the status quo, new supply chain finance mechanisms have been slow to emerge and remain an opportunity for the likes of Amazon, PayPal and Alibaba. If they crack that nut, the rest is open slather.

Once these mechanisms break through, the face of global supply chains and global commerce will change for good.


Copyright - These concepts, frameworks and ideas are copyright of GLOBAL SUPPLY CHAIN GROUP from the time of their creation. Do NOT copy these without permission and proper attribution.

Notes:

  1. These ideas and concepts will be usually expressed by our thought leaders in multiple forums - conferences, speeches, books, reports, workshops, videos and training. The date shown above the article refers to the day when this website was last reformatted. This blog post or article may have been written anytime prior to that date. 
  2. All anecdotes are based on true stories to highlight the key points of the article - some details are changed to protect identification of the parties involved. 
  3. You are encouraged to comment below - your real identity and email will not be revealed when your comment is displayed.  Insightful comments will be  featured, and will win a copy of one of our books. Please keep the comments relevant, decorous and respectful of everyone. All comments represent opinions of the commentators.

chiefstaff

MORE INTERESTING READING
  • Will Indian ever win over the china? China has a big monopoly for Wholesale or for all suppliers, it provides all materials in less than market rate over the international market. I support China strategies to win the International market but for the Indian market, where we are?

  • Alibaba today is not just an online commerce company that has the potential to engulf the whole of America. It is what you get if you take all functions associated with retail and coordinate them online into a sprawling, data-driven network of sellers, marketers, service providers, logistics companies, and manufacturers. In other words, Alibaba does what Amazon, eBay, PayPal, Google, FedEx, wholesalers, and a good portion of manufacturers do in the United States, with a healthy helping of financial services for garnish.

  • Good article Vivek. Not only enjoying the ride over America’s corporate sector in the past, but Alibaba is also heading to gain much more. Recently, Alibaba Group founder Jack Ma has offered the company’s e-commerce platform to help US businesses sell products to Asia, with the potential of creating up to 1 million American jobs. In the process, Alibaba is setting a positive tone for Sino-US relations.

  • Such an interesting article Vivek. China is no doubt an emerging economy. The Chinese market is growing rapidly across the globe. As Alibaba prepares for what could be the biggest tech company IPO to date, the Chinese e-commerce giant has been counseling employees on how to deal with the roughly $41 billion they could unlock through a New York listing.

  • I would like to share my thoughts related to this topic in the recent context. Alibaba is entering to the US very smartly. Alibaba will create 1 million U.S. jobs by enabling 1 million American small businesses and farmers to sell American goods to China and Asian consumers on the Alibaba platform. The main focus is on small businesses, supporting 1 million small businesses, especially in the Midwest of America.

  • {"email":"Email address invalid","url":"Website address invalid","required":"Required field missing"}

    FOR SENIOR EXECUTIVES AND DIRECTORS

    YOUR HIGHEST VALUE ADDED IN YOUR COMPANY

    __CONFIG_colors_palette__{"active_palette":0,"config":{"colors":{"05369":{"name":"Main Accent","parent":-1}},"gradients":[]},"palettes":[{"name":"Default Palette","value":{"colors":{"05369":{"val":"rgb(239, 126, 7)","hsl":{"h":30,"s":0.94,"l":0.48}}},"gradients":[]},"original":{"colors":{"05369":{"val":"rgb(19, 114, 211)","hsl":{"h":210,"s":0.83,"l":0.45}}},"gradients":[]}}]}__CONFIG_colors_palette__
    TAKE A LOOK
    >