Toward the end of 2018 an average of 160,000 packages arrived daily at Arlanda airport – just from China. That was an increase of 65 percent from the previous year. And although the volume decreased drastically for a while when customs and VAT were introduced, there is nothing that indicates market saturation occurring in the foreseeable future.1 This is primarily due to customers importing directly via e-commerce sites such as Wish, Zalando, Amazon and Aliexpress.2 The large volume of packages is evidence of the accelerating e-commerce boom that we are now witnessing. According to Svensk Handel, 5,000 Swedish shops have been forced to close in the past six years as a result of the increase of e-commerce.3 During the same period, the number of registered e-commerce companies in Sweden increased by the same amount.
Retail E-commerce revenue in Sweden is approximately 6.7 billion US dollars today (of a total revenue of 76.7 billion) and grew by 20 percent on average annually between 2004 and 2017.4 This development can be compared to total retail, which grew by an average of four percent during the same period. According to Svensk Handel’s scenarios for both domestic and international e-commerce, Internet sales are expected to increase from today’s nine percent to between 22 and 23 percent of the total market by 2025. Globally, customers purchased items over the Internet for over 2 trillion US dollars in 2017 (an increase of over 70 percent compared to 2014) and sales are expected to be closer to 4.5 trillion dollars in 2021.5 If E-commerce continues to develop at the pace experienced thus far, it will double within the coming three years.
Although B2C e-commerce get the most attention in the media, B2B e-commerce is actually responsible for the largest revenue. Internet B2B trade resulted in three times the revenue of private e-commerce globally in 2017: 6.8 compared to 2 trillion dollars.6 According to the analysis company Forrester B2B trade has even greater potential to go online, and can very well absorb 30 to 40 percent of all transactions between companies by 2030.7 The most prominent types of e-commerce goods today are petroleum products and medication, and these are expected to continue to dominate in the near future. But many other segments are growing rapidly, primarily in the automotive industry, accessories and replacement parts, electronics and machinery.
There are multiple drivers behind the e-commerce boom. One of the most important is the opportunities for cost savings and increased revenues that global market offers. According to Forrester, B2B companies can reduce their sales costs considerably – by up to 90 percent – by shifting to e-commerce where customers place orders independently.8 Other drivers include: increased accessibility, simplified ordering, improved customer experience, and customers’ increasing Internet maturity. The development is also accelerating due to the two largest e-commerce giants – America’s Amazon and China’s Alibaba – aggressively expanding their businesses.
These two actors are worth a closer look, because they are dramatically changing the rules of the game for global trade. Until now they have avoided competing with each other by dominating different parts of the world. While Amazon dominates North America and Europe, Alibaba controls China and Southeast Asia. But both companies are currently making major investments in new markets such as India and Australia, and rest assured that they will not stop there.
The giants’ business models differ somewhat. Alibaba, which is one of the world’s ten largest and most valuable companies – with customers in over 200 countries – performs no direct sales and owns no inventory. Their primary goal has been to help smaller companies to reach customers from large parts of the world, through their platform that connects buyers and sellers. In the beginning their platform was for B2B but now it includes both B2C and C2C. Their platforms are so extensive that they can be considered digital ecosystems that function almost seamlessly between e-commerce, mobile payments, logistics, search engines and social media. According to China expert Tom Xiong, a corollary to Alibaba in the west would be a company that combined, for example, Ebay, Amazon, Facebook, Paypal, Visa and DHL in one place.9 The primary revenues come from commissions. Suppliers are responsible for their own marketing and are rewarded by how many users they attract to the site.
E-commerce isn’t the cherry on the cake, it’s the new cake. | Jean-Paul Ago, CEO, Lóreal
Via Alibaba’s platform companies from all around the world can come in contact with Chinese factories, without having to travel there, find a scout, and create a relationship with a manufacturer before doing business. This opens up a world of international suppliers to people who normally wouldn’t have access to them. Conversely, large opportunities are created for companies that want to enter the Chinese market. On the B2C site Tmall.com – also owned by Alibaba – this opportunity is available to foreign suppliers. Even H&M sell much of their clothing there today.10
While Alibaba is a pure platform player and does not keep an inventory, Amazon makes its top-modern logistics chain accessible to smaller companies. What once began as a bookstore for B2C is one of today’s largest net shops, comprised of a universe of different products and services where three things are in focus: low prices, a large selection, and fast delivery. This “digital warehouse” represents half of all e-commerce in the United States today, with sales to an additional 180 countries. And with an increase in revenue of roughly 31 percent in 2017 the company’s revenues are now larger than the national budget of many small nations.11 Amazon’s platform has become so dominant that their search engine has surpassed Google for Internet searches for products. Forty-nine percent of American customers start their search on Amazon, compared to 36 percent with usual search engines.12
Like Alibaba, Amazon also offers a marketplace for B2B. At Amazon Business, manufacturers, distributors and even professional service provides can sell their products and services quickly and reach millions of customers. Amazon’s ability to offer customers free delivery within two days is highly valued. For small- and medium-sized companies this can create large opportunities, when Amazon is entering new markets. Notably, Amazon charges no start-up fees, monthly fees or advertising fees, but suppliers pay a commission for the products and services sold as well as the cost of warehouse handling and packaging. Margins will be pressed. In Australia, prices sank by 16 percent when Amazon established itself on the market, but it is possible to make a profit as a sub-supplier. One example is the successful startup The Friendly Swede, which sells all of its products via Amazon’s platform.
There are two alternatives for companies that want to and should invest in e-commerce: either build their own e-commerce platform or sell via one of the large e-commerce actors. Compete or collaborate. This is a question that every company must have an answer to. It will be particularly important for companies that offer generic and standardized products and services that are easy to package. Regardless of the choice, this future will become a greater reality for many companies. Even in B2B.
1 Suni, A. (2017). Paket från Kina väller in – Postnord alltmer pressat. Svenska Dagbladet. Available: https://www.svd.se/paket-fran-kina-valler-in--staller-till-det-for-postnord
2 Postnord. (2018). e-barometern.
3 Svensk handel. (2018). Det stora detaljhandelsskiftet.
4 Postnord. (2018). e-barometern.
5 Statista. (2018). Retail e-commerce sales worldwide from 2014 to 2021 (in billion U.S. dollars). Downloaded from https://www.statista.com/statistics/379046/worldwide-retail-e-commerce-sales/
6 Orendorff, A. (2017, 17 July). B2B in Ecommerce: How the Best Succeed in a $7.6 Trillion Online Industry [blog post]. Downloaded 2018-10-22 from: https://www.shopify.com/enterprise/b2b-ecommerce
7 Sullivan, L. (2017, 6 June). B2B Ecommerce To Hit $1 Trillion By 2019 In U.S. [blog post] Downloaded from https://www.mediapost.com/publications/article/302404/b2b-ecommerce-to-hit-1-trillion-by-2019-in-us.html
8 Kaplan, M. (2015, 9 April). B2B Ecommerce Growing; Becoming More Like B2C. [blog post]. Downloaded 2018-10-22 from: https://www.practicalecommerce.com/B2B-Ecommerce-Growing-Becoming-More-Like-B2C
9 Skarin, U. (2018, June). Experten på medkänsla: Därför lönar det sig att bli snällare. Veckans affärer. Available: https://www.va.se/nyheter/2018/05/11/experten-pa-medkansla-darfor-lonar-det-sig-att-bli-snallare/
10 Norman, D. (2017, 15 December). H&M utökar samarbetet med Alibaba – ytterligare varumärken hos Tmall [blog post]. Downloaded from: https://www.market.se/nyhet/hm-utokar-samarbetet-med-alibaba-ytterligare-varumarken-hos-tmall
12 Murga, G. (2017, 20 December). Amazon Takes 49 Percent of Consumers’ First Product Search, But Search Engines Rebound. [blog post]. Hämtat from https://blog.survata.com/amazon-takes-49-percent-of-consumers-first-product-search-but-search-engines-rebound