Business evolution

B2B marketplace changes landscape for global trade

By Kim Jae-kyoung

Hwang Sun-bong, president of Bluedra, a local trade company based in Gangnam, southern Seoul, succeeded in exporting agricultural machinery worth $24,000 to Afghanistan in 2009 when the central Asian country was in the middle of a war.

With a total of five employees and annual exports of $1.5 million, the small firm specializing in agricultural machinery and light construction equipment has since expanded its exports to the war-torn country and is now shipping goods there worth $50,000 every year. What is the secret behind the small firm’s success?

Hwang’s answer was simple but clear, “B2B (business to business) e-commerce,” under which firms sell and buy products and services through international online marketplaces, such as Alibaba.com and Tradekey.com.

Bluedra has been doing business with Islamic countries over the past two decades through a Japanese agent based in Dubai. However, what brought the successful deal to the company was not its agent but an e-commerce website. Hwang said that its partner in Afghanistan saw the products at an online trade site and placed an order.

“It would have been impossible to receive such orders without the Internet site. Even if we had received orders, we would have had to visit the country,” Hwang told Business Focus in a phone interview.

“In this case, it would have been much more difficult in the traditional way, with the buyer not able to get out of the country. But we met online at e-trade sites. E-trade is a must-visit playground for local SMEs. It not only has low entry barriers but also plays an important role in finding legitimate buyers during difficult times.”

Many small businesses have found considerable success through B2B e-commerce, and Bluedra is the epitome of many successful Internet trade cases, illustrating the convenience and availability of the cyber marketplace. E-commerce allows businesses to electronically exchange goods and services with no barriers of time or distance

Savior for SMEs

Online trade has been emerging as a new export channel as the cyber marketplace has paved the way for a growing number of local SMEs to find new buyers and suppliers overseas.

Nowadays there are two big trends supporting international online trade. One is the usage of the Internet and online platforms are becoming more and more popular. Another is that firms around the world, particularly smaller ones, are facing more difficulties in running their businesses.

With limited budgets and human resources, SMEs often cannot afford the money or time to use traditional business channels such as trade shows, magazines and sales offices, which make it difficult for them to participate in global trade.

However, online marketplaces have changed all that by offering SMEs one-stop shops for establishing their presence on the Internet, identifying potential trading partners and learning more about global trade.

“SMEs are looking for ways to minimize cost, to be effective in doing everyday tasks, so online solutions give them the best platform. That’s why we see buyers trying to cut cost in going to trade shows,” said Timothy Leung, channel sales director for global sales at Alibaba.com in a recent interview held at the Seoul Finance Center.

“Suppliers save on the cost of going to international exhibitions. They are trying to migrate to the online world. With the rise of online trade, small companies that have never thought of exporting are finding opportunities to export because they don’t need to bear the initial cost of doing it offline,” he added.

The number of users registered at Alibaba.com, the world’s largest B2B platform, reached 68.9 million in June, up 45 percent from the end of 2009. B2B online trade here also jumped by 23.5 percent in the first quarter from a year ago, according to Statistics Korea.

More and more local SMEs are seeking to capitalize on the benefits of Internet trade because in the cyber marketplace the quality of products matters most, not the size of the company.

AOG System, a small manufacturer of floor-warming mats based on the traditional Korean heating system, “ondol,” is a good example of success in exporting its products abroad via B2B marketplaces. The firm has sent its goods to Russia, Denmark, Sweden and Norway.

It recently signed a deal with a Russian company to export products worth $2 million for the next five years. The company is expected to agree another deal with a Norwegian buyer, scheduled to visit AOG on Sept. 1.

“For SMEs, finding a buyer is the biggest challenge. Many small firms fail to ship their products abroad even after they develop globally-competitive products because they cannot afford to get access to buyers,” AOG System CEO Lee Hee-gon said.

“E-trade enables SMEs to go global and find opportunities to show their products to potential buyers at minimum costs. Our deals with overseas companies were not thanks strictly due to B2B websites, but I can say that they played a key role.”

Korea’s potential in e-commerce

In today’s rapidly changing economic climate, e-commerce is expected to win bigger popularity in Korea. Given its high usage of the Internet and existence of many competitive SMEs, there is much room to grow. Alibaba.com is seeing this opportunity and is now seeking to expand its presence here.

“The quality of Korean (SMEs’) products is good and the price is also competitive but we see that exports are not strong. There is a need for local SMEs to learn how to export. There is a need from the world to buy Korean products, good quality products at good prices,” Leung said. Currently, there are around three million SMEs in Korea but less than 2.6 percent are shipping their products abroad.

“We are working to help local SMEs. That is still the core strategy. Our vision is to be the first, top-of-the-line brand among the global e-trade marketplaces for Korean small businesses.”

No magical solution

It is certain that Internet trade has opened new opportunities for SMEs but signing up on websites does not automatically guarantee success.

“Doing business online is no different from doing business offline. You need to put effort into it. Some SMEs have the wrong impression. Some believe that they put something online, sit there and wait and it is supposed to work. E-commerce is not like that,” Leung said.

“Even when you open a shop offline, you need to change your products and have staff to serve and answer customer questions. Some of our customers have inquiries but there is no one there to answer them. Those are wasted opportunities,” he added.

Hwang of Bluedra said that using online trade sites is important to find new buyers but it does not mean that you will easily win an order from them.

“B2B marketplaces are there to link SMEs to potential buyers abroad. They help them expose their products to overseas companies and receive inquiries. However, if you don’t make continuous efforts to respond to their inquiries and serve them, deals won’t be made,” he said.