Learning Objectives
By the end of this chapter, you will be able to:
- Define Business-to-Business (B2B) e-commerce and its characteristics
- Identify and describe the major B2B business models
- Understand the role of supply chain integration in B2B e-commerce
- Differentiate between Net marketplaces and private industrial networks
- Recognize B2B e-commerce opportunities and challenges in Nepal
- Analyze the impact of B2B e-commerce on business operations
What is B2B E-commerce?
Business-to-Business (B2B) e-commerce refers to electronic commerce transactions between businesses. This includes manufacturers selling to wholesalers, wholesalers selling to retailers, and businesses purchasing supplies, materials, and services from other businesses.
Key Characteristics:
- High-value, low-volume transactions (opposite of B2C)
- Long-term relationships and contracts
- Complex procurement processes
- Integration with back-end systems (ERP, inventory, accounting)
- Negotiated pricing rather than fixed prices
- Multiple decision-makers in purchasing process
Scale and Importance:
- B2B e-commerce is significantly larger than B2C globally
- Estimated to be 5-6 times the size of B2C e-commerce by value
- Critical for supply chain efficiency and cost reduction
- Drives digital transformation in enterprises
B2B vs B2C E-commerce
| Aspect | B2B | B2C |
|---|---|---|
| Transaction Value | High (thousands to millions) | Low (tens to hundreds) |
| Transaction Volume | Low per customer | High overall |
| Relationship | Long-term, contractual | Transactional, short-term |
| Decision Process | Complex, multiple stakeholders | Simple, individual |
| Sales Cycle | Long (weeks to months) | Short (minutes to days) |
| Pricing | Negotiated, volume discounts | Fixed, promotional |
| Marketing | Relationship-based, targeted | Mass marketing, brand-focused |
| Payment Terms | Net 30/60/90, credit | Immediate, credit card |
| Customization | High | Low to moderate |
Major B2B Business Models
1. E-distributor
Definition: E-distributors are companies that supply products and services directly to individual businesses through their websites. They are the online equivalent of traditional wholesalers and distributors.
Key Characteristics:
- One-to-many model: One supplier serves many business buyers
- Multi-product catalogs: Wide range of products from multiple manufacturers
- Online ordering systems: Self-service procurement
- Volume pricing: Quantity-based discounts
- Business customer accounts: Credit terms and personalized pricing
Types of E-distributors:
a) MRO (Maintenance, Repair, and Operations) Suppliers
Supply indirect goods (office supplies, equipment, maintenance items).
- Example: Grainger (industrial supplies), Office Depot (office supplies)
b) Specialized Distributors
Focus on specific industries or product categories.
- Example: McMaster-Carr (engineering supplies), CDW (IT products)
Revenue Model:
- Product markup: Profit from buying wholesale and selling at higher prices
- Volume discounts: Negotiated pricing for large orders
- Subscription fees: Premium services for frequent buyers
- Logistics fees: Delivery and handling charges
Value Proposition:
- Wide product selection from multiple manufacturers
- Convenience of one-stop shopping
- Competitive pricing through volume buying
- Fast delivery from local warehouses
- Simplified procurement process
Nepal Examples:
- Aayo: B2B platform connecting manufacturers with retailers (FMCG)
- Wholesalers moving online: Traditional distributors creating digital catalogs
- Import-focused distributors: Businesses importing and distributing industrial supplies
- Office supply distributors: Serving corporate and government clients
Challenges:
- Price competition with direct manufacturers
- Inventory management and working capital
- Last-mile delivery in remote areas
- Credit risk management
- Digital transformation of traditional processes
2. E-procurement
Definition: E-procurement platforms create and sell access to digital markets where businesses can find suppliers, compare prices, and make purchases. They automate the procurement process for buyers.
Key Characteristics:
- Many-to-many model: Multiple buyers and sellers
- Procurement automation: Workflow management
- Supplier management: Vendor qualification and rating
- Purchase requisition systems: Approval workflows
- Integration with ERP systems: Automated data flow
Types of E-procurement:
a) Sell-Side E-procurement
Suppliers create catalogs for buyers to browse and purchase.
b) Buy-Side E-procurement
Large buyers create systems for suppliers to submit bids and quotes.
c) Marketplace E-procurement
Third-party platforms connecting multiple buyers and sellers.
Major Platforms:
- Ariba (SAP): Comprehensive procurement platform
- Coupa: Cloud-based spend management
- Oracle Procurement Cloud: Enterprise procurement solution
- Jaggaer: Supplier management and procurement
Revenue Model:
- Subscription fees: Annual or monthly platform access
- Transaction fees: Percentage of procurement value
- Licensing fees: Software licensing
- Professional services: Implementation and customization
Value Proposition:
- Cost savings: Through competitive bidding and price transparency
- Process efficiency: Automation of manual procurement tasks
- Spend visibility: Centralized procurement data and analytics
- Compliance: Enforced purchasing policies and approval workflows
- Supplier performance: Track and manage supplier relationships
Nepal Context:
- Government e-procurement: PPMO (Public Procurement Monitoring Office) initiatives
- Bolpatra.org: Public procurement portal
- Enterprise adoption: Large corporations implementing e-procurement
- International platforms: Some Nepali businesses using global platforms
- Growing opportunity: As businesses digitize operations
Challenges:
- Integration complexity with existing systems
- Change management: Resistance from traditional procurement teams
- Supplier onboarding: Getting suppliers to adopt digital platforms
- Initial investment: High setup and training costs
- Internet connectivity: Infrastructure challenges in Nepal
3. Exchange (B2B Exchange or E-hub)
Definition: Exchanges are independent digital marketplaces where hundreds of suppliers meet a smaller number of large commercial purchasers. They facilitate spot purchasing and dynamic pricing.
Key Characteristics:
- Many-to-many marketplace: Multiple buyers and sellers
- Independent third-party: Not owned by buyers or sellers
- Dynamic pricing: Market-driven price discovery
- Spot market: Immediate or short-term transactions
- Commodity focus: Often standardized products
Types of Exchanges:
a) Vertical Exchanges
Industry-specific (e.g., chemicals, metals, agriculture).
- Example: ChemConnect (chemicals), FoodTrader (agricultural commodities)
b) Horizontal Exchanges
Cross-industry (e.g., logistics, packaging, energy).
- Example: Covisint (automotive supply chain)
Pricing Models:
1. Catalog Model
Fixed prices set by sellers.
2. Auction Model
- Forward auction: Seller sets starting price, buyers bid up
- Reverse auction: Buyer states need, sellers bid down
- Dutch auction: Price starts high and decreases until someone buys
3. Bid/Ask (Exchange) Model
Buyers post bids, sellers post asks, system matches.
Revenue Model:
- Transaction fees: Percentage or flat fee per transaction
- Membership fees: Access to the exchange
- Listing fees: To post products or requirements
- Value-added services: Analytics, logistics, financing
Value Proposition:
- Price discovery: Market-driven fair pricing
- Efficiency: Reduced search and transaction costs
- Liquidity: Access to many buyers and sellers
- Transparency: Visible market prices and terms
- Flexibility: Spot market for immediate needs
Challenges:
- Critical mass: Need sufficient buyers and sellers
- Trust and quality: Standardization and verification
- Disintermediation risk: Parties may bypass platform after initial contact
- Market volatility: Price fluctuations
- Competition: Many exchanges failed post dot-com bubble
Nepal Context:
- Agricultural exchanges: Potential for farmer-to-business platforms
- Commodity trading: Limited formal exchanges
- Informal B2B markets: Traditional trading still dominant
- Opportunity areas: Handicrafts, agro-products, manufacturing inputs
4. Industry Consortium
Definition: Industry consortia are industry-owned vertical markets that serve specific industries. They are created and owned by major players in an industry to streamline their supply chains.
Key Characteristics:
- Industry-owned: Shared ownership by major companies
- Vertical focus: Specific to one industry
- Collaborative: Competitors cooperate on supply chain
- Standards-based: Common data formats and processes
- Long-term relationships: Focus on supply chain partners
Examples:
a) Automotive Industry
- Covisint: Founded by GM, Ford, DaimlerChrysler (later independent)
- SupplyOn: European automotive supplier network
b) Aerospace Industry
- Exostar: Aerospace and defense supply chain
c) Retail Industry
- 1WorldSync: Product data synchronization for retailers
d) Healthcare
- GHX (Global Healthcare Exchange): Medical supplies procurement
Functions:
- Catalog management: Standardized product information
- Order processing: Automated purchase orders and invoices
- Supply chain visibility: Real-time inventory and shipment tracking
- Collaborative forecasting: Demand planning across the chain
- Quality management: Supplier certification and audits
Revenue Model:
- Membership fees: Annual or tiered subscriptions
- Transaction fees: Per order or value-based
- Service fees: Additional tools and integrations
- Funded by founders: Initial investment by industry leaders
Value Proposition:
- Industry-specific: Tailored to industry processes and standards
- Network effects: All major players on one platform
- Supply chain optimization: Reduced costs and improved efficiency
- Standardization: Common data and process standards
- Collective bargaining: Better terms with suppliers
Nepal Context:
- Limited development: No major industry consortia yet
- Industry associations: FNCCI, CNI could facilitate consortia
- Potential industries: Garments, handicrafts, tourism, construction
- International connections: Nepali suppliers joining global consortia
- Long-term opportunity: As industries mature and consolidate
Challenges:
- Governance: Balancing interests of competing owners
- Antitrust concerns: Regulatory scrutiny of industry collaboration
- Technology investment: High setup and maintenance costs
- Resistance: Suppliers may resist platform requirements
- Scalability: Expanding beyond founding members
Net Marketplaces vs. Private Industrial Networks
B2B e-commerce operates through two main types of networks:
Net Marketplaces (E-marketplaces)
Characteristics:
- Open to all qualified businesses
- Many buyers and many sellers
- Spot purchasing: Short-term, transactional
- Price-focused: Emphasis on competitive pricing
- Less integration: Looser system connections
Examples: Exchanges, e-distributors, e-procurement platforms
Best for:
- MRO supplies and indirect goods
- Commodity products
- Spot market needs
- New supplier discovery
Private Industrial Networks (PIN)
Characteristics:
- Closed network: Invitation-only
- Single large buyer with multiple suppliers (or vice versa)
- Long-term contracts: Strategic relationships
- Deep integration: Connected to ERP and SCM systems
- Collaborative: Joint planning and forecasting
Examples:
- Walmart’s Retail Link: Supplier portal
- Procter & Gamble’s supplier network
- Dell’s supplier network
Best for:
- Direct materials and components
- Strategic suppliers
- Just-in-time manufacturing
- Collaborative product development
Comparison:
| Aspect | Net Marketplace | Private Industrial Network |
|---|---|---|
| Access | Open | Closed, invitation-only |
| Focus | Price, efficiency | Relationship, collaboration |
| Time horizon | Short-term | Long-term |
| Integration | Limited | Deep |
| Goods type | Indirect (MRO) | Direct materials |
| Number of partners | Many | Selected few |
Supply Chain Integration in B2B E-commerce
Electronic Data Interchange (EDI)
Definition: EDI is the computer-to-computer exchange of business documents in a standard electronic format.
Key Documents:
- Purchase Orders (PO)
- Invoices
- Shipping notices
- Inventory updates
- Payment confirmations
Benefits:
- Speed: Instant document transfer
- Accuracy: Eliminates manual data entry errors
- Cost savings: Reduces paper and processing costs
- Tracking: Automated audit trails
- Efficiency: 24/7 operation
Traditional EDI Challenges:
- High setup cost: Expensive VAN (Value-Added Network) fees
- Complexity: Requires technical expertise
- Inflexibility: Rigid standards
- Limited to large companies: SMEs often excluded
Modern Solutions:
- Web-based EDI: Lower cost, easier setup
- API integrations: Real-time data exchange
- Cloud EDI platforms: Subscription-based services
Supply Chain Management (SCM) Integration
Levels of Integration:
1. Basic: Email and Phone
Manual processes, error-prone.
2. Semi-automated: Web Portals
Suppliers access buyer’s portal for orders and updates.
3. Automated: EDI and APIs
System-to-system integration, minimal human intervention.
4. Collaborative: Shared Visibility
Real-time access to inventory, demand forecasts, production schedules.
Technologies:
- ERP integration: SAP, Oracle, Microsoft Dynamics
- Cloud platforms: Scalable, accessible solutions
- IoT sensors: Real-time tracking and monitoring
- Blockchain: Transparent, immutable records
B2B E-commerce in Nepal: Opportunities and Challenges
Current State:
- Early stage: Most B2B transactions still traditional
- Emerging platforms: Aayo, BizInk, and others entering the market
- Government initiatives: E-procurement for public sector
- International trade: Export-oriented businesses using global platforms
- Payment infrastructure: Gradually improving with digital banking
Opportunities:
1. Manufacturing Sector
- Supply chain optimization: Connect manufacturers with component suppliers
- Inventory management: Reduce working capital tied up in stock
- Quality control: Digital documentation and tracking
2. Agriculture and Food
- Farmer-to-business platforms: Direct connections, eliminating middlemen
- Agro-input distribution: Seeds, fertilizers, equipment
- Export facilitation: Connect Nepali products to global buyers
3. Construction Industry
- Materials procurement: Cement, steel, hardware
- Equipment rental: Marketplace for construction equipment
- Project collaboration: Supplier coordination for large projects
4. Retail and Distribution
- FMCG distribution: Modern trade connecting manufacturers to retailers
- Inventory visibility: Reduce stock-outs and overstocking
- Route optimization: Efficient delivery planning
5. Tourism and Hospitality
- Supplier networks: Hotels connecting with suppliers (food, linens, etc.)
- Tour operator B2B: Booking systems between operators and hotels
- Equipment and services: Procurement for hospitality businesses
6. Export Sector
- Global marketplace access: Nepali handicrafts, garments on Alibaba, Amazon Business
- Trade documentation: Digitization of export paperwork
- Payment facilitation: International payment gateways
Challenges:
1. Digital Literacy and Awareness
- Limited understanding: Many businesses unfamiliar with B2B e-commerce benefits
- Resistance to change: Comfort with traditional methods
- Training needs: Skill gaps in using digital platforms
2. Technology Infrastructure
- Internet connectivity: Unreliable in many areas
- Power supply: Frequent outages disrupt operations
- Hardware limitations: Lack of computers and devices in smaller businesses
3. Payment and Financial
- Credit culture: Business transactions often on credit, hard to digitize
- Payment gateways: Limited B2B payment options
- Working capital: Cash flow constraints
4. Logistics and Delivery
- Poor road infrastructure: Difficult last-mile delivery
- Warehousing: Limited modern warehouse facilities
- Tracking systems: Lack of real-time shipment tracking
5. Trust and Legal Framework
- Verification: Difficulty verifying business credentials online
- Contract enforcement: Weak legal mechanisms for online B2B disputes
- Data security: Concerns about business information protection
6. Market Fragmentation
- Small business size: Many micro and small businesses
- Informal sector: Large portion operates outside formal systems
- Regional differences: Varied market conditions across Nepal
Success Factors for B2B E-commerce in Nepal:
- Mobile-first approach: Given smartphone penetration
- Localized solutions: Platforms adapted to Nepali business practices
- Hybrid model: Combine online and offline elements initially
- Payment flexibility: Support for cash, credit, and digital payments
- Trust-building: Verification, reviews, and guarantees
- Training and support: Hand-holding for businesses new to e-commerce
- Government support: Policy frameworks and infrastructure investment
- Industry collaboration: Sector-specific consortia or platforms
Summary
B2B e-commerce, though less visible than B2C, is significantly larger in value and critical for business efficiency. The major B2B models—e-distributors, e-procurement, exchanges, and industry consortia—serve different needs in the business procurement and supply chain landscape. Nepal’s B2B e-commerce is in early stages but offers immense opportunities across manufacturing, agriculture, retail, and export sectors. Success will require addressing challenges related to infrastructure, trust, digital literacy, and developing solutions tailored to the Nepali business environment.
Key Takeaways
- B2B e-commerce involves transactions between businesses, with higher values but lower volumes than B2C
- Four major B2B models: E-distributor, E-procurement, Exchange, and Industry Consortium
- Supply chain integration through EDI and APIs is crucial for B2B efficiency
- Net marketplaces focus on spot purchases, while private industrial networks emphasize long-term relationships
- Nepal’s B2B opportunity is significant but faces infrastructure and adoption challenges
- Mobile-first, localized solutions with trust-building mechanisms are key to success in Nepal
- Government e-procurement is leading digital adoption in the public sector
Discussion Questions
- How does the B2B buying process differ from B2C, and what implications does this have for B2B e-commerce platforms?
- Compare and contrast e-distributors and exchanges. In which scenarios would a business prefer one over the other?
- What role can B2B e-commerce play in improving the efficiency of Nepal’s agricultural supply chain?
- Why have industry consortia been more successful than independent exchanges in many industries?
- What are the main barriers to B2B e-commerce adoption by small and medium enterprises in Nepal?
- How can digital payment solutions like eSewa and Khalti be adapted for B2B transactions?
- What opportunities exist for creating a B2B platform specific to Nepal’s handicraft export industry?
Case Study: Aayo - Nepal’s B2B Platform
Aayo is one of Nepal’s pioneering B2B e-commerce platforms, connecting manufacturers of FMCG (Fast-Moving Consumer Goods) with retailers across the country.
Business Model: E-distributor and marketplace hybrid
Value Proposition:
- For Retailers: Access to verified manufacturers, competitive pricing, convenient ordering
- For Manufacturers: Direct channel to retailers, reduced distribution costs, market insights
Challenges Addressed:
- Multi-tier distribution: Eliminates unnecessary intermediaries
- Inventory management: Helps retailers optimize stock levels
- Payment: Facilitates digital payments and credit management
- Delivery: Coordinates logistics from manufacturers to retailers
Learnings:
- Trust-building is critical: Extensive verification and quality assurance
- Hybrid model works: Combining online ordering with relationship management
- Education needed: Significant effort in training retailers and manufacturers
- Payment flexibility: Supporting both digital and cash payment methods
