Online Manufacturing and Industrial Marketplaces - Where are the future growth opportunities?
Let’s start off by talking about direct-to-consumer (D2C) brands. D2C refers to the process where manufacturing brands sell their products directly to consumers without an intermediary or middle person such as a third party reseller, distributor or wholesaler.
An eMarketer 2019 report pegs the number of D2C brands at more than 400, while online trends suggest web traffic has roughly doubled in the past two years. The categories disrupted are largely retail or lifestyle related such as apparel, beauty and home furnishings, as well as massive consumer packaged goods category as food and beverage and personal care challenger brands emerge. It is clear that a growing number of consumers want to connect with manufacturing brands.
Online marketplaces is not a new concept in the manufacturing and industrial sectors
It is fairly understandable why manufacturing brands targeting the retail sector would adopt a D2C strategy. Does this phenomenon also exist in the more traditional manufacturing and industrial sectors?
Yes is the short answer. Since the early 2000s, the success stories of global renowned B2B marketplaces like Alibaba.com, DHGate, EC21, Global Sources and ThomasNet have dominated the manufacturing and industrial sectors. Many cover a wide variety of product and service categories and are operating at a global level by servicing many countries in cross-border ordering and trading.
There is however an increasing number of niche players or startups launching manufacturing and industrial marketplaces to address procurement and buying needs of targeted market verticals by providing B2B buyers direct access to manufacturers and suppliers.
New vertical entrants are disrupting and gaining market share in their respective domains.
Most of these recently established vertical B2B manufacturing and industrial marketplaces are focused in addressing buying needs in specific verticals and at times even operate within a certain geographic reach in their initial expansion and business development. These sectors include machinery and equipment, construction, materials and tools, steel, metal and more.
Here are some highlighted examples, most have secured successful funding recently.
- Zetwerk, an Indian-based on-demand custom-made manufacturing marketplace, manages to fill the void of connecting local SMEs to international clients and helping B2B buyers to procure industrial parts that have to be custom-made.
- Udaan, a three-year-old B2B e-commerce platform in India, has raised more than half a billion dollars in a new financing round as it looks to bring more kirana stores (neighborhood stores), chemists and other small businesses online through its marketplace. It seeks to connect small retailers with wholesalers and traders and supports a wide-range of categories from lifestyle, electronics, home and kitchen, staples and toys, to fruits and vegetables.
- EIG88.com, a Singapore-based B2B marketplace, facilitates the movement of excess industrial supply from tires to textiles between companies was launched in January 2016.
- Klarx, founded in 2015, is the leading online rental service for construction site equipment in Germany. It vertically integrates more than 4,000 rental partners, digitising the entire value chain of equipment rental, so construction companies can access, rent and manage more than 250,000 types of machinery online with just a few clicks.
- Xometry is a US-based marketplace for on-demand manufacturing, launched in 2014. It has a global network of more than 4,000 manufacturers with an intention to expand internationally to 12 new countries with its recent Series D funding. It has more than doubled its B2B buyers to about 10,000 customers using its portal to buy services such as 3D printing, sheet metal fabrication and other forms of custom manufacturing.
- Honeywell Aerospace GoDirect Trade, launched 18 months ago, has created a B2B marketplace to get aerospace parts buyers and sellers to connect over digital commerce. In 2019, GMV traded on the marketplace grew to about $6 million and forecasted to grow to $20 million or more for 2020.
A strong and common attribute among these marketplaces are that they are all laser-focused on the sectors served and allow businesses to market their products to meet buyers’ highly specific needs. After prospect connections are made, sellers can further collaborate, share information and delineate their expertise throughout the sourcing process. These marketplaces naturally attract buyers to the relevant machining and manufacturing services provided by sellers.
However, we are still witnessing B2B marketplaces offering wide product categories similar to Amazon Business or Global Sources or those which function more closely to a catalogue listing geared towards sourcing after which offline connections and transactions are made. This is especially common in emerging countries or South East Asia. VietAZ.com, Eezee and MondeB2B are such examples.
- VietAZ.com serves as a basic B2B manufacturer directory for Vietnam suppliers and manufacturers to connect with buyers looking for a variety of products and traders from the country. It covers various categories including apparel, handicrafts, lacquer, seafood, paper, construction materials, equipment, hardware, telecommunications and more.
- Eezee was founded in 2017 as Singapore’s first B2B platform that connects buyers and sellers of business supplies and industrial hardware over different product categories. It boasts of over 5,000 business accounts, 600 distributors, suppliers, wholesalers on the platform with over 70,000 SKUs in late 2019, and seeks to build the first accredited database of suppliers in Southeast Asia to improve trade and procurement transparency in the region.
- MondeB2B is an APEC supported online trading platform that mainly facilitates business between importers-exporters from Latin America countries under the Pacific Alliance including Chile, Colombia, Mexico and Peru alongside Brunei, Indonesia, Malaysia and the Philippines from the East ASEAN Growth Area (BIMP-EAGA) – into its commercial ecosystem. To improve the quality of its ecosystem and users, MondeB2B validates all participating businesses on its platform first, with the help of local regulators, before allowing them to interact with other participants.
So what are the trends and impact to expect of these manufacturing and industrial marketplaces?
As B2B manufacturing and industrial marketplaces grow and mature, they should consider the importance of vetted quality and reliability for their business to be sustainable and successful. Some form of vendor validation and monitoring such as performing quality checks on their collaborating suppliers and partners to ensure that consumers only receive products and services that align with what was marketed and promised.
Recruiting and onboarding more quality suppliers is important, but these marketplaces also need to provide plentiful opportunities for partners to establish relationships and easily collaborate in co-creation and joint innovation projects. Lastly, the marketplaces should aim to provide users with simple and effortless acquiring processes, an effortless and seamless user experience while engaging with the online platforms.
Today, it is apparent that manufacturing and industrial B2B marketplaces are moving behind the development curve of online B2C retail and FMCG-related marketplaces in terms of integrated offering. Projecting ahead, we anticipate marketplace ecosystems to grow in prominence in the manufacturing and industrial sectors incorporating complementary marketplace value chain services such as digital marketing, supplier/buyer financing, insurance, integrated logistics and service warranty support.
Why marketplace ecosystems? That’s because effective marketplace ecosystems act as gateways that reduce the friction customers encounter when they have to switch between related services. They also leverage network effects to give companies a strategic scale advantage and integrate data that helps companies create value-added products and services, therefore creating superior experiences. Today, it is rare to see such an effective marketplace ecosystem in the manufacturing and industrial sectors given their stage of user experience development.
Marketplace ecosystems bring several benefits to both sellers and buyers. It lowers customer acquisition costs by reducing marketing costs on the platform to transaction fees and consolidating the myriad items that each seller hawks into one search experience, and customers can buy a variety of complementary products/services on a single platform. Collected transactional and user behavioural data provides marketplace operators and users in-depth insights of the buying behaviour along the entire value chain, which is highly valuable.
Successful marketplace ecosystems drive customer retention and build customer relationships. They do this while allowing ecosystem partners to compete generally, but collaborate closely on specific customer demands to maintain competitive advantage as a collective ecosystem vs. individually as they partner to address any arising customer needs throughout the buying and even post-buying customer journey.
Ultimately, the success of any marketplace is driven by the traction one could secure from both sellers and buyers, so why would it be different for the manufacturing and industrial marketplaces? Critical requirements of B2B marketplaces will likely evolve over time as the behaviour and preferences of users are revealed with more use cases.