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JD.com Eyes B2B Market to sustain growth

Oct 25, 2018 by Rebecca Zhang
JD.com Eyes B2B Market  to sustain growth

China’s second largest e-commerce company JD.com quietly ramped up its “business to business” (B2B) business, in an attempt to sustain its revenue growth as the consumption downgrade is threatening China’s retail market.

JD has moved “Industry Mall” entrance for B2B purchasers from a subdirectory to the main catalogue on its homepage since October 9, indicating JD’s ambition to upgrade its B2B business.

The company planned to take further actions by end of October, such as positioning the entrance for industrial clients to a more eye-catching place on its homepage, reported Cailian Press, a Shanghai-based financial news website.

Currently, the B2B channel of JD sells products ranging from bulldozers, pumps, chemicals, to machine tools, electric welder and power cables.

Without announcing a new strategy or adjusting its business lines publicly, the low-profile promotion of JD’s 2B business almost didn’t receive any attention. However, this is not the first tryout of JD in 2B business.

In May, JD led RMB 200 million (USD 29 million) investment round in VIPMRO.com, a Suzhou-based B2B e- commerce operator that provides maintenance, repair and operations (MRO) purchasing services. Yan Zhang, founder of VIPMRO.com told media they would cooperate with JD on the 2B products entrance and use JD’s advanced logistic chain.

In April 2017, JD made its in-house logistics arm, originally built to serve the delivery needs of JD, an independent business unit under the group. JD Logistics now provides supply chain solutions including warehousing and delivering services to corporate clients and turned to be profitable. According to JD’s financial report in the first half of 2018, the revenue of logistics and other services increased 151%, compared with the same period of 2017.

In 2017, Richard Liu, the founder of JD, announced that the company aimed at becoming “China’s retail infrastructure service provider”, implying corporate clients would play a more important role in JD’s operation in the future.

The series of JD’s initiatives reflected a trend of China’s tech companies to expand their potential growth in B2B markets recently.

In China, business to consumer (B2C) model predominates the eco-system of China’s Internet economy, thanking for the large population and the rapid economic growth of the country over the last four decades. However, the popular B2C models of major Chinese tech companies are challenged in past a couple of years inevitably in the wake of China’s GDP growth slowing-down as well as the rise of household’s debts, which debilitates residents’ consumption capacity.

The operating margin of Tencent, which has invested in JD, dropped from 36% to 32% in the first half of 2018, said its financial report. The revenue of Tencent’s smartphone games even fell 19% compared with the same period of last year, indicating the slowdown due to the regulatory crackdown.

Seeking new drivers of growth, companies either turn to lower income groups who were ignored in the past by the tech giants like Pinduoduo, a Shanghai-based social e-commerce platform or adopted to the industrial internet (B2B model) like JD and Tencent.

Days ago, Tencent, officially announced its restructuring plan, including creating Cloud and Smart Industry Group (CSIG), a division focusing on cloud computing. It is a wind tee of Tecent to strengthen its corporate client’s business.

A recent internal document released by Tencent showed that B2B business was regarded as the first priority in Tencent's strategic escalation.

“Tencent will build more 2B capacities”, said Tony Ma, the founder, in the town hall meeting of the company at the end of last year.

This September, Tencent Cloud and Zhaogang.com, an online steel trade platform announced their plan to establish a joint venture offering “software as a service” (SaaS) product for corporate clients. Alibaba, China’s biggest e-commerce company, which started from a B2B yellow page website, is ahead of its rivals in this round of B2B transition tide.

The revenue of Ali Cloud accounted for 47.6% in China’s public cloud vendor market, five times of the revenue of Tencent Cloud, which took the second place in the market with a 10% occupation, according to a report released by International Data Corporation, an Internet data research provider. DingTalk, Alibaba’s instant workplace messaging software has attracted over 100 million individual users and seven million employers across China so far.

Song Chunzheng, Vice President of JD who is in charge of VIP business, leads the newly promoted 2B business. He had over 20 years experiences in enterprise procurement before, said Cailian Press. Although JD and Tencent both started transforming towards B2B, the new strategies haven’t saved them from the disappointing performances in the stock market.

Tencent has seen an over 40% fall of its stock price since this January. Similarly, shares of JD plunged too this year, especially after Ricard Liu’s rape scandal in the U.S.

It is still a question if the B2B model is the right panacea for the next growth of Chinese tech giants.

Rebecca Zhang

Rebecca Zhang is a Washington DC-based journalist who focuses on fintech, e-commerce and online education. She can be reached at Rebecca_Zhang@hks18.harvard.edu

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