B2B opportunities shore up slowing growth in consumer-facing verticals

4 min read
Left to right: Michael Norris, research and strategy manager at AgencyChina; Daisy Guo, CMO of Tezign; Jason Li, director of greater China, Branch Metrics; Jesse Zhang, director of software engineering, Black Lake Technology; and François Candelon, BCG senior partner & BCG Henderson Institute fellow. (Image credit: TechNode)

“The rising shift to the B2B (business-to-business) market is a ‘win-win-win’ especially in China, for government, internet giants, as well as startup companies,” François Candelon, senior partner of Boston Consulting Group (BCG) said Thursday at the Emerge by TechNode conference in Shanghai.

Central and local governments want to digitize Chinese industries rapidly, Candelon explained, since some of industries have already been left behind. Only 25% of Chinese manufacturers have smart-factory initiatives, compared with 46% in Germany and 54% in the US, according to a joint study by BCG, Alibaba, and Baidu.

Local tech companies have been steering toward B2B or enterprise-facing business over the past year, as the next phase of technology development shifts to industrial uses for the internet. Tencent announced it was restructuring to focus on enterprises, upping efforts in cloud and data solutions in late 2018, while Alibaba seeks to digitize local businesses with a service package of 11 different elements under its A100 program.

Candelon was joined by Michael Norris, a consultant from AgencyChina, Jason Li, a digital specialist from Branch Metrics, Jesse Zhang, a product manager of Black Lake, and Daisy Guo, CMO of Tezign, to discuss the growing B2B shift.

Why now?

“Because the cost of customer acquisition is rising in China,” said Jason Li of Branch Metrics. According to Li, the average cost per install (CPI) of apps on Facebook, for example, is around $5 in the US. However, in some verticals such as gaming in China, that number is RMB 120 (around $18). Still, the lifetime value (LTV) of a customer in China is much lower than the US market. “That is why the Chinese players today either go to overseas market or try to identify opportunities in the B2B field domestically,” Li said.

Chinese tech companies, either big or small, now face a marked deceleration of what had been breakneck economic growth over the past few decades. The world’s most populous nation recorded GDP growth of 6.6% in 2018, the lowest in nearly 30 years. Beijing further lowered the 2019 forecast to between 6% and 6.5% as the trade war with the US grinds on.

The once fast-growing tech sector is cooling along with the broader consumer economy. Online user growth is slowing, forcing companies to find new ways to expand. Questmobile data show that by March 2019, new Chinese internet user growth sank to a record low of 3.9% for the first time over the last decade.

Recent earnings reports from Chinese tech giants are reflecting the slowdown. Alibaba paid dearly to maintain growth for its core e-commerce business robust, with operating margin falling year-on-year by around half to 9% during the first three months this year. Baidu reported its quarterly net loss for the first time since its IPO in 2005, despite doubling spending to boost ad sales. Tencent recorded slowing online advertising revenue growth in the first quarter this year, which it attributed to a difficult macro environment.

China’s BAT (Baidu, Alibaba, and Tencent) have all stepped up efforts in 2019 into what they called the “the era of the Industrial Internet,” aiming to serve not only consumers but businesses from retail to manufacturing to finance. However, it leaves the question of what opportunities are left open to local startups now that the three Chinese internet giants have all started to pivot?

The next buzzwords 

C2B (Consumer-to-Business, a term often used in data-based manufacturing driven largely by consumer demand) and big data are some of the next concepts that the four speaker-panel expected would surface over the next 12 months.

“We believe that customized production, or C2B, will be one of the next opportunities, as the demand for customization is increasing,” said Zhang of Black Lake during an interview following the panel. An investor darling in the Chinese industrial SaaS segment, Black Lake offers manufacturer collaboration and intelligence software to improve production flexibility to a number of Fortune 500 companies including McDonald’s.

“We helped McDonald’s Chinese vendors produce Happy Meal toys in more flexible SKUs [Stock Keeping Units],” Zhang said. The US fast food giant used to provide only fixed SKUs in its China restaurants, changing the toys infrequently. But now with better control over its standard operating procedures, it localized production of its toys offerings to improve the variety of offerings from different cultures and changing trends. The software adds visibility across factories for key metrics including worker and machine efficiency, and inventory levels for both materials and finished product.

There are opportunities for enterprise businesses of every kind in leveraging China’s massive accumulation of data, Li of Branch Metrics said. “One of our clients was the biggest cross-border e-commerce platform in China. After selling goods sourced in China to overseas markets for many years, it collected vast amounts of data from customers and suppliers,” Li said. “Now it processes, analyzes, and leverages the data to connect suppliers and merchants to improve supply efficiency.”

The numerous online shopping festivals in China, some of which are single-night events, are rife with opportunities. For global brands, a range of creative content needs to be designed and circulated in a very limited time across different online platforms. “For companies like Starbucks and Unilever, they don’t have enough hands to do all of that,” Daisy Guo, CMO of Tezign, explained during the panel.

“That is why they use our artificial intelligence (AI) automation system, not only to produce numerous images on different platforms such as Tmall and JD, but to improve their products using data as well,” added Guo. The Shanghai-based startup, which is backed by investment companies including Sequoia Capital and Hearst Ventures, offers data-based AI solutions creating marketing content for global consumer brands’ online retail businesses in China.

The “digital twin,” which refers to a virtual system where a business experiments with artificial intelligence on key business processes and runs simulations of different scenarios in a controlled environment, is another concept of rising relevance. “The objective of the digital twin is not just to make the journey of customers much better, but also for companies to get more data,” said Candelon, who said that with digital twin solutions, businesses will be able to know customers better than they know themselves.