The Invasion of Big B: Are Distributors Doomed?

Summary: With "cloud accounts" for both incoming and outgoing transactions, you issue invoices to distributors, but they have the input tax and don't know how to handle the output tax!

Many distributors, especially channel dealers, are losing sleep over the fact that Big B (centralized B2B e-commerce, such as Alibaba's 1688) is stepping in, backed by capital, using traffic as a platform, and leveraging geographical advantages. From their lofty position, they seem to be able to take away the hard-earned territory that distributors have painstakingly cultivated, as if it were theirs for the taking.

My view is quite the opposite: the time for the B2B era has not fully matured, and even when it does, the process will inevitably be arduous and the outcome uncertain.

It's Just a "Great Shift"

If JD.com and Alibaba were to invest their B2B resources in improving the logistics and product systems in rural China, going to the countryside to tackle the tough problems rather than fighting over meat in the cities, that would be a blessing for China and the industry, even though it goes against the profit-seeking nature of business. Therefore, I have always welcomed Taobao going to the villages and JD.com to the towns, accelerating the enrichment of product categories and the circulation of goods, improving the quality of life for consumers in fifth- and sixth-tier, or even seventh- and eighth-tier mountainous areas.

However, if JD.com and others merely want to take over the work of distributors by leveraging their platform advantages, then apart from the value in payment methods, credit systems, and data marketing (which is only marketing value), B2B will bring limited improvement to the business environment.

Because, given the current economic situation in China, there is no shortage of products in cities above the prefecture level, and quality at low prices is not the main issue. Internet companies optimizing channels in cities is a classic case of picking the softest persimmon to squeeze. What cities above the prefecture level lack are truly innovative products and services, as well as high-quality products. That's why a bunch of Chinese people go to Japan to buy toilet seats.

The "great shift" style of B2B merely creates another e-commerce platform, another monopoly platform, which goes against the spirit of "decentralization" of the Internet and offers little value to society.

The Difficulty of Intercepting

Distributors operate in a typical circle of acquaintances, and distributors themselves are very "small and micro" companies. There is a lot of mutual help and support between upstream and downstream. Given the vastness of China's geography, many operations are based on verbal agreements and are not standardized, which is something that standardized companies cannot handle.

With full internetization, there are "cloud accounts" for both incoming and outgoing transactions. You issue invoices to distributors, but they have the input tax and don't know how to handle the output tax!

B2B companies that are starting up now are all aiming for IPOs. How can they manage without standardization? Perhaps turning a blind eye and forcing national policy changes is one option, but that takes time and a process. So currently, the difficulty of intercepting is high, and the cost is also relatively high.

Will it affect the supply and marketing structure? Certainly, but the progress will be more difficult than in the C market. In terms of direction, if they focus on cities, the social value is low; in terms of methods, if they just take over, the value to retailers is low.

Struggling

If even the "small B" players cannot escape the fate of being harvested, can distributors have a good time in the B2B era?

From the past "daoye" (profiteers) to self-employed individuals, from retailers to channel dealers, as the most active individual cells in China's economy, they were once a group of the most unrestrained and imaginative people, a group said to have caught up with good times. After the Internet arrived, first their information discourse power was weakened; then e-commerce and logistics came, reducing their once-generous profits; and now B2B is about to disrupt the game, with platforms offering direct supply and manufacturers going direct. Distributors have become the group with the weakest ability to resist risks in the Internet era, the softest persimmons to squeeze.

To survive the cruel elimination game, channel dealers must learn to find a way out through "struggling."

1. Way Out One: Channel Dealers Unite

Since channels are the advantage of channel dealers, why can't the local powers unite, combine their strengths, and organize products and connect with terminals?

I had a distributor from Hebei who founded a brand in Foshan. Using his years of industry connections, he brought together the big players from various provinces in the water, electricity, and lighting products (pipes, wires, lamps, etc.) industry, using shareholding cooperation to gather them under this company. Based on sales volume and investment size, each person became a shareholder of the company.

The brand collects purchases from manufacturers to form price advantages, and also uses OEM advantages to promote its own brand products. Finally, it uses the networks of the provincial big players to quickly reach the terminals.

This has three benefits:

First, professionals do professional things. Everyone is familiar with the water, electricity, and lighting industry and understands trends and products.

Second, joint shares and joint hearts, dividing power and profits. Everyone uses their own network to promote their own products, so they cannot be careless.

Third, they are all old friends and brothers, so matters that cannot be brought to the table can be resolved privately through negotiation.

2. Way Out Two: Enhance Your Irreplaceable Value

Channel dealers should try to list the things that companies cannot do but they can, and strengthen these to form core advantages.

For example, using geographical location to integrate the advantages of small-quantity, high-frequency delivery. Of course, this will increase costs, but most of our distributors lack optimization of delivery routes and rely purely on intuition. There is great room for optimization in delivery frequency, routes, and tools.

Another example is localized service. In the past, some channel dealers thought to push away or avoid problems, waiting for the company's feedback. But some after-sales issues are delayed by the company, and the channel dealer takes the blame. Now that B2B is here, channel dealers should have the courage and ability to take on these issues, use the power of regional platforms to negotiate with companies, help retailers solve problems, and also help themselves enhance their value.

These days, even if you are a porter, you need to be a porter with technical content.

3. Way Out Three: Embrace Trends and Changes

If distributors evaluate themselves and find that they neither have the ability to integrate resources nor have value to enhance, then you can only embrace trends and changes and become a part of the B2B business. Learn new business models, get involved, and see what value they can bring you and what abilities they can enhance. In this process, distributors will naturally learn a lot.

In short: when you can't see the direction clearly, you can follow the general trend, which is better than standing still.

This article was published in the July 2016 issue of "Sales and Marketing" magazine, channel edition. Author: Huang Runlin

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