B2B offers volume, big growth potential in e-commerce

Singapore

ONLINE consumer sales may be growing at a faster clip, but business-to-business (B2B) transactions also hold big potential for growth, industry watchers have told The Business Times.

That's even as the global spread of Covid-19, plus a recent policy boost for small businesses, could spur Singapore's e-commerce.

The services sector drew S$237 billion in e-commerce receipts in 2018, and some 87 per cent of that came from B2B sales, according to Department of Statistics (SingStat) data.

"B2B could have greater potential as the regional business markets are large and Singapore is a shipping hub," explained researcher Cassey Lee, a senior fellow at the Iseas-Yusof Ishak Institute statutory board.

To be sure, B2C sales have soundly outpaced B2B transaction growth: Compound annual growth for the B2C segment was 29 per cent from 2016 to 2018, against B2B's 19 per cent.

Citing healthcare and professional services like consulting, Maybank Kim Eng economist Lee Ju Ye said: "Services that mostly require greater interaction between buyer and seller... will likely necessitate continued bricks-and-mortar presence."

B2B deals can also be more complex, as there may be more decision-makers, higher price points, and "a more complicated array of products and specifications", according to a report last month from SingStat and the Ministry of Trade and Industry (MTI).

But Dr Lee, from the Iseas-Yusof Ishak Institute, warned that "B2C is limited by Singapore's small market, plus other South-east Asian countries have their own e-commerce players".

Not all services industries are reliant on B2B business, which predominates in industries like wholesale trade, transport and storage, and information and communications. Consumer-facing services, such as retail trade and food services, get most online receipts from B2C instead.

Yet even online retail - the industry that is usually evoked by "e-commerce", with 93 per cent of Web revenue coming from consumer sales in 2018 - faces structural woes.

Singapore's e-commerce penetration is still small, compared with mature markets like China and South Korea, said Maybank Kim Eng's Ms Lee, although the MTI report also noted that offline vehicle and petrol sales were another reason.

Investment manager Nuveen Real Estate ranked Singapore a lowly 23rd out of 29 markets, in a recent study of where bricks-and-mortar retail may be at risk of e-commerce disruption.

Darren Rawcliffe, the firm's director of real estate research, said that the bricks-and-mortar retail market is sheltered by "very high tourism flows that deliver additional in-store sales which will not migrate online", as well as lower cashless payment use here.

Still, uplift could come from an unlikely source: the infectious Covid-19 that's spreading across the globe.

Peter Ong, chairman of government agency Enterprise Singapore, told reporters last month that e-commerce can grow "especially at a time like this, where businesses are starting to have to think about business transactions with minimal contact".

Noting how China's Taobao took off in the severe acute respiratory syndrome crisis of 2003, Ms Lee added that - with e-tail, food delivery and tele-health services now in greater demand - "consumers who were less frequent users of the online platform will likely continue utilising the platform even after the outbreak ends".

Meanwhile, although the SingStat data excluded finance and insurance services, one B2B entrant into the regional market is financial technology startup Finaxar, which sallied forth last year in a cross-border tie-up with Taiwan's Cathay Financial Holdings and Vietnam's Indovina Bank.

"We found a lot of gaps in SME lending, which is an extremely large market," said co-founder Tan Sian Wee, when asked why Finaxar focuses on working capital for small and medium-sized enterprises (SMEs), rather than on lending to individuals.

"A complex market also affords defensibility. Globally, the sheer volume of B2B e-commerce far exceeds that of B2C e-commerce."

Even so, "predominantly B2C e-commerce platforms can offer a ready service that can be quickly tailored to meet the nuances of the B2B company", suggested David Gowdey, managing partner of Jungle Ventures, a venture capital firm that invests in digital solutions for SMEs.

He cited a Jungle Ventures portfolio company in India with an events ticketing platform: "(The) majority of its demand comes from B2B clients such as larger venues looking for an online ticketing platform," he said.

In fact, off-the-shelf business solutions - the core of the SMEs Go Digital scheme since 2017 - will soon get another boost. The Grow Digital initiative, set to launch next quarter, will help SMEs reach overseas markets through pre-approved e-commerce platforms, for both B2B and B2C.

Maybank Kim Eng's Ms Lee told BT that, while digitalisation is a gradual process, the Grow Digital initiative is timely "as the virus outbreak will likely trigger more SMEs to go online".

"SMEs can also use this downtime to explore digital solutions and receive training via the newly introduced initiatives," she added.