The number of small and medium enterprises (SMEs) is surging in Southeast Asia. Not only are they a major contributor to the GDP of ASEAN’s economies, but they are also responsible for creating and sustaining employment.
Based on the Directory of Outstanding ASEAN SMEs 2015, it was estimated that there are more than 62 million SMEs in ASEAN’s emerging countries, which includes micro enterprises in Indonesia and the Philippines.
It is not surprising given the massive impact of SMEs on the local economy that policy makers are paying a lot of attention to helping SMEs grow. UNESCAP’s report on SMEs in Asia and The Pacific defined a matrix of SME development by the policy makers in 5 different groups:
- Training and information: such as vocational training for employees
- Financial services: such as micro-loans, venture capital
- Support structures: such as B2B portals and e-business platforms
- Policy advocacy: such as government procurement, taxation
- Capacity building: for all the stakeholders
While four of the above have been in place for decades, one group is relatively new: B2B portals and e-business platforms. Thanks to the internet, support for the growth of a SME business is now at a whole different level: faster, scalable, and more efficient using a B2B ecommerce platform.
It’s never been easy to trickle down a concept into execution, especially in emerging markets with its unique challenges and opportunities. Take Indonesia for example, with a significant share of SMEs across the region, creating a workable model there will mean a greater chance of replication in neighboring emerging markets.
Bizzy Case Study: SME To B2B Ecommerce, Concept To Execution
Bizzy is one of the leading B2B ecommerce platforms in Indonesia that focuses solely on B2B ecommerce and has become one of the pioneers in educating Indonesian SMEs on how to procure online. Founded in 2015, the platform is backed by both regional and local ventures: Ardent Capital, Sinarmas Digital Venture, and Maloekoe Ventures.
By identifying the top two challenges for doing B2B ecommerce in a leading emerging market like Indonesia, it is easier to see how these challenges are very much related to how multiple segments of customers behave differently and how businesses can overcome them.
Challenge #1: Small Enterprises Reach a ‘Demand Planning’ Dilemma
In emerging markets, micro and small businesses are big fans of “just-in-time inventory”. They rely on a petty cash system to procure their supplies in nearby convenient stores or groceries by cash or personal reimbursement.
There is no rigorous demand planning in this segment. When the copy paper is out of stock, they will go to the nearest stores to buy one pack; no more no less.
In contrast, the concept of B2B ecommerce platforms for this segment suggests a demand planning concept because of two key reasons. First, B2B ecommerce will need a service level agreement (SLA) to fulfill the order, not ‘just-in-time’ or ‘walking distance travel time’ as with convenience stores or groceries.
Second, B2B online procurement expects bulk or higher quantity order levels; not a single unit purchase in the case of B2C. SMEs would be required to create a step-by-step plan in advance, in order to make accurate predictions of which office supplies to buy.
Challenge #2: A Medium Enterprise Encounters Procurement-Supplier Relationship Disruption
A good “traditional supplier” will find a way to be the preferred supplier with negotiated rate cards to their medium enterprise customers. The effort is purely a journey of relationship management over many years. Preferred “traditional suppliers” have a great human relationship with the procurement department.
B2B ecommerce sales also work best at the C level where quantifiable savings, efficiency, transparency, and the increase of productivity pitches will hit the nail on the head. C levels understand the power and obvious benefits of online, strategic sourcing, and market place.
Virtually, any SKU is available at the tap of a fingertip, and more importantly, there is no secrecy on pricing as the internet will give several comparisons. The only fluid piece is the cost of finance for term of payment and the delivery cost if the goods are not sent from the domestic area.
When the “let’s try B2B ecommerce and e-procurement” message is sent to the procurement department from the top level, it will disrupt the existing procurement process, and specifically, disrupt the procurement-supplier existing established relationship that has been built for years with preferred suppliers.
The immediate voice of insecurity will come from the preferred suppliers. This is simply because the B2B ecommerce platform will give access to virtually unlimited SKUs and virtually unlimited vendors with (mostly) more cost effective pricing. In some cases, the feeling of insecurity is also transferred to the procurement department because technology creates more efficiency and likely less human intervention is needed, hereby disrupting the traditional system.
The B2B online platform could be seen as a clear and present danger by the ‘traditional procurement’ process.
This situation could bring a risk to the adoption of a B2B platform as it will take a longer time. It needs to resolve the relationship disruption effect that a disruptive technology brings to the equation.
Bizzy’s “Tier Pricing” Solves the Small Enterprise Challenge
To educate small businesses to start using the 21st century online procurement system and move away from “traditional procurement”, internet-first B2B platforms like Bizzy and Mbiz would need to provide a value unit that is perceived higher compared to the ‘just in time’ supplies concept from the nearest convenience store or groceries.
To address some of the aforementioned challenges, Bizzy for example has introduced a “tier-pricing” system that creates a value unit to compete with the traditional way of how small businesses procure products. Tiered pricing gives an upfront discount based on the tier volume. The tiered-price approach is the first and the only in Indonesia today (see picture below).
Small businesses can easily see the difference between buying a product, like glue, in small quantities or buying a larger quantity online from Bizzy with an upfront discounted price based on a periodic basis (aka demand planning).
The benefits of consolidated procurement and demand planning of supplies will also give more predictability of spending ahead of time for small businesses.
Buying from a B2B platform like Bizzy will also give them a tax refund as they register their tax ID to the system. If supplies are bought through retail stores, tax ID is not always an option for purchases.
Bizzy’s ‘Select’ Solves the Medium Enterprise Challenge
It is super important for Bizzy in its sales motion to not position the offering for medium businesses as a “new supplier” who will compete with the existing preferred suppliers and create potential friction within the internal procurement department.
Rather, Bizzy should be seen as a “platform” that serves both internal procurement department and their preferred suppliers.
Recently, Bizzy introduced Bizzy Select as a unique platform for Medium Enterprise customers.
What is Bizzy Select?
- A personalized e-procurement platform with e-catalog for medium enterprise customers
- Customers can build their own e-catalog based on needs and Bizzy can onboard existing preferred suppliers to fulfill the requirements.
For the existing suppliers, onboarding to Bizzy Select will also give them access to new business customers to scale. These customers will have access to an e-Catalog with a virtually unlimited amount of SKUs as well as connection to a much broader list of other suppliers to anticipate both existing and the new needs.
In this mutually beneficial situation, moving both customers and “traditional suppliers” from the “traditional procurement” process to a more strategic procurement process is now doable.
The majority of medium sized businesses have not yet adopted ERP solutions, especially for procurement systems.
The offering of Bizzy Select, which includes approval flow, budgeting, e-quotation, shipment tracking, analytic dashboard, etc., is a compelling tool for medium businesses as they will instantly gain access into e-procurement without additional investment.
The Path forward
All the factors that contribute to the tipping point of B2B ecommerce are already apparent. The adoption of broadband – thanks to the aggressive smartphone penetration – means that consumers are already educated with the B2C and C2C buying-selling processes.
The large, addressable market of SMEs means that B2B ecommerce growth in Indonesia, and most likely other emerging markets in the region, is solid and bullish. The transformation of traditional procurement into strategic procurement for SMEs is happening today.
Now it’s the matter of the players such as Bizzy to switch paper based procurers into paperless.