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A Look at the B2B E-commerce Sector in India

Jan 11, 2021 6:19 AM 4 min read

Bengaluru-based B2B e-commerce startup Udaan has raised $280m from new and existing investors, taking its valuation to above $3.1bn.

The company has become eponymous with the growing digitisation of India’s B2B e-commerce scene - a sector that is expected to grow at a CAGR of c. 20% till FY25 (pre-COVID estimate).

What is Udaan?

Udaan is a business-to-business e-commerce marketplace founded by former Flipkart executives Amod Malviya, Vaibhav Gupta and Sujeet Kumar. It serves as a platform across lifestyle, electronics, home and kitchen, staples, fruits and vegetables, FMCG, toys and general merchandise. And its clients are business owners such as manufacturers and shopkeepers looking to sell their goods to other business owners (ergo, B2B).

Besides usual B2B services, Udaan also helps merchants secure working capital by judging the engagement of different merchants on the platform.


What is B2B?

B2B e-commerce is simply the sale of goods and services between two or more businesses via an online portal.

It is different from B2C in many different ways, crucially:

  1. B2C tends to involve impulsive and one-time purchases while B2B involves rational decisions and the possibility of long-term commitments.
  2. B2C transactions tend to include the buyer alone as the decision maker whilst in B2B transactions many different decision makers may be involved.
  3. B2C payments are usually lower in transactional value when compared to B2B payments, which can also happen weeks after shipment as opposed to consumer purchases, which can be paid for before delivery.

At $10.6trn, the global B2B e-commerce market, as of 2018, was five times larger than the B2C market. In terms of growth rate too, global B2B e-commerce is growing at nearly double the rate of the B2C e-commerce market.

And India is no exception to this trend.


How Indian B2B Came of Age

The main challenges faced by B2B players in India were digital illiteracy and the acutely unorganised nature of the retail market. These factors made it harder for businesses to expand and sustain, which is why startups such as Shotang, Just Buy Live, IndustryBuying and Tolexo either shut shop or shrank operations.

2016 (interestingly, the same year Udaan was launched) was a turning point.

Udaan grew rapidly and became a unicorn within two years (2018). And only a year later - in 2019 - Indiamart, one of the oldest and most well-known players in India’s B2B scene, launched a successful IPO.

The timing of Udaan’s rise and Indiamart’s success isn’t coincidental. They came on the heels of some definitive trends that fundamentally altered the way Indian businesses interacted with each other.

This included the explosion in internet penetration due to dirt-cheap data rates that became the name of the telecom game with Reliance Jio’s entry in 2016. The same year, demonetisation took place: while it may not have worked wonders for the economy, it cajoled more Indians to go digital.

Around the same time, other factors like GST, falling smartphone prices and the increasing adoption of payment apps spread digital literacy like wildfire across the country, in urban centres and the hinterland alike.

Of course, these factors may seem like mere sparks when compared to the fire that was the nationwide COVID-19 lockdown last year. Just as the pandemic has been largely kind to tech companies as a whole, it has served well for B2B platforms. Case in point: Inndiamart, a listed B2B firm, has seen its share price climb about 270% the past year:

A Look at the B2B E-commerce Sector in India

The lockdown not only boosted online engagement of businesses and individuals, it also reinforced the preeminence of local mom-and-pop/kirana stores - the backbone of many B2B operations.


India’s B2B Sector - Challenges and Opportunities

The growing digital adoption by Indian consumers presents a lucrative opportunity for B2B startups, particularly so now that the coronavirus vaccines have given hope that the pandemic may be nearing its end and a period of healthy economic growth can be expected.

Another factor aiding B2B could be recent trends witnessed by online grocery platforms - namely, increased usage and shift to hyperlocal deliveries, which increases the importance of small businesses like kirana stores. The increased competition in the scene with the entry of Reliance Retail could boost B2B traction even further.

This goes for both horizontal and vertical platforms. The former include the likes of Indiamart and Udaan, which serve retailers across categories and regions. On the other hand, there are vertical platforms like NinjaCart and Jumbotail, which serve only specific segments or regions.

Now, there are pros and cons to both. While horizontal platforms can grow quicker, they require more capital and don’t establish sufficient market depth that a sector like B2B requires. Vertical platforms, on the other hand, are more difficult to build and are on a much lower scale, but they tend to be more effective and impactful in that they develop their own niche and accomplish the holy grail of business - knowing your customer well.

Indian B2B e-commerce faces roadblocks too. These include limited digital penetration in far-flung areas and among many MSMEs, high commission charges, tough margins, lack of quality checking measures on some platforms and lack of good credit facilities. Moreover, a slow post-COVID recovery or another prolonged economic slowdown - akin to the one that plagued the economy pre-COVID - might adversely hamper the sector’s prospects.

According to a report by Bain & Company in collaboration with the World Economic Forum, India's consumer market will present a $6trn opportunity by 2030. While this is a pre-COVID estimate, it nonetheless shows that there’s no turning back on India’s tryst with digitisation. Businesses will continue to adapt, more of them will come online, more vertical platforms will arise, and B2B e-commerce will (ideally) become smoother and beneficial to all parties.


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