The B2B plastics trade might induce heavy eyelids and bored stares from many. But recent multimillion dollar investments into the industry in China are signaling a new revival for manufacturers in the country, experts say, and it’s one the market should probably wake up to.
The support from investors is even more impressive, experts say, when considering China’s weakening B2B market. According to reports in The Wall Street Journal on Monday (Aug. 3), China’s manufacturing sector saw a two-year low in activity, leading to a stock market flop.
The Caixin China manufacturing purchasing managers index dropped last month, analysts said, compared to a month prior. The index, which offers a way to gauge manufacturing activity across the nation, was already failing to meet expectations by officials.
“July data signaled that the downturn in China’s manufacturing sector intensified at the start of the third quarter,” Caixin said in a statement following the release of the data. “Renewed falls in both total new work and new export orders led manufacturers to cut production at the fastest rate since November 2011.”
But while manufacturing struggles, some of these manufacturers are receiving big shows of support by investors. Why?
According to reports from Want China Times, it’s the decision made by some manufacturers to carry their sales efforts online that will separate the winners from the losers in the B2B sector – and the winners are poised to pull the market back up from its current slump.
Earlier this year, China-based online plastics manufacturer Zhaosuliao secured a $1.6 million investment to launch its digital commerce strategy. The corporation is owned by founder and CEO Bin Mu, who also runs steel supplier Zhaogang, itself operating a successful eCommerce strategy. Just last week, Zhaosuliao nabbed an even more impressive $36 million from an array of investors.
According to Mu, an online sales strategy has helped remedy some longstanding struggles in the plastics industry, like high transaction fees and a reliance on middleman dealers.
“Small companies used to get plastic by phoning just one or two dealers they knew,” he told the publication, adding that today, relying on phone calls means corporate buyers can’t take advantage of price comparisons, and a weakening economy means many of these buyers cannot afford to miss out on the savings – especially SMEs.
“Big companies can cut costs by buying in large amounts,” he added, “but medium and small businesses must find other ways out or risk going bankrupt.”
That other way, many industry players are finding out, is to begin procuring materials online. With that demand, Mu told Want China Times that business is booming. More than $325 million is exchanged every month on his B2B plastics commerce platform, and the steel industry has already taken off, with more than 200 online B2B service providers operating in the market today. Mu’s steel sales platform, Zhaogang, saw 68.8 billion transactions in 2014, reports said.
China’s B2B eCommerce market has a big future ahead. The China eCommerce Research Center issued new data last April with estimations that the industry saw $1.61 trillion worth of transactions in 2014 – a 22 percent spike from the previous year. Already, online transactions between businesses make up three-fourths of the nation’s eCommerce market, and B2B cross-border eCommerce – crucial to manufacturers looking to sell abroad – is seeing similar increases.
But with the nation’s manufacturers shelling out lackluster performances, suppliers may not be launching their eCommerce strategies fast enough. The WSJ said analysts believe China’s recent stock market plummets and slowing economic growth mean foreign buyers are more timid about procuring from Chinese manufacturers.
“The stock-market volatility may have dampened business confidence,” Nomura economist Wendy Chen told the publication. “This might have contributed to weak demand.” But as manufacturers like Mu begin to launch their online sales strategies, experts agree they have a chance to pull China’s B2B sales performance back up to the top.
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