With a montly trading volume exceeding $1.6 billion in 2015, B2B-Center.ru, a major Russian electronic trading platform, serves more than 260,000 clients from 120 countries. Its CEO Alexey Degtyarev told East-West Digital News about this little-known, but huge market, and the impact of the crisis. He also commented on B2B-Center’s international expansion, following a recent agreement with Chinese platform XBNiao.
How does the Russian e-procurement market look – and does it differ from other countries?
Russia’s model of B2B e-commerce is definitely unique: all stages of procurement, from planning to contract award, are conducted online. Ten years ago there were only so-called online boards which stored information about tenders. Some of these have evolved into full-fledged electronic trading platforms, where you can conduct transactions for buying and selling goods and services in real-time.
In 2002, when we introduced the idea of b2b e-commerce, we had to evangelize the market. Now e-commerce is an essential business tool widely used by the biggest enterprises and organizations. We have estimated the volume of Russia’s B2B e-commerce market at some $700 billion in 2015 (see methodological note below).
Using these platforms, thousands of new customers and contracts can be found – and millions of dollars saved by vendors. The figures speak for themselves. In 2010, Bashkirenergo saved more than $26 million, Tyumenenergo $81 million and Bashneft over $60 million.
Today, our clients save up to 20% of original contract price by using our procurement marketplace.
Furthermore, B2B e-commerce helps companies improve efficiency by automating processes, among other benefits. Foreign companies enjoy the same benefits. We have users from 120 countries!
While first-generation online boards still exist in foreign countries, some electronic platforms do offer full-fledged online trading procedures. However, these advanced features are less in demand than in Russia, where companies use all bidding functionalities much more actively.
What about e-procurement platforms for the government?
Observing the success of the business, the government eventually decided to transfer purchases for state needs in electronic form – both to save budget resources and combat corruption. Since 2009 procurements for state needs have been conducted through electronic auctions as well as via paper tenders. As a result, the better part of state orders is now carried out in electronic form.
The State Duma is now considering a bill that involves digitization of other trade procedures – tenders, request for quotations and proposals. As a result, state and local government procurement (except for purchases from a single supplier) will be gradually converted into electronic form.
The Federal Law “On the procurement of goods, works and services by individual types of legal persons” came into force on January 1st, 2012 and served as a stimulus. A subsequent resolution from the Russian government defined the types of goods, works and services to be purchased in electronic form. The list includes paper; printing products; office supplies; office equipment; medical devices; equipment and instruments for radio, television and comm-unication equipment; vehicles and accessories; natural water; trading services; maintenance and repair of motor vehicles, motorcycles and office equipment; and the cleaning of buildings.
To date, most of the tender-based procurement operations at large Russian companies are made in electronic form. This process, which has been noticeable in recent years, has greatly simplified their work.
What has been the impact of the troubled 2015 year on the market, and what do you see next?
Many of our clients’ activity slowed down in the first half of 2015, when they adopted a ‘wait-and-see’ attitude. The second half of the year made it clear that there will be no immediate rebound, and that all players need to adjust their operations to the current circumstances.
Nevertheless, this decrease in activity was compensated by the growing share of e- procurement with new clients attracted to the system.
Paradoxcially, recessions are a time of opportunities for electronic trading platforms, as buyers seek to optimize their purchases and suppliers strive to develop new sales channels.
B2B-Center has been operating for more than 14 years now. What have you achieved over this period of time?
The company was established in 2002 and, in fact, was one of the founders of today’s e-commerce market in Russia. The first electronic trading platform, B2B-Energo, was solely focused on the energy sector. Soon after that UES, Russia’s electricity giant, started operating through our system. According to power engineering specialists, the cost of equipment and services in the first year decreased by 50%, and the price of the products purchased decreased by an average of 17.5%.
Since then, the list of our clients has expanded continuously. Other giants of the Russian economy use our e-procurement platform – from power company IDGC, to RusHydro, to oil companies. Also involved are such manufacturers as UralVagonZavod (railway cars and equipment), United Aircraft Corporation (civil and military aircrafts and space programs), United Engine Corporation (aircrafts). Among our users are also oil companies (Zarubezhneft, Bashneft), metallurgical enterprises (including Mechel) and others.
B2B-Center.ru trades virtually everything from black coal, to automobiles, to leather articles. Above: a picture from the company’s Moscow office (photo credit: B2B Center).
Thus B2B-Center has asserted itself as one of the largest players in the Russian e-commerce market. Our cumulated trading volume has reached $101 billion since launch.
We use advanced technologies in order to offer the latest and most functional solutions. For example, earlier this year we were the first among Russian e-procurement platforms to launch a cloud service for master data management (MDM).
Is your platform essentially designed for big businesses and big transactions?
Small and medium-sized businesses do participate too, but the volume of their purchases is less significant. The economic advantage of e-procurement increases in proportion to the amount of purchased products.
We aim to attract even more mid-sized players to make them comfortable with using our platform. They already use it mainly as suppliers, but we would like to see them as buyers as well.
We have even designed created a corporate marketplace (catalogue) for goods and services targeting SMBs specifically. This service makes cooperation faster between suppliers and buyers, providing them with tools for direct orders, so they do not need to declare tenders. Listed goods and services go into a unified catalogue with a well-designed taxonomy and convenient search tools.
What about your platforms outside Russia?
Implementing the Russian model of electronic trading in other countries requires a significant investment of time and effort. It took us years to develop and improve the product in the domestic market, and we cannot expect to complete such processes very quickly in new countries.
We already have a positive experience in Turkey and several African countries. Currently, the Chinese market is our top priority, as witnessed by our recent agreement with XBNiao, but we are also interested to expand our operations to India, Indonesia, Brazil and other developing countries.
With XBNiao we aim to streamline and automate the negotiation process, as well as logistics, customs clearance and – last but not least – to provide guarantee the integrity of foreign suppliers and the quality of the supplied goods.
We have estimated that direct supply will lower the cost of Chinese products sold in Russia up to threefold, compared with standard commercial channels. In corporate procurement, average purchase amounts are high, thus we believe, our initiatives could increase cross-border trade flows between Russia and China by 10%.
Moreover, the Chinese market lacks corporate electronic procurement platforms of our kind, and we plan to export our technology to create a local B2B marketplace.
Who are your competitors and what are your distinctive advantages?
Many of our competitors are major commercial electronic trading platforms. There is a healthy competition on this market and we feel comfortable in this environment. It’s always challenging to search for and develop new solutions.
Is your platform profitable? How has it been financed so far?
B2B-Center is not only profitable, but also a high-growing company. Over the past five years, the company has grown more than three times. Such performance was achieved due to the development of electronic procurement, an idea which has attracted number of major energy companies. Our solution has helped them improve procurement efficiency while attracting new customers to our platform.
Among B2B-Center’s shareholders is a consortium of foreign or internationally-oriented funds – Da Vinci Capital, Alfa Associates, Runa Capital – as well as the leading private equity fund in Russia and CIS, Elbrus Capital. B2B-Center’s founder, Alexander Boyko, is chairman of the board of directors.
A native of Bryansk, Alexey Degtyarev studied economics and management at the Universities of Bryansk and Orel, from which he graduated in 2003 and 2007, respectively. He also defended a dissertation at Moscow’s Higher School of Economics on the organization of e-procurement to address government needs. He has headed B2B-Center since 2007.
- Methodological note:
The $700 billion figure includes the volume of electronic purchases in both public and private sectors. It is based on the addition of GDP (around $2,000 billion over the past five years) and intermediate consumption (around 90% of GDP). In this total volume (around twice Russia’s GDP), the share of e-procurement is calculated using Eurostat data for 28 European countries — from 15.6% (conservative approach) to 20% (optimistic one). The latter is more applicable to Russia since this country, according to Eurostat, is in the top five for e-procurement penetration. Thus total Russian e-commerce consists of a minuscule B2C sector (around $11 billion in 2015 for physical goods), B2G ($80 billion according to the zakupki.gov.ru official portal) and a large B2B volume at around $700 billion. Of course, these figures are subject to important currency exchange variations: the ruble lost more than half of its value between 2013 and 2015.
