With daily trading volumes between $70 and $300 million, B2B-Center.ru, Russia’s main electronic trading platform, serves more than 100,000 clients from 100 countries.
Last year, a consortium of investors led by Da Vinci Capital Partners, Insight Capital, Alpha Associates and Runa Capital acquired a minority stake in the company, valuing it at an approximate $160 million. CEO Alexey Degtyarev recounted for East-West Digital News how this business started and gained such strong traction in Russia and beyond.
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. In 2012 its market volume amounted to 93.3 billion dollars and growth reached 50% compared with 2011.
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. Further, b2b e-commerce also helps companies improve efficiency by automating processes, among other plusses. And foreign companies enjoy the same benefits. We have users from 90 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 July 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 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. In June 2012, 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 communication equipment; vehicles and accessories; natural water; trading services; maintenance and repair of motor vehicles, motorcycles and office equipment; and the cleaning of buildings.
Last year B2B-Center celebrated its 10th anniversary. What have you achieved over this period of time?
This anniversary was a very special milestone for us. 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 and such manufacturers as UralVagonZavod (railway cars and equipment), United Aircraft Corporation (civil and military aircraft and space programs), Russian Helicopters and United Engine Corporation (aircraft). Among our users are also oil companies (Zarubezhneft, Bashneft), metallurgical enterprises (including Mechel) and others.
In short, B2B-Center has asserted itself as one of the largest players in the Russian e-commerce market. Our trading volume exceeds $80 billion. We use advanced technologies, aiming to offer the latest and most functional solutions.
By mentioning these large corporations, do you mean that your platform is essentially designed for big businesses and big transactions?
Small and medium-sized businesses 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. However, small businesses are active too, involved both as buyers and as suppliers of goods, works and services.
Recently you launched platforms in Ukraine and Turkey. Can you tell us more about your international ambitions?
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. At the moment, the number of registered members at B2B-Ukraine exceeds 5,000 companies, and we are preparing to participate in the selection of the sites for Ukrainian government bidding.
In Turkey our platform has become a member of both the country’s Foreign Economic Relations Board (DEIK) and the Russian-Turkish Business Council. It is also participating in a government program to support e-commerce development. As a result, our users in Turkey enjoy a 70% discount on our standard annual rate – and these special conditions will be offered for the next three years.
What is your business model and tariff policy?
Our users pay a one-time access fee and a monthly rate based on the options they select. We have no interest in the amount or number of transactions and charge no extra fees for additional services. Transactions and fees must remain independent – this is a matter of principle to us. One of our most appropriate tariff plans, $300 per month, allows you both to organize tenders and participate in an unlimited number of biddings.
Who are your competitors and what are your distinctive advantages?
Many of our competitors are major commercial electronic trading platforms. We have had healthy competition with them and we feel comfortable in this environment. It’s always challenging to search for and develop new solutions.
In June of last year a consortium of Russian and foreign investment funds composed of Da Vinci Capital, Insight Capital, Alpha Associates and Runa Capital acquired a 34% stake in B2B-Center. Can you comment on the goals and terms of the deal?
This was a cash out transaction. Our company does not need to raise funds, since it is highly profitable (our EBITDA margin reached 68% in 2012). We’ve been working in this industry for over 10 years and have gained extensive experience in the development and implementation of e-commerce systems. That is what investors have valued the most.
At the same time we would like to develop the company even further. In this context, foreign shareholders have been welcome. We are confident that they will help take the company to the international level.
Update June 21, 2013: In 2012 the number of transactions on B2B-Center reached 47,600, up 25% from 2011, Degtyarev stated at the St. Petersburg Economic Forum. The platform revenue increased by 45% to 700 million rubles (approximately $23 million).
- 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.
