B Capital Reveals the Potential of B2B Commerce in Indonesia

B2B commerce is a derivative business from E-commerce, which targets business people (MSMEs or corporations) as its market share. Different from E-commerce commonly used by end consumers, the B2B model has unique capabilities, tailored to the needs of business players in procuring goods or financing.

B Capital is another global venture capitalist too has a portion for Indonesian startups. One of the investment hypotheses is in the B2B Commerce area. They said that the momentum of digitizing MSMEs was the key point that unlocked the great potential for developing B2B Commerce in Indonesia and Southeast Asia.

Apart from that, another factor that was also highlighted was the importance of using technology to improve relations, ensure compatibility between products and markets, as well as future proofing to give B2B players greater visibility across the value chain.

To talk about it in more detail, VP Strategy & Operation B Capital Karl Noronha, conveyed a number of strategies that startups in Indonesia can implement that want to target the B2B segment.

B2B commerce economic unit

Regarding B Capital's hypothesis about B2B potential trade in Indonesia, Noronha emphasized that the business model has become one of the firm's main verticals. There are several underlying reasons, including the B2B market which continues to grow among the middle class to increasing digital adoption throughout the supply chain (firstmile/lastmile, warehousing, transaction management, and marketing).

Meanwhile founder and founding team strong industry knowledge and execution experience related to the B2B/retail landscape, is also the reason for the large B2B opportunity trade currently in Indonesia.

They also noticed a shift in focus in the B2B sector trade, which initially procured for corporations, now mostly play in the supply chain for MSMEs. According to Noronha, as an economic unit, will this step be more? profitable or not, all depends on value chain margins. But as a general rule, B2B players trade can improve their unit economics and achieve EBITDA+.

This can happen if the related startup is able to develop a strong relationship on the principal/demand side. Then have an exclusive/long-term bidding contract. Also build relationships with underserved retail stores/contractors who are willing to pay more for reliable distribution.

"We usually look at B2B players trade started by distributing commodity products with margin low, to develop their distribution/contract network. Over time, they will try to transition to selling higher value items, establishing direct principal relationships or developing products private-label themselves to increase their margins and become a more valuable partner for the retailer/end customer."

B2B developments trade also quite significant, the latest trends also occur in the realm of materials/construction. Seeing this trend, Noronha revealed, the potential for the B2B materials/construction sector has a large Serviceable Available Market (SAM). Internally, B Capital estimates it at $33 billion. That could be very conservative, however, considering the government has already announced more than $460 billion in infrastructure projects to be completed by 2026.

"The Indonesian construction/materials market is highly fragmented in terms of product innovation, sourcing and digitization. Small to medium sized construction companies usually source materials from an unorganized MSME supply base that has a limited product range and quality control and traceability with respect to delivery."

Strategy to acquire "warung"

Many B2B commerce services have also begun to focus on accommodating procurement needs in stalls. For startups currently eyeing warungs as their target market, Noronha has shared several strategies to be able to compete positively, namely focusing on two acquisition channels.

The first is to launch a direct approach. Ideally have a dedicated sales force responsible for customer onboarding, assisting with order fulfillment, driving sales and marketing campaigns (for suppliers) and providing general customer support.

"By having agents who go directly to the field, we can build relationships with the community and shop owners. Going forward, the sales team can train stall owners/operators to reorder and manage customer support directly through their application."

Another strategy that can also be applied is to focus on a digital approach. Whether it's through social media like Facebook or others, several B2B companies have adopted a digital approach to acquiring stalls. This approach has been successful among community sellers (like Ula's Friends) who are digitally savvy and aggregate requests via WhatsApp and place aggregated orders on apps like Ula.