However, B2B is attractive but not easy, as our friend at Lightspeed China has pointed out, It is welcoming to see continuous innovation, and competing businesses (or business models) in this field.
Another emerging player is YC graduate Dropee, which started in Malaysia – a market which we still believe is the best testing ground for startups with regional ambitions.
B2B is not new to Malaysia, though many of the past initiatives were public sector/conglomerate driven, and focused on listing and advertising (web 1.0) as the main business model. Halal trading marketplace Zilzar was a classic example of failure.
Yet, it seems that the market is big enough (and international enough). Some researchers put the ecommerce transaction volume at RM213.1 billion (US$ 50,5 billion), and some other researchers projected a double digit CAGR.
However, anyone seeking to disrupt the sector will probably be left disappointed. The founder of GudangAda told that they were seeking to enable and empower, not to replace. Lennise Ng, Co-founder and CEO of Dropee, told us something similar.
Over the years, a complex and dynamic value chain has developed for buyers and sellers to request proposals, source for suppliers and submit tender documents. Also there is a fundamental emphasis mainly in Southeast Asia on the continued reliance on human interactions and relationships whilst doing this B2B model.
It is definitely not an easy thing to disrupt the existing business environment that relies a lot on human interaction, when you can’t seal a deal without meeting the person face-to-face, especially when you are dealing with wholesalers and distributors.
Lennise founded Dropee in 2017 with co-founder Aizat Rahim. The pain point it tried to address was simple: retailers need to find the right product at the right price point. The pain is especially felt by small retailers and F&B operators, who are not really served by existing listing platforms.
From drop-shipping to SaaS cum marketplace
Initially, Dropee had the drop-shipping model. The idea was coming from the middle men who gained a bigger margin in the supply chain. However this business model didn’t seem to work, if not hard to scale.
Drop-shipping seems like easy money — you sell other people’s goods and take a cut for yourself — but when you factor in all the drawbacks, obstacles, and day-to-day management, it’s far from easy.
The profit is largely determined by traffic, so in this case, building an ecommerce brand from scratch, it’ll be a struggle for a long time as building a client base takes time – the platform needs to take care of both suppliers and retailers.
Dropee finally changed its business model to SaaS, as they believe it’s more expandable. SaaS is becoming more popular lately due to its flexibility to meet the business needs, easily accessible, and also relatively cheaper which means no high commitment.
Concerns of both suppliers and retailers
Shifting from the previous model, Dropee now serves both suppliers and retail buyers. Dropee will take commission from the suppliers whenever they get a new customer from the platform and for repeating customers they charge a subscription fee.
The issue in the business process is not only coming from buyers who have trust issues toward the purchased goods quality and price, but also coming from suppliers. Suppliers sometimes are not sure about the buyers’ credibility especially when they request for a long credit term with a large purchase volume. Being in a pandemic makes it harder to extend credits to retail buyers.
To address the concern of the suppliers, Dropee builds a credit relationship with the retailers. They have a local bank partnership for its customers financing. Lennise says the company is still on the stage of educating the market though, thus the adoption has not yet seen a surge.
Besides partnering with financial institutions, Dropee secures partnerships with fifteen 3rd party logistics companies. By providing the additional delivery service, it enhances their business ecosystem although the delivery process is mainly handled by the suppliers.
A Southeast Asia play?
So far, we have seen B2B players like Amazon owning the products and other B2B players serving in the fulfillment. So how about Dropee? Unlike their counterparts in Indonesia, GudangAda, that envision themselves to be a part of and own the supply chain, Dropee positions itself as a tool to manage customers for wholesalers suppliers.
We see that this FMCG supply chain has many parts that can be tapped in. New players might tap in between “mom-and-pop” stores and the bigger retailers like what Mitra by Bukalapak and Warung Pintar do in Indonesia, or maybe taps in between manufacturers and wholesalers. The important thing for these players is to serve in the right market and make a full use of the data acquired from the B2B transactions.
In populated countries like Indonesia, there’s always a need to find a better supplier. Expanding regionally isn’t something impossible for Dropee. Other than that, market readiness in countries like Malaysia, Indonesia, and also Thailand, is there.
We can see it because there are similar players in the ecosystem, remember that if there is no competition means more difficulties and more cost to educate the market.
In fact, in a market where you have only a couple of funded players, the competition is not really fierce. Go to China and you will find dozens if not hundreds.
However when we talk about expansion, geographical challenge is something unavoidable. In Malaysia, the nation’s core is its west coast from Penang to Johor Bahru, including the capital, Kuala Lumpur. Malaysia’s primary geographic challenge is to secure this coastline in order to extract revenue from east-west trade.
In Indonesia, the biggest challenge is connecting the main island Java to the rest of Indonesia as well as addressing the different cultures from each place. The need to secure a talent or partner who is rich in local knowledge and understanding is essential for business players to nail a regional expansion.
As for now, Dropee will be focusing on growing its existing business and helping more conventional enterprises to adopt digital solutions. It could be challenging to start entering the new market, let’s say in Indonesia, now since many players have started B2B logistics. However, Dropee has transformed to SaaS which is less popular compared to B2B logistics in the region and it means the opportunity is quite big for them especially when they are equipped with good local knowledge.