Business-to-business (B2B or, in some countries, BtoB) is a situation where one business makes a commercial transaction with another. This typically occurs when:
- A business is sourcing materials for their production process for output (e.g. a food manufacturer purchasing salt). Example: Providing raw material to the other company that will produce output.
- A business needs the services of another for operational reasons (e.g. a food manufacturer employing an accountancy firm to audit their finances).
- A business re-sells goods and services produced by others (e.g. a retailer buying the end product from the food manufacturer).
B2B is often contrasted with business-to-consumer (B2C). In B2B commerce, it is often the case that the parties to the relationship have comparable negotiating power, and even when they do not, each party typically involves professional staff and legal counsel in the negotiation of terms, whereas B2C is shaped to a far greater degree by economic implications of information asymmetry. However, within a B2B context, large companies may have many commercial, resource and information advantages over smaller businesses. The United Kingdom government, for example, created the post of Small Business Commissioner under the Enterprise Act 2016 to "enable small businesses to resolve disputes" and "consider complaints by small business suppliers about payment issues with larger businesses that they supply."
Business-to-Business companies represent a significant part of the United States economy. This is especially true in firms of 500 employees and above, of which there were 19,464 in 2015, where it is estimated that as many as 72% are businesses that primarily serve other businesses.
Comparison with B2C
In many cases, the overall volume of B2B (business-to-business) transactions is much higher than the volume of B2C transactions. The primary reason for this is that in a typical supply chain there will be many B2B transactions involving subcomponents or raw materials, and only one B2C transaction, specifically the sale of the finished product to the end customer. For example, an automobile manufacturer makes several B2B transactions such as buying tires, glass for windows, and rubber hoses for its vehicles. The final transaction, a finished vehicle sold to the consumer, is a single (B2C) transaction.
"Matesourcing" is the phenomenon where businesses seek business support from family and friends rather than obtaining business services from other businesses on a commercial basis. In 2011, UK business PC World published research commissioned from Trends Research which found that British SME's are increasingly asking family and friends for IT problem-solving and purchasing advice services.
Business to business model
Vertical B2B model
Vertical B2B is generally oriented to manufacturing or business. It can be divided into two directions -- upstream and downstream. Producers or commercial retailers can have a supply relationship with upstream suppliers, including manufacturers, and form a sales relationship. As an example, Dell company is working with upstream suppliers of integrated circuit microchips and computer printed circuit boards (PCBs).
A vertical B2B website can be similar to the enterprise's online store. Through the website, the company can promote its products vigorously, more efficiently and more comprehensively which enriches transactions as they help their customers understand their products well. Or, the website can be created for business, where the seller advertises their products to promote and expand transactions in an intuitive and convenient way.
Horizontal B2B model
Horizontal B2B is the transaction pattern for the intermediate trading market. It concentrates similar transactions of various industries into one place, as it provides a trading opportunity for the purchaser and supplier, typically involving companies that do not own the products and do not sell the products. It is merely a platform to bring sellers and purchasers together online. The better platforms help buyers easily find information about the sellers and the relevant information about the products via the website.
The development trend of B2B (business-to-business)
Along the way, B2B has matured but despite the good momentum, it still has an immature side. The majority of the immaturity is in online price negotiation and online collaboration. These have not been fully developed.
Boston Consulting Group (BCG) conducted a survey through in-depth interviews with online traders. BCG believes that the current B2B online trading model cannot completely simulate the traditional B2B offline trading model. Almost half of the survey group indicated online transactions still need to coordinate with traditional offline communications to complete the entire transaction process.
The report pointed out that with the maturity of the B2B and the improvement of the price comparison mechanism, pressure on the sellers will increase. The survey found that some of the sellers already felt a lot of pressure brought on by the price comparison.
This report presents another valuable analysis of the development trend of the B2B market. It pointed out that each party in the B2B market expects a simplification in each trading field. They do not expect diversification of the trading platforms. This is the same perspective as the trading platforms. The trading platforms hope to integrate instead of having more competitors.
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