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Author's profile photo Vivek Sheel Magoo

Wholesale Distribution in China

China is the second-largest economy in the world with an annual GDP growth that consistently outpaces the U.S. During the pandemic, China outperformed all other the leading economies. As the world’s number one exporter and number two importer. China’s economy is shifting from manufacturing to consumption and services. Industrial production is still the largest sector in the economy. However, the wholesale industry is significantly much more important in China, constituting 83% of the Wholesale and Retail industry. Within Wholesale distribution sector mineral, building, and chemical products account for 55% of the total sales and 40% of the total enterprises​.

Although China’s GDP has stagnated, the wholesale and retail industry has been growing over the past years.  In fact, wholesale distribution is the most dominant sector in terms of contribution to total sales. The top industries under wholesale have been experiencing strong  growth rates​ since 2015. The number of wholesale enterprises increased by 50% and the total sales increased by a whopping 63%​!  Why? Because there has been a huge emphasis on digital marketing.  For example:

  • Ecommerce represented 24% of total retail sales in 2019 (compared to 9% in Germany and 11% in the U.S)​
  • Emphasis on digital transformation
    • 83% on CX as compared to the rest of the world at 32%
    • 58% on digital marketing as compared to the rest of the world at 40%
    • 75% on e-commerce initiatives as compared to the rest of the world at 23%

The drivers for transformation and digitalisation include:

  • Speed. Bestore’spartnership with Alibaba to aggregate its fragmented supplier and customer bases. More than 260 suppliers, along with a handful of logistics partners, are now fully integrated to handle more than 1 million orders per day, reducing end-to-end supply chain response time by 50% and delivering from farm to shelf within about seven days. On the demand side, about 70 million product data points are fed upstream to guide product R&D and innovation.​
  • Personalization. Micro-segmentation helped L’Oréal deploy individualized marketing to micro-segments of customers, achieving a click-through rate 50% to 100% higher than the industry average.​
  • Engagement:Using Baidu Development Research Center’s technology to help it collect user engagement data, Qingting FM who offers individualized audio streaming to 130 million monthly active users boosted revenue from paid members by 300% over the last two years​.
  • 5G: According to International Data Corporation (IDC) and our literature research, from 2016 to 2019 China built 140,000 5G base stations, deployed 1.19 million data center racks, and invested around RMB 320 billion in AI technology; it also achieved approximately 92% optical fiber penetration among broadband subscribers by the end of 2019. Notably, the Chinese government is doubling down on its investment in new infrastructure as a strategic priority for driving the digital economy which will generate 12.3 trillion dollars by 2035, wholesale and retail account for 1.295 trillion dollars.
  • Infrastructure:According to estimates, in 2020 China built 580,000 5G base stations, deployed 930,000 data center racks, invested about RMB 100 billion in AI technology, and achieved approximately 95% optical fiber penetration among broadband subscribers. ​
  • Business processes.Traditionally, business-to-business (B2B) operations and engagement models demand face-to-face interactions. During COVID-19, the increased use of remote working applications was initially stark—enterprise communication platform DingTalk’s monthly active users rose from about 65 million at the end of 2019, to roughly 177 million by March 2020—a more than 1.7-times increase. Pharmaceutical sales agents were able to meet with physicians’ online instead of in-person, opening the door to further such interactions in the future. Moreover, Chinese telecom companies maintained their 2020 5G development targets despite the outbreak, suggesting that digital tools for remote work and interactions will likely continue to proliferate rapidly, catalyzed by the next-generation communications infrastructure.

​The Pandemic has been devastating for many businesses. Disrupting supply chain globally throughout the year, many businesses were forced to find alternatives in order to keep their operations afloat. The way that business looks at trade has forever changed, and this directly applies to many facets of wholesaling.

Although the process of selling through multiple channels online and offline is nothing new to the Consumer eCommerce world, more and more B2B businesses in China are starting to embrace omnichannel selling to deliver a streamlined and connected buying experience across all platforms.

Alibaba.com is a prime example of a B2B eCommerce marketplace that is expanding to further cater to the needs of wholesale distributors. Alibaba’s LST platform connects traditional stores directly with suppliers/wholesalers, increasing business opportunities and the amount of information and data. The Alibaba’s platform connects buyers and sellers from around the world offering maximum flexibility for all parties involved.

With the constant advancements in B2B technologies and capabilities, the wholesale distribution industry is quickly catching up. Distributors are embracing the new world of selling, digitalizing their processes and managing inventory online, especially after COVID-19.

Wholesale distributors have evolved from mailing list of physical catalogues to online catalogues resulting in enhanced customer experience, optimizing product and logistics costs. Wholesalers are investing in ecommerce ecosystems at an aggressive pace so that they can provide the same easy ordering and customer experience that online retailers enjoy. Online wholesale stores will become increasingly discoverable through search engines, price negotiations could happen in real time, and the ordering process will take place virtually using online catalogues and payment gateways. As B2B businesses evolve to a more traditional retail approach, they will be able to offer wholesale customers the same sophisticated level of services that retailers have been taking advantage of for years.

Today, B2B eCommerce platforms and marketplaces are becoming more and more accessible to wholesalers and buyers alike. Distributors can now reach out to varied audiences. That means buyers can easily connect with suppliers to close business deals.

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      Author's profile photo Peter Langner
      Peter Langner

      Thank you for this interesting overview.