B2B-Center CEO Alexey Degtyarev: “In 2014, Russian B2B e-commerce amounted to $609 billion”

With a montly trading volume exceeding $2,2 billion in 2014, B2B-Center.ru, Russia’s main electronic trading platform, serves more than 200,000 clients from 120 countries.

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 2014, according to our estimate, the volume of B2B e-commerce market in Russia amounted to $609 billion. This figure includes the volume of electronic purchases in both public and private sectors.

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.

Today, our clients save up to 20% of original contract price by using our procurement marketplace.

Furthermore, B2B e-commerce helps companies improve efficiency by automating processes, among other benefits. Foreign companies enjoy the same benefits. We have users from 120 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 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 State Duma is considering a bill that involves digitization of other trade procedures – tenders, request for quotations and proposals. As a result, state and local government procurement (except for purchases from a single supplier) will be gradually converted into 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.

To date, most of the tender-based procurement operations at large Russian companies are made in electronic form. This process, which has been noticeable in recent years, has greatly simplified their work.

B2B-Center has been operating for more than 12 years now. What have you achieved over this period of time?

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 cumulated trading volume has reached $77 billion since launch. We use advanced technologies, aiming to offer the latest and most functional solutions.

We have created a convenient and efficient tool to optimize procurement, which has become the rule for large companies in Russia. The next step is to involve medium-sized players more deeply in our platform. They already use it as supliers, we’d like to see them as buyers as well.

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.

What has been the impact of the troubled 2014 year on your business, and what do you see next?

After exceptional growth in 2013, the market slowed down in 2014. This tendency is related not only to the economic situation, it was also affected by the completion of several government-run giant projects, especially the Olympic games in Sochi. The public procurement market in 2014 decreased both in volume and number of procedures. Meanwhile the volume of transactions in the private sector remained unchanged.

Since late 2014, major customers altered their work, keeping in mind the experience gained from the previous recession. They are adjusting investment programs and reducing the volume of individual purchases.

Recession is a time of new opportunities for ETP. Buyers are eager to think about efficiency of activity, while suppliers are looking for new markets and sales methods. ETP can give both sides a great chance to get ahead.

What about your platforms outside Russia?

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.

We launched B2B-Turkey in 2012. The platform incorporates more than 1,200 local companies from the construction, tourism, woodworking and other industries.

In addition, we launched a pilot project B2B-Export with several African countries involved. This project is potentially strong. Goods delivered by Russian suppliers, primarily in machinery industry, were able to obtain access to foreign markets. This leaves a lot of open questions with regard to logistics, insurance, customs clearance.

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, $150 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.

Is your platform profitable? How has it been financed so far?

B2B-Center is not only profitable, but also a high-growing company. Over the past five years, the company has grown more than three times. Such performance was achieved due to the development of electronic procurement, an idea which has attracted number of major energy companies. Our solution has helped them improve procurement efficiency while attracting new customers to our platform.

Among B2B-Center’s shareholders is a consortium of foreign or internationally-oriented funds – Da Vinci Capital, Insight Venture Partners, Alfa Associates, Runa Capital – as well as the leading private equity fund in Russia and CIS, Elbrus Capital. B2B-Center’s founder, Alexander Boyko, is chairman of the board of directors.

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 B2BCenter since 2007.

 

Topics: E-Commerce, Internet, People
Scroll to Top

This site is under maintenance. Sorry for the inconvenience.

This site is under maintenance. Sorry for the inconvenience.