12 October, 2011

I like B2B manufacturing

B2B is internet jargon for Business to Business; ie. a business website that has other businesses as its primary target market. Alibaba.com is a classic example, a website that offers components and finished goods to manufacturers, wholesalers and retailers.  OpenBorder.com is another, providing an international marketplace for  translation services; its primary markets are firms doing international trade and professional translation firms.

 Unlike the much tougher B2C marketplace (Business to Consumer) with its hyper-competition and faddishness, B2B internet businesses seem to have an easier time (although not always, especially if the market is large and lucrative). The same is true in the world of hard goods; it's often easier to define and carve a niche supplying other businesses with products they need for their business, rather than consumer products.  Competition is still fierce and all aspects of your business have to be superb; but once you're established, the barriers to entry (knowledge, relationships, etc) give small and medium firms a chance to prosper on a global scale.  It's especially so in industrial equipment - stuff that makes other stuff.  The markets are global, but small and hyper-specialised, offering myriad opportunities for firms.

This is amply demonstrated by the Mittelstand - Germany's many small and mid-size industrial equipment makers which have done well in the last 50 years, despite the economic winds of change. To paraphrase influential academic and consultant Hermann Simon (see book link below, which I'll review another time):
  • you don't need to copy Silicon Valley to do well;
  • small manufacturing niches can still offer attractive global markets;
  • you can compete with China, etc. if you focus and innovate.

Hidden Champions of the Twenty-First Century: The Success Strategies of Unknown World Market Leaders by Hermann Simon. (Isambard receives commissions from Amazon for purchases made via this website).

Isambard Investments owns shares in several B2B business, including OpenBorder.

No comments: