Written by Jinmin Wang.

China has witnessed rapid development of e-commerce in the past two decades, which has not only created many new business models, but also transformed some traditional business. One typical example is the digitalization of commodity trading markets.

Recently some of the leading commodity trading markets in China have launched cross-border wholesale e-commerce platforms to facilitate international trade. For example, based on the largest commodity trading market in the world, Zhejiang China Commodities City Group Co., Ltd in Yiwu City, Zhejiang Province, launched cross-border B2B e-commerce platform www.yiwubuy.com in October 2015. Zhejiang China Light Textile City Group Co., Ltd, which manages one of the largest textiles trading market in Asia, acquired cross-border Business-to-Business (B2B) e-commerce platform www.globaltextiles.com last year.

The e-commerce platform matches international textile buyers with the textiles suppliers, particularly the local SMEs. The rapid development of cross-border B2B e-commerce platforms is posing great challenges for the massive bricks-and-mortar market. However, in the short term, physical commodity trading markets are unlikely to be replaced by cross-border B2B e-commerce platforms although their trading functions are weakening.

These cross-border B2B e-commerce platforms, which adopt the online to offline (O2O) business model, can provide one-stop cross-border trading services for global buyers, including product demonstration, online payment, speedy logistics and credit guarantee. The unique advantage of these O2O e-commerce platforms lies in the close integration of online and offline operations of suppliers, who are marketing their products in the booths of physical commodity trading markets. Therefore, their online trading behaviour can be closely monitored and regulated by the e-commerce platform.

The bricks-and-mortar commodity trading markets also serve as an important complement to the online marketplace since they are usually connected with the regional SME industrial clusters, which can supply a great variety of commodities to the online marketplace. A relatively stable and complete supply chain for some commodities has already been formed. In addition, after acting as the key trading hubs in China in the past decade, some of these physical commodity trading markets can offer a series of value-added services for online buyers, including quick and efficient customs clearance, competitive global logistics solution and a perfected credit rating system of suppliers.

The rapid development of cross-border e-commerce has brought about international business model innovation. Market procurement trade plus public overseas warehouses on the basis of physical commodity trading markets is a typical example. For instance, Yiwu City has been approved by Department of Commerce, Zhejiang Province, to establish eight provincial-level e-commerce public overseas warehouses to accelerate the pace of fulfilling online orders.

The development of cross-border B2B e-commerce has been constrained by inefficient international logistics. The establishment of e-commerce public overseas warehouses by some of the local trading companies makes it possible for local vendors or SMEs doing business at the commodity trading markets to send some commodities to overseas warehouses in advance. When they receive online orders from international buyers, they will notify public overseas warehouses to dispatch the ordered goods immediately, which saves time and cost of international delivery.

The future development of these cross-border O2O e-commerce platforms is facing the competition from other cross-border B2B e-commerce platforms in China such as Alibaba.com and 1688.com since some vendors or SMEs at the commodity trading markets are marketing their products at several platforms. Therefore, it is important that these cross-border O2O e-commerce platforms on the basis of physical commodity trading markets keep innovating e-business solutions and offer better online and offline trade services for local suppliers and international buyers.

Recalling the past, Yiwu Telecommunication Bureau launched China Sunbu website to undertake e-commerce on the basis of Yiwu commodity trading market in 2000. But it was not successful due to the bottlenecks of secure online payments and the establishment of a trustworthy online credit system for the international buyers. In contrast, Alibaba.com has witnessed a rapid growth with constant online business innovation and launched a series of cross-border B2B and B2C e-commerce platforms since 1999, becoming the market leader in the e-commerce sector of China.

It is expected that e-commerce will continue to flourish at the cities where commodity trading markets are located such as Yiwu City and Shaoxing City. The bricks-and-mortar commodity trading markets have been playing a very important role in fostering e-business entrepreneurship for the local people. According to 2015 China Taobao Village Research Report, Yiwu City was ranked among the national Top 10 Taobao village clusters. Some cross-border e-commerce villages have also emerged. The integration of the physical and digital markets has enhanced the competitiveness of the commodity trading markets in China.

Jinmin Wang is Assistant Professor at the School of Contemporary Chinese Studies, the University of Nottingham. Image Credit: www.yiwubuy.com