Starting April 12, Hong Kong's railway stations have started to smell a tense war between B2B competitors.

"Suffering from sourcing feet? Let your fingers do the searching on Alibaba.com" – an advertisement with these provoking words is placed on every windows of the AEL trains. Every buyer and supplier heading for AsiaWorld-Expo and HKCEC cannot miss it.

Global Sources Exhibitions General Manager, Tommy Wong felt a bit disappointed but couldn't do anything. He said: "We've been organizing trade shows in Hong Kong since 2006, and each time Alibaba comes with their advertisement. This year their orange advertisement has even splashed all over the outside walls of our show venue. "

Smell of war along railway stations

Alibaba's intention of spending huge amount on advertising is obvious -- they are not able to dabble in the exhibition business yet and Hong Kong is not their "battlefield". However, in Hong Kong's spring and fall trade show peak seasons, Alibaba has to keep an eye on the two veteran B2B trade show organizers -- HKTDC and Global Sources, placing a vast amount of advertisements that target HKTDC's Hong Kong Electronics Fair and Global Sources' China Sourcing Fairs, to draw the attention of the visiting buyers. This is because the best quality B2B clients are those buyers that willing to spend more on face-to-face meetings in trade shows.

"We've already known that B2B business is not just moving your fingers and browsing across the Internet," Wong commented on Alibaba's antics: "In face of the global financial crisis, we need more, not fewer, trade shows."

He's puzzled by those who still believe in the "Click Economy". As the person-in-charge for Global Sources'exhibition business, he admitted that the economic slowdown has given pressures to his work. This year, he'll be responsible for 14 trade shows in Hong Kong, Shanghai, Mumbai and Dubai, and he has to design or initiate many private meetings tailored for the emerging markets. Global Sources has spent US$2.5 million to promote the spring trade shows series, in a bid to encourage hesitant China suppliers battered by the economic slowdown to participate in the shows. Wong said: "Our online business only accounts for 30% of our total revenue. And it needs support from our other offline businesses. This is the essence of B2B services."

n a weak economy, B2B competition will be even keener, leading to more shake-ups in the industry. A source from HKTDC said: "When the economy is booming, the online service alone can attract clients. But in recession, that will not be sufficient. " He believes Alibaba's advertising strategies were driven from the pressure of growth in the number of clients. He added : "They are trying to take a number of clients away from us. During tough times, some suppliers cannot afford the costs of exhibitions and may switch to lower priced channels."

Alibaba's financial results indicate that after they had launched new services with service fees as low as 20,000 Yuan, their revenue in 2008 fourth quarter dropped 51.4% compared to the third quarter. Meanwhile, its sales and operating expenses increased 15%. While in 2008 Alibaba performed well, Citibank and JP Morgan lowered Alibaba's share to "sell" rating because they believe there is still room for improvement for Alibaba's customer services, and thus they would have to "invest massive resources" to improve their sales and marketing, services and hardware upgrade in short term.

Online or offline?

To choose more expensive services or cheaper ones? Going online or offline? Chinese suppliers who used to pay generously are now getting more cautious.

And we can see two different attitudes among them.

A top supplier of car electronics from Huizhou, with annual revenue of over 1 billion Yuan, said the global economic slowdown has put more pressures to the sales of the company. He said: "we expect sales to remain steady. As demand from the U.S. and European markets has fallen, we're working to explore opportunities in emerging markets and the domestic market." And attending trade shows remains the best choice to seek buyers under these sales pressures.

He added: "We do not use Alibaba's service as we think website alone cannot help us find quality and reliable buyers."

A Ninghai supplier, Li Wulin, General Manager of Jiali Trading, shared this view. Judging from the first day's traffic of China Sourcing Fair: Electronics & Components, he believes the number of visiting buyers had fallen by 20%. Though revenue is expected to decrease 30%-40% and the costs of participating in trade shows are relatively high, he thinks trade show is still their best choice.

A Ningbo supplier, Suen Boshi, General Manager of Yuefong Trading, however, has a different view, so as many other baffled exporters. He told the journalist: "If the weak economy continues, I'll not be exhibiting in Hong Kong next year." So where will he go? He said: "Go to Alibaba!" His reason is simple: now that the buyers are not coming to the shows, why don't we choose a cheaper marketing channel?

Though they are both B2B companies, the U.S. company Global Sources and the local Alibaba differ greatly in terms of the pricing, marketing channels, business model, and even the corporate spirit. Global Sources is focused on middle-range to high-end suppliers. They operate both online and offline businesses, including websites, magazines, trades shows and research reports. And they stick to the way of charging higher prices. Alibaba, on the other hand, is more appeal to the mass, lower end suppliers. They focus on the online business and stick to a lower pricing.

At the end of 2008, Alibaba played the low price trick again. They launched new packages with the service fees as low as 19,800 Yuan. In response, Global Sources launched the entry-level packages with the price of 40,000 Yuan a year. But Global Sources still takes the higher pricing stance with their normal business. A four-star client, for example, pays 400,000 – 600,000 Yuan a year.

Alibaba's lower pricing strategy has its justification: China exporters are mostly SMEs, and according to "Long-tail Theory", a large sum of smaller and scattered trades can make a huge trade volume. Amid the global financial crisis, the lower entry level to the B2B services will attract a great number of suppliers to participate. Alibaba's 2008 financial results show that they have 431,000 paid users and 38,075,000 non-paid users – a huge potential to grow the paid users.

Reluctant to lower prices, Global Sources' justification is in stark contrast. Wong believes the slowing economy will prompt a shake-up among buyers and suppliers. The "20/80" rule indicates that 80% of the total purchase in the international market will come from 20% of the quality buyers. These buyers cannot verify the quality of the suppliers merely through Internet. The multi-channel solution is the way to go.

Wong said the trends are proving them right. "We've found that 15% of our clients are using multiple marketing channels, including trade shows, magazines and websites. This trend will continue to grow in future," he added. And this is why Global Sources insists on higher prices and offering multiple services.

The source from HKTDC said: "China suppliers have not only improved their product quality rapidly, but they have also changed their marketing strategies. Now they know better the value of different B2B services. "

The competition between the "Alibaba model" against "Global Sources model" and "HKTDC model" also epitomizes the struggle of China's suppliers their upgrade in export trades.

B2B upgrade: Chaos of diversification

In booming times, B2B companies with different views can "operate" on their own ways. However, as the financial crisis ravages and China's export falls sharply, the "peace" between these players has vanished, leading to a competition chaos.

According to Analysys International's findings, there are four major marketing channels provided by B2B companies: online, trade shows, magazines and private meetings. HKTDC, Global Sources and HC International provide 3 to 4 services, while Alibaba and Made-in-China provide only 1 to 2 services. Alibaba, Made-in-China and EVCC have not been able to launch their own trade shows -- the service widely regarded as the most effective one.

Analysis International's findings also show that the multichannel combination -- pre-screened private meetings, trade shows and print -- generate the most successful inquiries, with its effectiveness almost double that of using single online channel.

As competition becomes stiffer and production costs rise, Chinese suppliers, mostly SMEs, have to continuously adjust their marketing strategies in order to survive. After the financial crisis broke, demand has been falling and supplier are receiving fewer orders, forcing many exporters to go bankrupt. It's not easy for companies to survive these days as competition among them is getting fierce.

Analysis International's findings conclude that "In face of the financial crisis, suppliers are paying more attention to multi-channel solutions when choosing B2B platforms." B2B becomes prominent due large to the rise of Internet. But it's now returning to its root – the goal of closing deals, no matter through online or offline means.

With B2B comes the era of the "Eyeball Economy". But is it coming to an end amid the financial crisis?

In fact, China's export has been growing rapidly since 2005. And B2B giant Alibaba, which started up with the online business, has been reaping the rewards. Even in 2008 when it faced much criticism, Alibaba still managed to keep 39% growth in revenue and 25% growth in net income.

But last March when Citibank and JP Morgan lowered Alibaba's share rating to "sell" and lowered its target price at HK$4.5 and HK$5.3 respectively, the industry knew better why Alibaba has been under pressure to lower the prices for their services at the end of last year.

Morgan Stanley believes Alibaba has performed worse in the highly competitive international market than in the domestic market. However, "If Alibaba continues to dominate the mainland China market, in the long run it will benefit from its synergy with Taobao, its major B2C business, though services of the latter remain free of charge now."

"It's reported that Alibaba is planning a trade show in Guangzhou for its users," A Shenzhen manufacturer revealed. The economic winter has obviously forced Alibaba to explore new opportunities. He explained that the low-end-focused Alibaba is beginning to face more and more competition. He said: "Tencent and Baidu are launching their own e-commerce business today. If the entry level is set too low, Alibaba will be facing very keen competitive in future. Their only way out is to go upmarket."

Global Sources is also looking to extend its business to the domestic market. Wong revealed that Global Sources is studying the plans to organize trade shows designed for the mainland China market in Shanghai. He believes the switch from export-focused to the domestic trade, and from serving the higher-end suppliers to also accepting more lower-end suppliers will be a much easier path for Global Sources' development.

The competition and infiltration of business between B2B companies has intensified.

From disclosed figures, the number of booths for Global Sources' electronics show and HKTDC's electronics show in mid-April have risen 3% and fallen 10% year-on-year respectively. And Global Sources has recorded a slower growth in revenue and net income, up 14% and 24% respectively.