Can full management help to promote the highly centralized development of the cross-border e-commerce logistics market?

Can full management promote cross-border e-commerce logistics market centralization?

Key Points:

1) Full management is a necessary path for platform expansion and increasing its own value;

2) The dispersed competition in the cross-border e-commerce logistics industry stems from the natural lack of network effects in the industry;

3) Resource-based companies represented by Best Inc. and operational companies will gain greater growth space in the full management scenario;

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4) The full management model will to some extent increase industry concentration, but will not change the basic competitive pattern of the industry. 0 1 The so-called “full management” model is actually a further extension of traffic dominance. The rapid expansion of Best Inc. has ignited a concept: full management.

The so-called full management, simply put, means that the platform is no longer the central coordinating role but “goes down to the field” as the actual seller facing consumers.

Under the full management model, the platform, as a traffic entrance, further sinks and redistributes the business boundaries and value space between traditional sellers and platforms.

Overall, the platform, relying on its traffic dominance and the future growth expectations given to sellers, has occupied the tooling space that originally belonged to sellers. The relationship between the two has been simplified into a upstream and downstream relationship with a more significant difference in bargaining power between the supplier and the “big sellers”.

(Source: TEMU official website screenshot) 1.1 The catalytic effect of the epidemic has subsided, and the market is gradually returning to normal

Whether it is TEMU, which started with full management, or Aliexpress, TikTok, Shopee, and Lazada, which have recently begun to try full management, they all share a common background. That is, the global epidemic has subsided and the pace of production and life is gradually recovering.

Under such a big environment, online and offline retail channels are gradually returning to the basic pattern before the epidemic. The conventional business logic is back in the dominant position, and the main tone of stock competition is increasingly becoming the top priority for all participants in cross-border e-commerce. The identification and capture of incremental acquisition and sustainable growth momentum are becoming more urgent. 1.2 Fully managed mode rises, and the competition for ecological value intensifies

The simplest and most direct way to capture incremental gains is to expand one’s range of value acquisition, and to obtain more monetization nodes and main business control points from breadth and depth. The fully managed mode just meets the core demand of e-commerce platforms to obtain incremental cross-border e-commerce business.

In the competitive environment where the speed of cake expansion cannot match the ambition of performance growth, e-commerce platforms try to extend their business tentacles upstream and downstream, and plunder the value space that originally belonged to vertical professional players.

In this “invasion war”, e-commerce platforms have a natural and overwhelming force of reducing dimensions based on traffic dominance. However, based on the “capability boundary” theory of the Yunlian Research Institute, we believe that in this value chain reconstruction battle, the cross-border e-commerce logistics delivery capability based on supply chain control ability and the vertical capabilities such as product selection and store operation are fundamentally different.

Can the capability boundary of e-commerce platforms expand to the core territory of cross-border e-commerce logistics? Will the extremely scattered cross-border e-commerce logistics industry be pushed to a high degree of concentration by the platform in the fully managed mode? What type of cross-border e-commerce logistics enterprise can survive and even develop and grow in the fully managed mode?

These are actually topics worth exploring in depth.

1.3 Full management mode is actually the inevitable way for platform traffic hegemony to monetize.

Putting aside the mode breakdown and returning to the commercial attributes of the full management mode itself, there is actually a very clear main line of interest.

That is, as a traffic entry point, the platform inherently has the awareness and desire to maximize monetization channels. In this case, the launch of the full management mode can be said to be a logical result.

However, for logistics delivery, the actual landing posture of the full management mode in logistics functions still needs to be clearly divided. Whether it is completely self-operated or partially or fully outsourced cooperation, and adopting different logistics capability construction strategies in different stages, the essence is different.

(Source: Screenshot from the official website of AliExpress) 02 The lack of network effect is the root cause of industry fragmentation competition Discussing whether full management will lead the industry towards concentration, and which cross-border e-commerce logistics companies with what characteristics can achieve greater performance growth in this context, we must first find a solid starting point. That is, to understand what causes the fragmented competition in the cross-border e-commerce logistics industry.

2.1 Resource Pattern Perspective: Industry enterprises mostly survive in the cracks Observing the industry chain structure of cross-border e-commerce logistics, we will clearly see the participation subjects of its upstream and downstream as well as the market concentration of these subjects, and then understand the strength of the voice of cross-border e-commerce logistics service providers in the entire industry chain.

A preliminary conclusion is that cross-border e-commerce logistics service providers are surviving in the cracks, which directly causes the scattered state of the cross-border e-commerce logistics market.

The weak position of the industry is directly reflected in the continuous homogenized competition. This further leads to the phenomenon of “you have me” and “I have you” where everyone sells goods and containers to each other on the same route. The coexistence of business competition and cooperation among each other further determines that there will be no significant difference in revenue scale or dominant competition among a few companies.

2.2 Resource operation perspective: Companies currently lack network effect

The dispersed competition pattern in cross-border e-commerce logistics industry is rooted in the fact that companies do not have the gene to generate network effects.

Firstly, for the core resources that support cross-border e-commerce logistics companies on specific shipping routes, they naturally have dedicated properties on different routes, which cannot be reused.

Secondly, even in the same country on the same route, the resource accumulation of cross-border e-commerce logistics companies at different ports naturally has localized dedicated properties, which cannot be highly linked to each other and cannot achieve rapid cost spreading.

Take the example of truck tractors and frames. Even if it is a self-built fleet, it is arranged around the main destination port and plays the role of exclusive transportation capacity for that port. Unless there is frequent port hopping, there will be no cost advantage in terms of resource utilization efficiency.

At the same time, export cross-border e-commerce logistics follows the resource layout orientation that is close to the location of domestic cross-border e-commerce clusters or industrial clusters. In the domestic segment, there can be linkage between cargo warehouses or distribution centers, but due to the location setting of cross-border e-commerce logistics service providers’ domestic nodes, it is often the result of considering both the location of the seller cluster and the shipping port, rather than optimizing the route based on the hub-and-spoke network. Therefore, the concept of optimal path does not exist in the route layout of cross-border e-commerce logistics companies, and there is no possibility of high-frequency interconnection between domestic nodes.

Furthermore, due to the fact that the logistics of cross-border e-commerce goods is a typical one-way flow model with a funnel-shaped mouth, the destination country generally relies on local delivery networks or shipping capabilities. Therefore, for cross-border e-commerce logistics service providers at this stage, it is difficult to form an extremely dense network layout in overseas segments, and it is also difficult to form horizontal interaction between high-frequency network resources and reverse flow in the opposite direction of the shipping direction. 2.3 New Situation: Integration from the Flow Entry Point will result in a temporary partial dimensional reduction

We can try to jump out of the logistics perspective and look down from the upstream.

As the flow entry point, the platform’s full management of the logistics industry also needs to be viewed in stages. In the initial and partial stages, it may directly form a large-scale logistics order recipient unit (matched with platform traffic) based on the platform and the main market. However, in the long run (if the full management model can be proven effective by the market), it is still difficult to promote the high concentration of the cross-border e-commerce logistics industry as a whole (such as CR5 above 50%). 03 Full management will be a bonus for the growth of operational and resource-based enterprises

Among the direct impacts of full management on logistics, the top priority is undoubtedly the higher requirements for service quality (service stability). Logistics companies with different attributes are also constantly outputting different levels of service quality in their respective areas of expertise. Therefore, in the process of balancing and transforming between platform self-construction and outsourcing cooperation, enterprises with different attributes will also usher in different development opportunities.

3.1 Although resource-based and operational enterprises do not account for the majority of the industry, they bear almost all of the industry’s delivery loads

a) Resource-based enterprises occupy the high point of the industry’s infrastructure ecology.

Enterprises with strong resource attributes in the industry usually have strong resource accumulation in one or more aspects such as export clearance, trunk cabin, consolidated container capacity, flexible cross-border shipment, destination country delivery, and destination country customs clearance. This enables such enterprises to continuously strengthen their resource advantages and economic value through a benign cycle of resource barriers and scale effects.

Resource-based enterprises rely on their resource advantages and economic value to support various business models and products of the entire cross-border e-commerce logistics industry from the perspective of infrastructure service providers. Therefore, even if resource-based enterprises do not expand into cross-border e-commerce sellers, they can rely on resource barriers to leverage sources of goods and use various cross-border e-commerce logistics companies or platforms as orders. It can be said that reusable resource barriers ensure that resource-based enterprises occupy the upstream of the cross-border e-commerce logistics ecosystem, and their service quality, business processes, and even price levels, to a certain extent, affect the overall price and service level of the industry.

b) Operational enterprises represent the ceiling of the industry’s development level.

Operational enterprises focus on operational efficiency and belong to the type of enterprise that strives for profits from the whole process operation. By seamlessly connecting and maximizing the use of various resources on the shipping chain, they avoid resource waste and idleness, compress operational costs, and obtain maximum profit space.

Enterprises with operational capabilities as their core competitiveness are more willing to face sellers and direct customers than resource-based enterprises, hoping to win the favor of sellers and direct customer groups and e-commerce platforms through solid operational capabilities and excellent service quality. Operational enterprises that regard reputation as their lifeblood are in a position closer to the front line of the market and have the strongest patience and willingness to deeply understand and meet the logistics needs of customers and platforms among the three types of enterprises.

3.2 The Importance of Enhancing the Operational Capabilities and Resource Accumulation of Industry Enterprises in the New Situation

It can be said that resource-based and operation-based enterprises deeply coincide with the original intention of the platform to fully manage and maintain the importance of service quality and brand reputation. In the process of promoting the implementation of full management by the platform, it is necessary to give priority to absorbing or maintaining these two types of enterprises to enter (or continue to serve) their own business closed loop, and find the best balance point between consumer experience and platform system logistics costs.

First of all, resource-based and operation-based enterprises actually help the platform to complete the accumulation and construction of logistics infrastructure and operational capabilities necessary for full management. As a delivery function for logistics orders within its own system, resource-based and operation-based enterprises can leverage their operational experience and further enjoy the scale effect brought by resource cost sharing. At the same time, as a traffic entry point in a larger range of single volume and direction, the platform has amplified the scope of influence of resource-based and operation-based enterprises in service quality, more fully releasing the resource accumulation and operational capacity building dividends of these enterprises. At the same time, full management platforms also have higher requirements for the resource accumulation ability of logistics service providers in the target countries, the logistics operational capabilities of different target country markets, and the soundness of their routes.

3.3 The Soundness of the Route and Operational Capabilities May Become the Main Inspection Indicators of the Logistics Function of Full Management Platforms

Based on the high complexity of cross-border logistics services and the limitations of their own logistics costs, for full management platforms, under the premise of ensuring the safety and stability of services, the best option is to try to reduce the complexity of logistics function docking in the early stage of full management, and let cross-border e-commerce logistics service providers with diversified target country service capabilities and deep key resource accumulation fully leverage their service and operational advantages. Strategic cross-border logistics service providers that are extremely focused on overseas resources and have a global layout, such as Best Logistics, will have greater room to leverage their operational capabilities accumulated along the two major cross-border outbound routes of Southeast Asia and North America in the full management mode, achieving the maximum balance between the stock and increment.

In terms of total volume, North America and Southeast Asia represent the main destinations for China’s cross-border e-commerce overseas mature markets and emerging markets, respectively. At the beginning of BEST’s overseas business layout, it followed a strategic idea of ​​connecting China’s mainland, Southeast Asia, North America’s main production areas, and major consumer areas through cross-border logistics network routes, and carried out deep cooperation or self-operated layout on key resources such as warehousing, trunk transportation resources, end delivery transportation capacity, and customs resources on the cargo chain. The goal is to open up end-to-end and one-stop cargo routes from China’s mainland to Southeast Asia and North America, and build a cross-border logistics service product service system that serves all categories.

(BEST International’s warehouse network layout in Southeast Asia and North America)

Full outsourcing itself requires logistics service providers to have sufficient diversified destination country coverage and product matrix. BEST has completed the product system construction that adapts to various logistics requirements in the full kilogram segment in both North America and Southeast Asia in the two basic forms of cross-border e-commerce logistics: direct mail and overseas warehouses. In the early stage of e-commerce platforms’ full outsourcing and in the so-called mature stage in the future, BEST’s resource and operational capabilities will have a sufficient platform for development. Moreover, BEST has created generic resources and capabilities that go beyond specific logistics products such as express delivery, express transportation, and large-scale e-commerce. Coupled with the continued technological capabilities to this day, it not only plays a role in doubling the efficiency of BEST International’s business going overseas, but also completes the entire lifecycle of enabling logistics business with technology going overseas through self-developed digital systems and IT underlying capabilities that adapt to localization and personalized features from a high point of view of technology and efficiency. 04 Full outsourcing cannot change the basic pattern of industry fragmentation and competition 4.1 The integration from platform full outsourcing cannot change the current status of industry resource layout

The reasons for this conclusion are twofold:

Firstly, full outsourcing cannot change the industrial status of the cross-border e-commerce logistics industry caught between upstream and downstream pressures. This status will not fundamentally change with changes in external markets. There may be local and temporary shifts in supply and demand relationships, but the discourse power ultimately remains in the hands of a few upstream and downstream entities. Even if platforms enter the market, they are unable to completely reconstruct the industry’s resource structure.

Secondly, the strong absorptive effect of platform traffic entry on logistics service providers has always been present, and the so-called integration trend brought about by full outsourcing basically cannot reach the logistics sector. We will continue to work hard as we have done in the past.

Therefore, even with a sufficient volume of platform shipments (order density), based on the stability of the industry’s resource foundation layout, the platform cannot achieve the theoretical “everything is included” in the full chain and all directions, even if it is out of self-built efforts.

However, changes are still changes, and adjustments or reconstructions of interest relationships to varying degrees will inevitably have an impact on the logistics market. Different types of cross-border e-commerce logistics companies will also show different new changes in this process. 4.2 Full outsourcing actually targets the increase in overseas online shopping and will bring new opportunities for resource-based and operation-based enterprises.

Overall, the platform’s direct participation and adoption of full outsourcing to face consumers is both an adventure and a reconstruction experiment of the cross-border e-commerce ecological value chain. During the experiment, some will benefit while others will suffer. Although logistics functions are the focus of the full outsourcing model, the reform of full outsourcing will not have a deep structural impact on the industry considering its past business model and operational attributes.

From the perspective of the cross-border e-commerce logistics industry, companies like this will embrace the strategic and sustained growth brought about by the resilience of cross-border e-commerce going global, together with e-commerce platforms. Resource-based and operation-based enterprises will have greater ability to exert themselves in the fully-managed mode. Taking Best Inc. as an example, in emerging markets represented by Southeast Asia and developed countries represented by North America, it can fully absorb the industry’s stock and incremental dividends, and through infrastructure resource sedimentation and operational advantages, continuously serve the demand for all categories and forms of domestic goods going global.

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