zhaogang.com: An ‘Iron Man’ Driven by a Four Trillion Stimulus Plan
Starting from the user side, zhaogang.com has reconstructed its steel supply chains. As an e-commerce platform, zhogang.com’s original intention was to help users to improve efficiency, solving their pain points.
► The four trillion stimulus plan changed the market conditions – steel became a buyer’s market and the era became one of overcapacity, leading to extensive transformations.
► The Chinese steel industry’s weaknesses pushed zhaogang.com to start from matchmaking trading, which attracted massive orders and further creates its new self-operation mode.
Following the shock of the 2008 Financial Crisis, China’s economy was decreasing rapidly, with exports showing negative growth and massive firms closing down. To cope with this situation, China came up with ten measures to expand domestic demand and stabilize economic growth for two years – the total amount was about CNY 4 trillion.
The stimulus plan changed China’s steel industry to its core. The demand for the steel industry had exceeded supply before 2010, as the traffic patterns were pretty traditional, and it was easy for firms to earn money. However, after the stimulus plan, many firms blindly expanded production scale, accelerating commodity supply. Due to this oversupply, the steel industry entered a time of overcapacity, transferring from a sellers’ market to a buyers’ market.
To develop during the overcapacity period, the steel industry needs innovation and change. zhaogang.com could be seen as an example; set up a sizeable platform-based ecosystem, connecting all the steel trade participants' value chains. To date, this ecosystem has created 110 steel factories, 4000 large suppliers, 0.1 million registered users and over 0.4 million steel products.
The steel B2B trading platform's continuous innovation pattern was caused by China's steel industry shortage, including weak circulation links and diversified industrial chains. Before the emergence of zhaogang.com, the traditional steel industry's trading lines were too inflexible. From steel mills, agents, intermediary businesses, small traders to terminal users, there were at least five intermediate links, largely decreasing the efficiency. As for the industrial chains, the upstream and downstream chains show pretty different degrees of development. For example, the upstream industrial chains like manufacturing were in the international standard, while the downstream industrial chains in logistics and processing were highly diversified. Hence, the whole steel industrial chains were very inefficient and had opaque information.
The largest pain point in this chain was from small and medium-sized buyers, as it was hard for them to find the source of goods, and then supply these steel goods to the terminal-like construction sites. But meanwhile, as the second terminal, they were the real consumers in the market, and the real retail users. It was better to enter commodity retail by seizing these people.
Based on the weaknesses, zhaogang.com started doing matchmaking trading after setting up, which helped it enter the steel industry more quickly. There were two choices for it to do matchmaking trading: one was charging fees to earn profits, but this would stop expansion due to the costs. Another way was to do it freely to form the platform effect, mainly concentrating on markets and improving word of mouth. The first choice was more stable, as the second one meant increasing fundraising, which was riskier. Nevertheless, its president, Dongjian Wang, selected the second way, to form an e-commerce platform for steel. There were two reasons for him to make this choice, based on his foresight. Firstly, he believed Internet startups would help him open steel industries’ entrance points, integrating industrial chains. Secondly, he thought e-commerce would be a new income source for the steel industry, as the market turned to the buyer’s market and less information asymmetry.
Thanks to matchmaking trading, zhaogang.com gained massive orders, and some steel firms actively distributed their resources using zhaogang.com. Therefore, the steel B2B trading platform caught up with this trend, expanding its businesses to self-operation mode. with this mode, zhaogang.com replaced a crowd of middlemen, changing the circulation link from steel mills to zhaogang.com to allow steel mills to face terminal users directly. Moreover, it helped to improve efficiency and optimize the supply chain.
Except for matchmaking trading and self-operation modes, zhaogang.com’s success also came from its innovations. In terms of logistics links, it improved its efficiency by standardizing its product services. To cope with issues in elaborated products, zhaogang.com started distributing its system of processing to attract traffic. Regarding the processing industry, zhaogang.com cooperated with 200 processing service providers by the end of 2019, providing standard storage and processing services. These storage and processing centers adopted zhaogang.com’s warehouse management system and order management system to support and optimize the storage and distribution centers. When it comes to the steel circulation links, the firm set up a financial department, managing its strategic fundraising internally, serving banks and other financial institutions. As for its external businesses, it launched some supply chain financial services such as Pangmaobaitiao to provide credit account services.
The steel industry's rapid growth helped to accelerate zhaogang.com’s development. To begin with, the Internet strategy mentioned in National People's Congress and Chinese People's Political Consultative Conference 2015 triggered the transformation of the steel industry, moving it from the first online era to the e-commerce phase. After this meeting, many upstream and downstream firms in the steel industry set up the e-commerce trading platform. By the end of 2015, China's e-commerce trading platforms numbered over 300, and the number of steel e-commerce platforms accounted for 57% during the latest two years. Secondly, the penetration rate in the steel-using terminals was still low, providing more room for steel e-commerce to develop. Specifically, the online rates of the circulation service providers were lower than 10%.
In a word, the four trillion stimulus plan altered the steel industry’s situation and promoted zhaogang.com’s growth. As a steel B2B trading platform, its main businesses were self-operation mode, joint venture model and supply chain services, with self-operation mode as the highest income source. As the steel industry develops quickly and more supporting policies emerge, zhaogang.com will attract more users in the future, becoming a top steel e-commerce platform.