For a market that did not exist in China before the 1980s, until China began liberalizing its auto industry, the auto parts segment has grown to become an economic force. On Guangyuan Road alone in the southern Chinese city of Guangzhou, more than a dozen auto parts epicenters attract customers from around the world, examining and buying auto parts.
Country-wide, there are about 400,000 auto parts shops selling to some 500,000 auto repair shops, both offline and via the WeChat app. The auto aftermarket is expected to grow steadily in the coming years, exceeding RMB 500bn this year, based on a forecast CAGR of 13.6% from 2017. However, the highly fragmented market, in which no single player stands out, also means that many owners of auto parts stores are feeling the pain of fierce competition.
Rapid expansion by a single player is not possible because auto parts stores rely mainly on their returning auto repair shop customers and word-of-mouth business. For customers, deciding on which of the thousands of shops to patronize and finding out exactly who has the right parts for their needs has been a longstanding problem.
That's where big data technology proves useful. Using such analytics to help buyers and sellers spot the best deals and business partners, Haoqipei is an online marketplace connecting vehicle repair shops with auto part suppliers. Founded in 2016 by veteran entrepreneur Chen Xi, Haoqipei aims to improve the auto parts market with its B2B SaaS trading platform that not only facilitates sales but also provides offline logistics and warehousing services and payment tools.
"I did research on many other industries before diving into the auto parts industry," Chen said. "This industry is fragmented and such a market is the best for internet transformation.”
Trusted platform
Haoqipei's first task was to figure out how to bring some order to such a fragmented market. On average, each car may have up to 30,000 parts. Even the same vehicle model can have different types of parts, depending on where and when the vehicle was produced. Factor in the number of auto parts stores and auto parts suppliers and the challenge of putting them all into one online platform becomes evident.
“There are too many parts in the market and many of them would be used only once or twice in a year, so it’s impossible to have everything stored,” said Chen Xi, who is also Haoqipei's CEO. "The supply is adequate, but when you need a rare part there is a high chance that it is lying in the warehouse of someone you don’t know.”
With so many stock keeping units (SKU) that can be easily confused with one another, Haoqipei based its marketplace on quote and recommendation instead of the traditional e-commerce search and buy model. For new auto repair shop buyers using the platform for the first time, they simply enter detailed information on the specific car part they need and for what model car (they can also enter a vehicle identification number). The suppliers in Haoqipei's platform will offer the buyer various quotes and the buyer can then select the offer that best suits its needs.
The platform, which allows buyers and sellers to negotiate, lowering the chance of misunderstanding, also facilitates the building of trust, which is crucial in a highly fragmented marketplace. Using big data, Chen’s platform assists buyers and sellers to build long-lasting relationships.
"When the platform started operating three years ago, suppliers and buyers traded based only on quotes and recommendations, but as time passed by Haoqipei collected data based on past transactions and added tags to suppliers and buyers automatically based on a number of factors, including the close rate and average part quality," Chen said.
He added that the tags help both the buyers and sellers: buyers see the tags alongside the quote to better know the sellers, and sellers with better records can receive more exposure at the recommendation page.
Using big data to build trust among buyers and sellers, Chen was also able to provide through the platform other features such as refund guarantees from sellers and 30-day payment terms for buyers with better credit ratings.
Banking on service
Haoqipei charges sellers for its on-demand software and for storage and delivery services. Whenever it enters business in a new city in China, Haoqipei stations a team in the city to help customers in the city navigate Haoqipei's system and ease the product delivery and return process.
One of Haoqipei's investors, XVC Venture Capital, was particularly impressed with the quality of Haoqipei's interactions with its customers.
"We have carefully studied the entire industry and found that in areas where there are multiple players overlapping, Haoqipei has always been the customers' preferred procurement platform,” said XVC partner Hu Boyu. "It is something that proved the success of Haoqipei's strategic executions."
In June, Haoqipei secured US$60m in series D funding, its fourth funding round in two years, bringing Haoqipei’s total funding to US$150m. Among Haoqipei's backers are Shunwei Capital, DCM Ventures, SIG China and Russian billionaire investor Yuri Milner.
According to Chen, the funds will be used to continue the company's domestic expansion, adding to Haoqipei's presence in 120 Chinese cities, and perhaps even to gain a foothold in overseas markets.
