Asia’s B2B e-commerce faces greater hurdles, opportunities

Lack of payment and logistics infrastructure creates formidable challenges for companies seeking to establish online B2B (business-to-business) marketplaces in Asia. However, these same challenges mean that successful B2B marketplaces, once established, could prove more valuable to buyers and sellers – and to owners – than similar marketplaces in the United States and Europe.

These were the top-line conclusions of a recent roundtable discussion sponsored by the Click2Net forum, a bi-monthly gathering organized by McKinsey & Co., Rosanna Go and IBM. The forum provides a venue for B2B players to gain insights from their peers, discuss recent market trends, and interact and network with each other.

In the recent forum, four start-up online firms with a presence in the Asia-Pacific region shared their confidence in, and their concerns about, their recent leap into the B2B fray.

Management consulting firm McKinsey and Co. has observed that B2B e-commerce in the Philippines, and in Asia generally, will develop differently than in the US and Europe. For example, the limited e-payment and logistics infrastructure in Asia means that marketplace operators may need to provide financial settlement and fulfillment services, rather than serving simply as "deal brokers," the traditional role of online marketplaces.

Several members of the forum confirmed this observation. According to Danny Pido of CateringX, a B2B online marketplace for the catering industry, "I think the companies are looking for much more than what (most marketplaces) offer right now. To (make) the B2B marketplace (grow), we need to offer value-added services, for example, e-payments."

Companies that can provide such value-added services will find themselves holding a strong competitive advantage over other B2B operators. "The challenges of developing the services are great, but once you get over these challenges, the rewards are equally large," said forum participant Charlie Villaseñor of BayanTrade.com, a consortium of business conglomerates operating a B2B e-procurement exchange.

Another challenge is the low level of IT readiness of many Filipino companies. To participate in an online marketplace, companies must have IT systems powerful and sophisticated enough to exchange data with the marketplace in real-time.

"It’s a huge challenge when you look at what each company needs to do inside their enterprise to be successful and to re-engineer themselves to work with these exchanges in the future," said Jay Ennesser of IBM’s E2Open, which provides software and solutions that power online marketplaces.

CateringX’s Pido concurred: "Very few issues have surfaced in building our exchange but what came as a rude awakening to all of us was the state of the supply chain in general, in terms of being Net-enabled."

Beyond beefing up their IT capabilities, companies planning to join an electronic marketplace must prepare for the transparency that comes with doing business online. Joining a marketplace can mean opening a company’s records for the world to see, something that many organizations are ill-prepared to do.

Ennesser said: "Before you plug into an exchange, you better have your homework done with what’s inside your own company. If you don’t, everything you do is out exposed to the world and (to) your competitors."

A final challenge facing Asian B2B marketplaces is attracting the volume of trade needed to make the exchange profitable. In the US, a large, unified market makes it easier to achieve the needed volume. Asia’s fragmented markets pose challenges to securing critical mass. Thus, it will be vital to secure the commitment of major industry buyers and sellers to participate in the exchanges.

BayanTrade’s Villaseñor commented: "The (crucial) thing would be critical mass. For example, in the Philippines, in BayanTrade, all of the six conglomerates could just drop out and continue doing business without a marketplace. But they believe that the critical mass will bring in the revenue and (increase) the value to the participants as a whole."

These challenges, serious as they may seem for fledgling online companies, failed to dampen the forum participants’ enthusiasm for their businesses. Rather, they saw these hurdles as necessary challenges which could be overcome with sound business strategies.

"When you’re building an exchange, you’re building infrastructure like any other (brick-and-mortar) company," Ennesser explained. Thus, a firm business foundation is imperative. Without such a foundation, the company will eventually fall apart – a lesson often overlooked amid the recent dot-com euphoria.

The secret to success, virtually all forum participants agreed, is flexibility and a willingness to constantly reassess and adapt the company’s business offering. "I’m (constantly) trying to figure out what the value proposition is going to be next week. Because whatever it was today, it’s going to change in 10 days," Ennesser said.

Keeping up with the industry is necessary, as well, and among the emerging trends are mergers and consolidations of B2B players, to build liquidity. "In a few years’ time," CateringX’s Pido predicted, "we will see very few (catering) exchanges existing."

While the near-term hurdles facing B2B companies are significant, it is important to recall that the industry is still in its infancy and will evolve significantly in the years ahead. "I am able to sleep (better) at night when I think that this type of business is something that will take time to develop," commented Patrick Go of Re2Re.com. "For example, in the case of Jeff Bezos of Amazon.com, it actually took him five years (of operations) before he went public. So I must say that (online commerce) is something for the long haul."

(Click2Net invites interested sponsors and speakers for the next forum, tentatively scheduled next month. Contact Rosanna Go at <[email protected]>, or access their website at <www.click2net.org>.)