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    E-business Marketplaces: A Revolution in International Trade

     

     
     
    © International Trade Centre, International Trade Forum - Issue 4/2000 
     

    A real revolution is happening in nearly every market in which you export that will change the way that trade support institutions (TSIs) operate.
    The seat of this revolution is business-to-business (B2B) marketplaces. They bring together in one place all of the participants and associated services for international trade: suppliers, buyers, shippers, logistics, finance, inspection services, marketing news and software applications that facilitate digital catalogue production, purchasing and sales.

    E-business marketplaces are essentially the virtual equivalent of a town market - but open to buyers and suppliers from anywhere in the world who can connect a computer to the Internet. An e-business marketplace's objective is to be so easy and efficient to use that buyers and sellers will be willing to pay for the services offered. Such marketplaces exist in nearly all industry sectors. The leaders in these developments have been market-dominating businesses that could afford the million-dollar investments initially required. Now, more modest marketplaces that link together existing business communities can be built for a fraction of the cost of the earlier sites. In countries with slow and unreliable communication links, prospective users may have to establish temporary access through a site in another country or invest in their own, or shared, Very Small Aperture Satellite link (VSAT), a method that has been used by businesses in Nepal, for example.

    Why a revolution? 

    Big changes are occurring in the cost of transactions and the way that all enterprises relate to each other. New technol-ogies allow buyers to simultaneously communicate with many product and service suppliers, their supplier's suppliers, production and distribution facilities. This leads to a dramatic reduction in costs, order cycle times and working capital requirements and a big increase in efficiency and effectiveness as summarized in the table on the following page.

    It also lets suppliers put together a seamless package of products and services to suit each buyer's needs. Typically, buyers have reported reductions in input costs of 10% to 30%, and suppliers have reported reductions in selling costs of 5% to 20%, according to a recent survey by Goldman Sachs. Transportation companies also benefit as they can arrange loads for their return journeys when they would normally run empty. Those enterprises that have restructured their internal processes, hierarchies and communications around the demands of a digital environment have benefited most. They have been able to manage their entire supply chains through the Internet and move from the traditional Buy-Hold-Manufacture-Hold-Sell process to a Sell-Source-Assemble-Ship model. In other words, they build-to-order, rather than build-to-stock.

    From marketplaces to Internet Trading Exchanges 

    E-business marketplaces come in many disguises. A term commonly used these days, to distinguish them from single company sites, is "Internet Trading Exchange" (ITE). Some ITEs are restricted to a specific industry subsector, such as the

    Africa recycling exchange, http://africa.recycle.net/. Others have a wider scope. For example, http://www.goindustry.com/ covers surplus equipment sales for many industries; http://www.mmprocurement.com/ covers metals industries; and http://www.gofish.com/ for international seafood sales.

    ITEs are not restricted to industrialized countries. There are examples based in Peru, Paraguay, Thailand, India, China, Mongolia, Uganda and other developing countries. There are currently more than 1,000 ITEs in operation, with many more planned to come online next year.

    Prepare your country for Internet trading 

    At ITC's first Executive Forum (Annecy, October 1999), a number of national trade promotion organizations expressed doubts about the usefulness of the Internet as a tool for international trade. A year later, those doubts have disappeared. The question now is how to harness the Internet to trade more effectively?

    Nine practical steps 

    Here are nine practical steps that TSIs can take to help their country's exporters to benefit from the Internet. Based on the successful experiences recounted by delegates at this year's ITC Executive Forum event, the steps cover: creating a supportive national environment; ensuring that your organization is using the Internet effectively; and helping exporting suppliers to become more effective, using technology and training.

    1. Sensitize national leaders and international agencies about what your country needs to become e-competent. Work in partnership with organizations representing small and large businesses and international agencies. Analyse what your country needs to become e-competent, and work with interested partners to raise awareness among business, government and media leaders. Communicate your conclusions to national decision-makers and international agencies, in order to find solutions. At the same time, keep exporters and their supply chain partners informed about the fast-changing forces that drive e-business in each industry sector. Communication can be through workshops, conferences and specialized trade journals.

    2. Team up with international buyers to train local suppliers. Exporters need to know how to get the most from new technologies. Training should cover adapting business and manufacturing practices for the digital economy, using auctions and trading exchanges, preparing bids with segregated financial and technical details, networking suppliers and security. Suppliers will also need to learn about Internet-based research techniques, collection and analysis of customer data and assessment of information quality and accuracy. ITC and some international buyers run supplier education programmes, and are willing to partner in workshops for local supply chain participants such as logistics providers, customs and port authorities, suppliers, banks and government agencies.

    3. Research and provide information on-line. Suppliers need to know which Internet trading exchanges and web-based information sources are relevant to their industry. They also need information about the exchanges themselves: the level of security provided, what facilities are available, what is required to participate, and which buyers are part of the network. Trade support institutions can help fill this gap by selecting the best information, synthesizing it and disseminating it to their country's or region's exporters. ITC provides some of this information on its web site, and more will be added soon (see box).

    4. Use IT to improve supply chain efficiency. Help firms use information technologies to make their operations more efficient so that they can fulfil export orders on time, with less errors and with goods of the appropriate quality. Practical training should be given on converting paper-based information into a digital format; integrating logistics operations, financial administration and production information and managing a chain of suppliers. This will involve arranging workshops on organizational and management issues for exporters, their suppliers and their supplier's suppliers. Smaller suppliers with export potential can be encouraged to form consortia to achieve the production capacity required by international buyers. TSIs can offer training in organizing and managing buying or selling consortia and work with local Internet service providers to offer low-cost consortia management software applications.

    5. Raise buyer confidence in local suppliers. Establish supplier verification and arbitration services and up-to-date reference databases; publish supplier and port operations' success stories. Notify users when port services are interrupted. Ensure that any information provided for the benefit of potential buyers or foreign investors is dated, kept up-to-date and complete.

    6. Offer your own traditional services online. Build your web site as a "one-stop shop" so that buyers and sellers can find the information they need in one place. Move traditional paper services online; for example, certificates of origin, packaging and quality standards, and phytosanitary certificate requirements. Other services for exporters that cost little to implement are currency exchange-rate calculators, news feeds, shipping movements.

    7. Encourage arrangements with industryspecific portal sites. International buyers source through industry-specific sites before they look at geographic sites. Rather than focusing exclusively on featuring your national exporters on one TPO portal, develop arrangements and links that feature your exporters on industry-specific exchange sites that you have evaluated. Help exporters to decide when it is wise to invest in their own Internet site, and when it is better to work through existing marketplaces.

    8. Encourage local software and content development. One by-product of growing Internet use is an explosion of demand for Internet application software services for local languages and cultures. It is much better if this demand can be satisfied from within your country. TSIs promote international standards for design quality and IT project management as a springboard for future exports.

    9. Explore back office opportunities. TSIs should explore new export opportunities that arise from technological progress and can offer a quick return on investments in Internet technology education. For example, companies in developing countries can provide office administration services, customer and purchasing service centre activities via Internet links for client companies located on the other side of the world.

    ITC's publication Offshore Back Office Operations: Supplying Support Services to Global Markets examines these opportunities in detail.

    Ian Sayers is ITC Senior Officer for the Private Sector International Supply Chain Management. He can be reached at sayers@intracen.org 




    The Internet advantage 

    Supply chain cost reduction - Reduction in order cycle time from weeks to days or hours. Order fulfilment accuracy up from 70% to 98%. Reduced inventory costs through tighter supply pipeline control and more build-to-order.

    Process cost reduction - Lower transaction and communication costs (80% saving in time, communications and labour).

    Market efficiency - A few large fora, abundant market intelligence and vendor choice (savings up to 50%).

    Increased revenues - Through new activities funded by cash released from reduced working capital cycle.




    Database of Internet trading exchanges 

    One outcome of this year's Executive Forum on Export Development in the Digital Economy is a new partnership among several trade promotion organizations and industries to produce a database of Internet trading exchanges and the services they offer. Work is scheduled to commence on this project early next year. ITC would like to call on its purchasing and supply chain management partners in developing countries to build a network of information sources on Internet trading exchanges based in their countries. Contact I. Sayers at sayers@intracen.org