Electronic Commerce emerged in the mid to late 1990s as a certifiable phenomenon, transforming the landscape of retail business. Internet-accessible storefronts emerged like mushrooms after a good rain, as new entrants raced to be "first to market" and existing retailers scrambled to restructure their enterprises so as to be more web-friendly.

The locus of business-to-consumer (B2C) e-commerce is centered in the United States, where a convergence of factors such as a strong telecommunications infrastructure, widespread Internet accessibility, and a substantial domestic consumer culture contributed to its explosive growth. The euphoria expressed in the media and financial markets was at times so excessive that it was described as a major factor in the "irrational exuberance" of the US capital markets.

Thus is it easy to understand how, for most people, e-commerce is defined by on-line B2C retail operations. However, a careful reader would have been aware, even in the early stages, of a few seers and prognosticators and their predictions that B2C was just the beginning, and would soon be overtaken by the much larger business-to-business (B2B) market.

The B2B movement gained enormous credibility with the announcement in February 2000 of the formation of a consortium of brick-and-mortar companies (CoBAM) for the automotive industry. General Motors, Ford, DaimlerChrysler, and Renault/Nissan formed an independent company called Covisint with the specific ambition to establish a global B2B exchange for automobile components, with support for procurement, supply-chain management, collaborative product development, and even financial services.

Virtually overnight the e-commerce landscape changed, as the economic activity encompassed by the Covisint exchange alone was estimated at about four times the entire business-to-consumer sector at the time, and with a higher projected rate of growth.

The emergence of B2B marketplaces has become the growth industry of the new millennium. In the months following the Covisint announcement, major B2B CoBAM marketplaces were announced in a wide range of sectors: retail purchasing, paper products, plastics, travel, chemicals, steel, energy, electronics, construction, and many more. The list is extensive, and seemingly grows longer with each passing day. While many of these exchanges have progressed little beyond the announcement and preliminary development stages, the trend seems inexorable, and the dollar value staggering.

The first generation of B2B exchanges offers benefits to both buyers and sellers. The buyer benefits from the presence of numerous potential suppliers, a wide range of products, and a competitive pricing structure. Sellers can bring their products to a "central" market, with extensive exposure, minimal marketing effort, and modest technical requirements for participation. The main benefits accrued are reduced costs of procurement and streamlined purchasing processes.

In the representative case of the office supply B2B exchange Office.com, the main technical requirements to a vendor for participation are access to the current inventory database of a supplier, and conformance to the extensible markup language (XML) interface specifications so as to facilitate uniform presentation of products and transaction processing. Many similar examples exist, some with little more than an Internet connection and e-mail as the pre-requisites for participation.

The next generation, as exemplified by the CoBAM movement, attempts to integrate the entire supply chain and dramatically reduce the time-to-market. In the case of Covisint, one goal is to establish the capability to produce a custom-ordered car in a matter of a few weeks, rather than the months that it currently requires. Such a system requires deep coordination. It is a more ambitious undertaking, requiring substantially closer integration of buyers and sellers, and, in a sign of an emerging standard, conformance to the XML specifications. The technical pre-requisites for participation in integrated electronic marketplaces are increasing.

What are the defining characteristics of a B2B exchange? This is partly defined by the nature of the exchange: is it merely a broker for the deal, or does the exchange assume some responsibility for the deal, for fulfillment or product quality or financing? Typical features would include:

• a broad range of suppliers and products, with a strong representation of buyers, thus providing a "critical mass" of participants to establish the market, and the "liquidity" to buy or sell as needed;

• an integrated catalogue of up-to-date inventories with assurances of rapid order fulfillment, so as to facilitate shortened cycles of procurement and manufacturing;

• well-established technical specifications and requirements for participation in the market;

• quality assurance for the market, with feedback loops regarding product quality, fulfillment history, and financial transactions; the strongest and most responsible participants should be recognized, the risks associated with all participants should be known;

• security of the market, with strong user authentication, high standards for document integrity, transaction security, and preservation of the privacy of data of the participants;

• paperless transactions with enforceable legal agreements; on-line contracts with digital signatures to associate authorized agents with specific documents; support for financing and systems for payment processing;

• in the case of close supply-chain integration, the capacity for a buyer to reach down to the supplier to track products and make late-stage changes as necessary;

There are some risks associated with the new e-marketplaces. If the market does not possess the liquidity characteristic then it cannot fully reflect natural market forces, and operates in a constrained manner. MercadoLibre.com, the largest on-line auction enterprise in Latin America, has constructed a B2B auction site. Their Chief Technology Officer observed that the technical issues were readily solved; the major problem is that liquidity must be established individually for each B2B auction category. This constitutes an enormous challenge, especially in light of the observation that the sector-based markets have trouble establishing liquidity in more narrowly defined markets. In the case of Covisint, there are only so many buyers for automobile parts, and a limited number of factories around the world which have the capability to produce automobile parts in the volume and to the standards required.

There is also a serious concern that the buyers may exert substantial pricing pressure, thus squeezing the margins for the suppliers. Another pricing issue is that if one supplier is willing to sell under cost so as to capture market share then it endangers the capacity of others to legitimately compete. And, a concern raised with greater frequency now is that with the globalization of trade there may be a growing problem of production or manufacturing in countries with weak regulatory standards, resulting in exploitation of the environment or the workers and a diminished capacity for other countries with more stringent regulations to remain competitive.

The e-marketplaces are changing the way business is done, and as they do so the technical demands are increasing. Consider the case of the textiles industry. For many of its small to medium-size players, the industry operates based upon a network of personal relationships, and the technology consists largely of phone calls, faxes and, somewhat reluctantly, electronic mail. Design typically takes place in New York, or Paris, and then production is outsourced to locations such as Hong Kong or Bangladesh.

It is a volatile industry, with as many as five markets a year operating on pressing deadlines, long advance planning, and subject to last-minute changes. Production is often triple-sourced, so as to avoid the possibility of supply or production disruptions at a single source. Predicting the markets is also difficult, which can be seen in the current season by stores full of merchandise, with stagnant sales, because the styles are seen as unfashionable.

How would this industry benefit from electronic B2B marketplaces? The creative team could utilize fabric and component (buttons, zippers) markets during design; and later the manufacturers could use these same markets to procure the raw materials for production. The garment specifications and price points could be presented in a textiles marketplace, open to bidding from around the world.

The marketplace would assume the role previously exclusively held by the personal relationship, assessing the reliability and worthiness of potential manufacturers. Products could be triple or quadruple sourced, as desired, provided market liquidity is evident. The time from design to production and shipping could be significantly reduced, thus providing greater agility to respond to changing market conditions or fashion sense, and in an integrated environment could reach right down to the fabric cutting room floor. Thus, ideally, communication is improved, transaction costs reduced, time-to-market is significantly reduced, and the entire process made more fluid and responsive.

The transformation will not occur overnight, as the B2B markets are still quite new, and long-standing relationships will remain for years to come. However, the barriers-to-entry for newcomers in the textile market are substantially reduced, so it is likely that new entrants will embrace the efficiencies of the e-markets, and if successful, will over time force the existing companies to do likewise.

B2B marketplaces are emerging as the backbone of global trade. It is a development which commands the attention of the export strategy maker, as constructive engagement in the international markets will require an increased level of what is now described as e-competence. It is evident that the technical expectations imposed by participation in such markets will increase. Vendors with high levels of e-competence will have a competitive advantage over those who do not.

What, then, are the requirements for successful participation? The answer will change, from industry to industry, but the minimal requirements would include a strong telecommunications infrastructure, with reliable and robust power systems, Internet connectivity, and routine telecommunications services, along with a commitment to modern technical standards, in areas such as system administration, database management, web technologies, and system security. The effective deployment of Information Technologies, with the ongoing development of intellectual capital, will be as important, if not more so, than financial capital.