Volume 6, Number 16, Page 3

The E-Commerce Marketplaces and International Trade

By Barney Leher

“E-Commerce” is joining the lexicon of words being used on and about the Internet that do not have clear definitions. Perhaps the place to start is The Commerce Webopedia (http://e-comm.webopedia.com/) which defines electronic commerce as “Conducting business on-line.” This includes, for example, buying and selling products with digital cash and via Electronic Data Interchange (EDI). This definition can include transactions ranging from individuals buying books for $5 to Fortune International 10 companies purchasing $10 million per month in auto parts. For the purposes of this article, I refer to Web sites that offer variations of electronic commerce to the international trade industries. In this sphere, the term is most commonly to what I will call “Global Marketplaces” (some might ca them bazaars or auction rooms), where “communities” of businessmen and women are formed to trade leads and information and conduct their business. In international trade, the most common types of these sites are:

Import-export trade lead sites (“Tradeboards”)

Transaction enabling sites that define and create markets for business-to-business purchases.

Import Export Trade Lead Sites

Trade lead Web sites were among the first business-to-business offerings on the Web. Even before the World Wide Web because generally available, CompuServe was running an “International Trade Forum” that allowed posting of offers to buy and sell from Forum members worldwide. The idea quickly spread to Usenet newsgroups.

In 1992, the United Nations Conference on Trade and Development launched the first “Trade Points,” local trade offices in 134 countries, with the intention of helping developing countries to take advantage of the opportunities offered by electronic commerce. By 1995, the United Nations Trade Point Development Centre, administered in Australia, had developed a Web site listing Electronic Trading Opportunities (“ETO’s”) that was to become the largest trade lead Web sites in the world. The ETO System (http://untpdc.org/) connects more than 10,000 trade related bodies in 75 developed countries, 60 developing countries and 20 Less Developed Countries. The system generates more than 130,000 records monthly and switch transfers over 2 million emails a day. They have listed more than 1 billion trade leads since their inception.

Hundreds if not thousands of similar, if smaller, Web sites (the term “Tradeboard” has become quite common) have sprung up since 1995. I have identified at least 400 such Web sites, most of which are catalogued on the Federation of International Trade Associations “Trade Hub” (http://internationaltrade.org/tradehub.shtml). One of the reasons for this proliferation is the development of free “scripts” that can be set up without much or any programming skills. These scripts can be inserted into Web pages and be easily customized with other graphics and text. The most commonly used script is Matt’s Script’s “WWWBOARD,” which can be found at http://www.worldwidemart.com/scripts/wwwboard.shtml.

A sub-industry has also appeared of Web sites that (for a fee) automatically post your notice or lead to hundreds of these “Tradeboards,” including the ETO System. These same “Robots” will also email you, on a daily basis, leads that have appeared on the “Tradeboards” that fit a product or industry profile that you have identified. For example, if you sell semiconductors, you could have one of these Robots automatically send out your offer to hundreds of Tradeboards. At the same time, you receive, by email, all leads that were posted to any of the Tradeboards that contained the word “semi-conductor,” or any other word, phrase or group of words. In this way you can identify competitors and their prices and potential suppliers and also be contacted by potential customers.

Caveat Emptor

There are problems with these systems, however. Because they are usually free or low cost, there is no real way of qualifying the person or company who has posted a trade lead. It is entirely possible (and indeed common) for people to post leads for products they do not control, using pseudonyms and identifying themselves with the names of nonexistent companies. This is done for reasons ranging from a desire to send up a “test balloon” to gauge pricing to more sinister fraud schemes. A few sites have attempted some qualification by demanding and checking bank references. The US Department of Commerce publishes hundreds of leads on the National Trade Databank (http://www.stat-usa.gov/tradtest.nsf) that list information such as the size of the business, bank references, etc. And there are many credit reporting services now available that can give, at a low cost, credit information about millions of companies worldwide. For a list you can look at http://internationaltrade.org/webindex/credrepc rts.html

Transaction Enabling Web Sites

The latest development, both technologically and commercially, in business to business web commerce is the development of sites that allow companies to make their purchases and negotiate prices through either auctions or email technologies. Although the consumer electronic commerce sites such as Amazon.com are getting a vast amount of media (and stock market) attention, the real revolution in international commerce is taking place on these business to business transaction sites.

General Electric developed over several years an internal, Web based electronic procurement system that enabled electronic purchasing between its divisions. Recently it made the same technology available on a Web site that may become a major powerhouse of international commerce. The TPN Register (http://www.tpnregister.com/) is a joint venture between GE Information Services and Thomas Publishing Company, publishers of the Thomas Register of American Manufacturers. The system allows industrial buyers to procure MRO (Maintenance, Repair and Operation) and other indirect goods and services through a simple point and click interface. Transaction costs are reduced because of the immediacy of the information and integration of ordering, processing and logistics. This system is a major model of the future of procurement for large corporations and governments.

On the TPN Register, purchasers buy from negotiated agreements at approved prices. They also send accurate orders more quickly and easily than they would by using paper, phone and fax methods. Suppliers put their complete catalogs on the system and receive information more quickly so they can process orders faster. And the system electronically produces an electronic record of all transactions for auditing, payment and reporting.

In recent months many other software companies have developed similar software products. It will be interesting to see how this new software market niche develops.

The World Economic Forum, in partnership with Bureau Veritas, the Danzas Group, Deloitte Touche Tohmatsu, Dun & Bradstreet and the SGS Group has set up a site called Industry to Industry (http://www.itoi.com) that creates a “reverse auction” (where the buyer lowers the prices by having supplies bid against each other) for companies that have to sell excess inventories. Bids are placed anonymously for industrial and wholesale goods that are listed. Members of the system can also place requests for lots of items that they need. This model may indeed become the model for future commerce, as one of the main revolutions caused by commerce on the Internet is transparency of pricing and disintermediation of commercial relationships. An auction, where buyers are in control of setting the prices, creates what economists define as perfect competition, where prices are set by the absolute forces of supply and demand. Since there are no distance or time barriers to participants in this market, this may indeed lead to the closest any forms of commerce have gotten to perfect competition since the days of primitive barter commerce. It is interesting that the Web is many ways is leading us back to very ancient forms of commerce and other behaviors (such as letter writing). It also means that commerce will more than ever become more dependent on price than on long-term relationships.

Freemarkets (http://www.freemarkets.com) is another reverse auction” transaction enabling site that is changing the methods and economics of business to business commerce. The site allows large companies or government agencies to define their prices for goods and services. Entities that participate in the system establish profiles of their purchasing needs or supplying capabilities to Freemarkets. A multidisciplinary “Market-Making” team is assigned to each sourcing project. The team works alongside the buyer throughout the process—from preparing the RFQ to awarding the business. A “bidding day” is established, when suppliers bid against each other in the presence of the buyer’s purchasing team. Suppliers are pre-qualified by Freemarkets and are allowed into the bidding process only when approved by the buyer. Buyers and sellers for the bidding process must use special software supplied at no cost by Freemarkets.

MarketSite.net (http://www.marketsite.net) appears to best bridge the gap between EDI or similar electronic systems and Web based systems. The MarketSite approach is to integrate all aspects of the procurement process into one place, even if some parts of the process are not completely automated. Working together with traditional EDI and other purchasing technologies, MarketSite allows the buyer to go to one site on the Web (customized to the look and feel of the corporate Web site or intranet) and walk through each step of the procurement process from product selection to approval to shipment tracking, both internally and externally to tax and payments. Suppliers either have their catalogs on the MarketSite Web site, allow it to be fed from their own Web sites or other data source or feed information requested by buyers directly thought the MarketSite Web site. Internal procurement approval processes are customized to reflect the process in the buyer’s organization. Shipping is tracked through a combination of access to common carrier’s tracking systems and an organization’s internal automated processes.

MarketSite.net can be used by buying organizations using Rightworks’ ProcureWorks buying application, SAP’s R/2 and R/3 purchasing modules, OBI, EDIFACT, RosettaNet and other purchasing software. MarketSite.net is accessible by suppliers using only a browser or by integration with suppliers’ Web sites built with popular selling solutions, such as those offered by Intershop or Microsoft Commerce Server with the addition of BizTalk.

PurchasePro (http://wwwpurchasepro.com) and MRO.Com (http://www.mro.com) have similar business models. They have catalogues from numerous suppliers of non-production goods and services such as computer, office and facility supplies (also called Maintenance Repair and Operating or MRO). “Members” or buyers are able to easily comparison shop and then immediately purchase these goods online. Savings come in the form of lower negotiated prices and less labor required for procurement.

TradeQuote.com (http://www.tradequote.com/) has a slightly different process. Buyers come to the Web site and list a product for they are searching. An anonymous notice is immediately sent out to registered suppliers of the product. They respond with their “blind” bids. A similar process also exists for shipping services through a network of member freight forwarding firms.

Vertical or Industry-Specific Business-to-Business Electronic Commerce

In addition to the general multi-industry sites described above, many vertical or industry specific sites are also starting up on either an auction or simple RFQ model.

Sophisticated electronic commerce sites can be found for the chemical industry (http://chemdex.com), elec-tronic components (http://fastparts.com), textiles (http://www.apparelex.com/fabriccom6/), steel and steel products (http://metalsite.com/), pharmaceutical pro-ducts (http://www.neoforma.com), paper products (http://www.paperexchange.com/), fresh produce (http://www.producenet.com/), and seafood (http://www.seafood-auction.com). The series of industry focused Web sites called VerticalNet (http://www.verticalnet.com) includes leads for many industries, including environment, electronics, scientific equipment, food products, communications and other industries. There are rumors that VerticalNet is in the process of developing trans-actions systems on their Web sites.

The Internet is rapidly revolutionizing how commerce is done. The global nature of the Internet means that this business to business commerce can be transmitted almost as easily across oceans as across town. Inexpensive and efficient, giving buyers a great amount of information and bargaining power—the Internet is how much of business in the future will be done.

Barney Leher is the webmaster for The Federation of International Trade Associations. For links to the Web sites mentioned (and similar ones) in this article, look at http://internationaltrade.org/ecomnlerce.html and http://internationaltrade.org/ecomnlerce.html. This article first appeared in The Exporter.