Philippine Business Magazine: Volume 8 No. 4 - Cover
Trading Places
Electronic marketplaces are changing the way businesses manage their supply chain

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Marketing the Market

A growing number of consumers are now very familiar with buying things online – technically known as B2C (business to consumer) commerce. In the same way, businesses now have an option to just click away purchase orders or display electronic catalogues and instantaneously trade wares on the world-wide web. This is made possible with the advent of B2B exchanges popularly known as e-marketplaces.

A factor to BayanTrade’s success is its professional management team headed by Carol Carreon, a hardcore IT professional

Abigail Yap, CEO of SourcePilipinas, one of the country’s B2B exchanges, says that “the whole idea of an e-marketplace is to build a participant-centric exchange model where each service offering is intended to add value and improve operation for the participating company.”

The advantages of online, 24-hour internet-based electronic marketplaces are no loose change for business. On the buyer’s side, the company can count on lower transaction costs, reduced cycle times, minimized costly errors and incidence of maverick buying, easy sourcing of suppliers regardless of size and location, and real-time and immediate access to suppliers’ information on price, supply availability, and other relevant items.

On the supplier’s side, being part of a B2B network means increased visibility and exposure to more potential buyers. Of course, this would translate to faster volume turnover while at the same time increasing savings through lower selling and transaction costs. Imagine not having to maintain a platoon of sales and marketing agents because supplier’s catalogues are accessible to potential buyers online. Not to mention the added advantage of a more efficient inventory management.

The Players
E-marketplaces in the Philippines are a growing industry. While the cost to set up a marketplace is staggering, a number of them are now actively in serious business: BayanTrade.com, PhilBX.com, SourcePilipinas.com, CateringX.com, AsiaRx.com, B2Bpricenow.com, Kalakalan.com, Earthmx.com, and PhilippineSuppliers.com. AsiaRx was not spawned locally but, just the same, dedicates a localized vertical portal for the Philippine pharmaceutical industry.

The young industry is grouped into two: the horizontal and the vertical B2B exchanges. Horizontal exchanges handle all the e-procurement needs of its members, from office supplies to chemicals, to courier services. On the other hand, vertical exchanges are focused on one or more industries or sectors. BayanTrade, Kalakalan, PhilBX, PhilippineSuppliers, and SourcePilipinas comprise the horizontal e-marketplaces while AsiaRx (pharmaceuticals), B2Bpricenow (agriculture, construction, and chemicals), CateringX (food), and EarthMarket Exchange (computer) comprise the vertical e-marketplaces. Nevertheless, some of the horizontal B2B exchanges like BayanTrade are also starting to build vertical portals or vortals for some industries within its e-marketplace. BayanTrade’s construction portal is now being pilot-tested.

These e-marketplaces which are live on the internet and open to the public are a different league from the so-called private exchanges like that of the SM Group which cater to the procurement needs of its owners and whose transactions are internal and confidential within its group.

Growth Cycle
Notwithstanding the decade-long dot-com success’ recent metamorphosis into a dot-com crash, a number of companies still go online for B2B commerce. As Carol Carreon, President and CEO of BayanTrade puts it, the industry is just in its entry stage and, thus, “the whole future beckons.” In fact, Carreon explains that BayanTrade will, by next year, just reach the tipping point which, according to Carreon, is described in Malcolm Gladwell’s international best-seller of the same title as the time when an idea, a concept, or even a disease reaches a stage when it will spread like wildfire. She supports this with her optimism that the number of companies that will do B2B commerce will be on an uptrend before 2004.

More encouraging is Massachusetts-based research firm International Data Corporation’s (IDC) finding that e-marketplace services will grow 27% annually from US$5.2 billion in 2000 to US$17 billion in 2005. IDC also expects e-procurement’s share of the total supply chain globally to reach 20% by 2004. In addition, according to Forrester Research, the Asia Pacific region has the potential to account for nearly a quarter of the total global internet economy by 2004. The activity translates into some US$1.6 trillion in value, more than 90% of which is expected to be generated in the B2B sector.

Key factors driving the growth of e-commerce in Asia are deep links to international supply chains in many industries. Nevertheless, it seems that, at least initially, competition among the country’s e-marketplaces will be shaped according to each one’s affiliation with the traditional or brick-and-mortar companies — their captive market. Consequently, the more “connected” the e-marketplace is, the better is its chance to grow its business volume.

Take for example BayanTrade. Ninety-percent of its value pass-through (i.e., the value of transactions that passes through the e-marketplace) is accounted for by its member groups which count the biggest and oldest conglomerates in the country: Ayala Corporation, Benpres Holdings, Philippine Long Distance Telephone Co., JG Summit Holdings, Aboitiz Equity Ventures,and United Laboratories. The value pass-through for the first half of the year was a formidable P2.0 billion. SourcePilipinas, on the other hand, counts on the clout of the Tan Group of companies which include Philippine Airlines, Asia Brewery, Tanduay Distillers, MacroAsia, and Fortune Tobacco, and the Yap conglomerates’ member firms to give them the revenues. CateringX is a Tan company as well.

PhilBX, not being owned by any conglomerate, banks on the reputation and network of clients of its parent company, Systems Standards, Inc. (SSI), one of the country’s top information technology solutions provider, to grow its clientele base. Also, the local B2B exchanges which are not sufficiently connected with brick-and-mortar companies are leveraging their flexibility to offer their services to the public in general. The conglomerate-owned marketplaces initially concentrate on their own companies and community of suppliers. PhilBX Chairman and CEO Augusto Lagman assesses that before the conglomerate-owned exchanges can “step out to the public, it’s going to take some time,” that is, relative to the pace that non-conglomerate-owned exchanges are going in that direction.

Boon or Bane
Some see e-marketplaces as an opportunity to level the playing field between small- and medium- scale enterprises (SMEs) and large corporations because they do not have to spend much to set up, maintain, and operate their own systems round the clock. On the other hand, there are some people who are wary that e-marketplaces will eventually kill small- and medium-scale supplier organizations since they will not be able to compete volume and price-wise to large companies, unless these SMEs are able to consolidate their capabilities among themselves.

Whatever market situation will shape up, one thing is sure – e-marketplaces are creating a business landscape where e-commerce is now a necessity for competitiveness. Those who refuse to do it may find themselves excluded from a powerful community of buyers and sellers while those companies who could successfully position themselves within the e-marketplace will be hard to beat. And those who know better will find wisdom in the saying that “If you can’t beat ‘em, join ‘em.”