Continuing losses of some established consumer website trading operators – and the spectacular collapse of others – are causing scepticism over the development of business-to-business deals via the internet. But, as Arthur Way reports, B2B is so attuned to the needs of global companies like those in the motor industry that “there can be no turning back”.
In some respects the pioneers of B2B (business-to-business) e-commerce are the contemporary equivalents of early explorers like Christopher Columbus, whose voyage across the Atlantic was spurred by the need to find a shorter route to the markets of China and the East Indies. The mission was considered foolhardy by many, not least by those who maintained that the earth was flat.
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Today’s pioneers believe that B2B-defined as inter-company trade of goods and services in which the final order is placed over the internet – holds the potential to revolutionise business dealings, leading to huge cost savings along with more streamlined relationships between commercial organisations. At the same time, though, many businesses are nervous about the implications and worried in case they make the wrong decisions and choose the wrong partners with regard to the application of B2B in their own particular operations.
The pioneering nature of B2B necessarily implies trial and error, and it is already clear that a successful outcome is not guaranteed for everyone. Technology is developing and changing at a rapid pace and there are regulatory hurdles to overcome too with both the US Federal Trade Commission and the EU’s competition authorities monitoring developments closely.
Recent high-profile failures in the B2C (business-to-consumer) sector, together with growing concern among financial analysts concerning the long term prospects of some of the best known B2C companies, has undoubtedly heightened the uncertainty which surrounds the overall evolution of e-commerce.
In addition, of course, the internet in general and B2B in particular are topics which cause the eyes of even some of the highest flying executives to glaze. Many feel out of their depth and at the mercy of the bright young things who are at the forefront of technical developments in the “new economy”.
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By GlobalData|
An e-marketplace is a website which enables a business to buy or sell products and services by using a standard web browser. |
Nevertheless, the potential
benefits of B2B e-commerce appear so great that there can be no turning back
and for those who embrace wholeheartedly the new methods of working the rewards
appear substantial. For purchasers of goods and services, one of the most valuable
aspects concerns the ability to secure bids from a much wider supplier base
than would be economically possible with a manual system. An important additional
advantage arises over the streamlining of buying processes, not least a saving
of time when seeking quotations and a reduction in paperwork.
Meanwhile, suppliers have the possibility to extend their customer base into other geographical and end-user markets in an extremely cost effective manner, something which is especially useful for smaller companies which would otherwise not be able to afford the traditional costs associated with market expansion. Selling in an e-marketplace also allows an instant and low-cost update of catalogues and dispenses with the need to print and distribute printed versions.
For these reasons and others, B2B is set for massive growth over the next few years and will come to dominate a wide range of transactions between commercial organisations. As with most things related to the internet, there is considerable hype over future prospects and it is difficult to believe many of the forecasts that have been prepared concerning the value of B2B transactions. In Europe alone, some forecasts suggest that the value of B2B deals will total an annual $300bn within five years, while some of the figures quoted for the US suggest that the figure in 2005 will be nearer the $3,000bn marker.
Within the overall B2B scene, an exceedingly important development is the establishment of industry-specific electronic exchanges (e-marketplaces) which are certain to account for a growing proportion of B2B transactions – perhaps more than 50% by value by 2004.
At present there are probably more than 700 e-marketplaces covering a wide range of industries and services but this is set to grow substantially over the next few years. Some estimates point to the establishment in just Europe of 10,000 e-marketplaces during the period to 2005, although it is highly unlikely that all will stay the course.
Essentially, an e-marketplace is a website which enables a business to buy or sell products and services by using a standard web browser. Buyers are able to invite quotes from worldwide suppliers, while sellers have the facility to reach a wider audience through the provision of online catalogues. E-marketplaces are revolutionising B2B because of their ease of access and low entry costs. Previously B2B trading implied the need for individual organisations to invest heavily in proprietary networks.
With regard to the motor industry a wide range of initiatives, both large and small, are being developed and implemented. These will alter dramatically the traditional methods of conducting business along with relationships throughout the sector’s supply chain.
Covisint – the combined venture between DaimlerChrysler, Ford and General Motors – is easily the most significant B2B motor industry development so far and it is difficult to see a serious alternative developing to rival this operation’s scope and reach. Covisint was announced towards the end of February when the three founders indicated their plan to combine efforts to form a B2B supplier exchange through a single global portal.
Given the motor industry’s size, the expectation is that Covisint will become the world’s largest e-marketplace and will offer open participation for all other vehicle manufacturers together with their suppliers, dealers and other partners. It is possible that eventually the operation will expand to service other industrial sectors. At the time of the launch Jac Nasser – Ford’s president and CEO – stated that the new venture provided “another example of how the internet is transforming every piece of our company and our industry. We will push this transformation even further to bring sustainable benefits to our customers, our suppliers and our dealers”.
Covisint’s target of becoming “the supply chain backbone of the entire automotive industry” was given a strong boost in mid-April when Renault and Nissan announced their decision to become equity partners in the venture. Together, the five companies represent annual purchasing power of $300bn, while the overall potential of Covisint, if all members of the worldwide vehicle manufacturing sector joined, amounts to around $1,000bn.
Whether this is reached remains to be seen. The argument that the global motor industry should conduct its business through a single e-marketplace is hard to fault since it would save considerable expense, notably for the major component suppliers who otherwise would have to adapt to the varying requirements of the different portals. Currently Covisint is going through the business planning stages and building the technology and is scheduled to become operational once the regulatory authorities give the go-ahead.
Covisint is being examined by the US Federal Trade Commission, which will be determining whether the venture offers the opportunity for collusion between powerful commercial groups. However, the three founders have gone out of their way to emphasise that Covisint will not lead to any reduction in the level of competitiveness in the vehicle sector and there is no intention to set up joint purchasing departments. Instead the operation should be regarded as a facilitator and as a means of cutting costs and speeding up processes – to the ultimate benefit of the final customer.
Official support for B2B ventures of this type was provided in early August when the EU delivered its first judgment on an e-marketplace by giving approval for MyAircraft.com, which aims to provide a similar service in the aerospace sector and has been established by i2 Technologies, Honeywell and United Technologies.
However, not all vehicle manufactures are convinced that Covisint is the best way forward. A number of European groups have expressed publicly their disquiet over the venture and claim that its development is unduly influenced by American companies. BMW, for example, has stated that it does not intend to join and is looking to establish a European alternative with vehicle manufacturing partners including Fiat Auto, PSA Peugeot Citroën and Volkswagen together with component suppliers such as Bosch and Siemens. Such a consortium, though, would be somewhat German biased and, given Fiat’s link with GM, it seems more probable that the Italian company will join forces with Covisint.
Meanwhile, major component groups are looking at their own options. In early April, shortly after the formation of Covisint, seven principal component suppliers came together to examine the implications of B2B. This was followed in May by the setting up of an “e-business council” by the Original Equipment Suppliers Association which has over 200 members who collectively account for close to $300bn annual sales to the motor industry. With regard to the latter group, the plan is that recommendations concerning e-procurement, collaborative product development and supply chain management will be made to Covisint with the hope that these will be incorporated in the final design.
Elsewhere in the motor sector a variety of B2B operations are being established. An interesting example of one at the other end of the size spectrum is provided by Partstrade.com, a UK-based site which was launched at the beginning of June. This claims to be the first online trading exchange in the automotive aftermarket.
The aim is to bring together companies in all areas of the aftermarket – including motor factors, franchised dealers, independent garages, accessory suppliers, service providers, wholesale distributors, export/import agencies and others – to trade and intertrade through an e-marketplace. Buyers are able to request quotes for parts and services which are distributed to Partstrade.com’s network of registered suppliers. The site also features a section called Partsmart where buyers and sellers are able to advertise their requirements and offers.
According to Jess Lawrance, marketing manager of Partstrade.com, “the advantages of using modern technology as a trading medium are endless but the main benefits fall under time and cost saving and extending business reach”. In addition, there are special benefits for small operators in the aftermarket since “the size of the organisation is irrelevant, meaning that even smaller players are given the opportunity to extend their trade chain and make it worldwide”.
Another area of B2B potential is seen in the procurement of raw materials. In mid-July an independent operation called sellbuysteel.com was launched which, according to its founders, “will transform the way the automotive industry sources its steel”. The site is described as an interactive information database of steel producers, stockists, traders and users, and has been designed with assistance from steel buyers with the objective of enabling them to secure supplies more cost effectively. This is achieved through various means including: sourcing on a wider basis, requesting quotes more quickly and easily, being alerted to special offers and, if appropriate, consolidating orders with other group companies to secure lower prices.
The founders claim that the site’s independence, with no steel producer owning an equity stake, will make it attractive to users and the target is to have 9,000 steel buyers and sellers worldwide using the service in 2001.
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E-marketplaces are revolutionising B2B because of their ease of access and low entry costs |
However, there are a number
of competing services including Swedish-based Steelscreen which describes itself
as “the European internet marketplace for steel and metal products” and as “a
European company focusing on the specific requirements of the European metals
market”. Also, at the end of June, four major steel producers – Arbed/Aceralia,
Corus, Thyssenkrupp Steel and Usinor-signed a letter of intent to form Steel24-7.com
as an internet-based worldwide marketplace for the sale of steel. If all goes
according to plan the venture will be up and running by the end of the year.
In mid-July bluecycle.com,
a leading B2B auction site which is supported by the insurance group CGNU, announced
the launch of an auction service which will offer through the internet auto
salvage which has been cleared through the insurance claims process. Potential
buyers place their bids online and are informed by e-mail or mobile phone whether
they have been successful. Among the advantages are access to vehicles throughout
the country, saving of travelling time and anonymity since no-one knows who
they are bidding against.
The examples described above
are, of course, only the tip of the iceberg but provide an indication of the
type of B2B operations, large and small and at a variety of levels, which are
developing within the motor industry’s scope of operations. Just as Christopher
Columbus discovered a new world, those embarking on the B2B voyage are poised
to obtain significant benefits through a widening of their horizons, but that
is not to suggest that the experience will be devoid of danger.
Growing competition will ensure winners and losers, but anyone in the motor industry who fails to take full advantage of the opportunities presented by B2B and, in particular, the e-marketplaces which are being established specifically for the automotive sector will be the equivalent of the flat earthers – lacking imagination, out of touch with reality and increasingly marginalised.
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Author:
Arthur Way, Institute of the Motor Industry |
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