B2B exchanges will take off in 2001

SA`s business-to-business (B2B) industry has been slow to take off, and shaky at best. Industry experts participating in ITWeb`s B2B virtual Round Table agreed that while industry buy-in is crawling, 2001 will be the year in which procurement exchanges will soar.

The viability of a B2B marketplace depends greatly on the costs involved in first setting up the infrastructure, and then maintaining it. It`s hard to pin down an estimate, though, as costs are fairly unique per supplier or buyer. Brandon Spear, MD of Miraculum, believes the costs of integrating the business processes between the buyers and supplier should also be taken into consideration.

Colin Huber, manager of e-commerce business development at Ernst & Young, pointed out that a major hurdle is the cost to smaller suppliers, preventing them from using current technology. But prohibitive costs depend greatly upon the model of the exchange or marketplace operator, said Spear - it need not be exclusive of the smaller suppliers or buyers.

Garry Hodgson, Internet development group director of Microsoft SA, commented: "Right now in SA, I think that apart from the obvious set-up costs, the costly part is trying to 'sell` the idea to potential users."

Huber agreed, noting that the marketplace needs to see real business benefit first - benefits which can only be realised to process change. That in itself is the key to long-term success, said Spear.

Hodgson pointed out that the problem is that many potential customers are at very different stages of IT maturity. "You need to be a fairly mature company to start seeing benefit from B2B."

There are always exceptions to the rule, and in this case, smaller companies, with no incumbent applications, can sometimes find it easier to participate in B2B. But, said Huber, all players have to be at the same level of IT maturity before benefits can be seen.

Spear believes competitive collaboration is the name of the game - businesses working together can leverage off each other`s strengths, without necessarily cutting into each other`s profit margins. This strategy is new to the SA business ethic, and Neil Lightfoot, practice manager for Internet and e-commerce at BMI-TechKnowledge, pointed out that synergies can be mind-opening for some of the organisations. Huber believes the real value will ultimately come from market places working together.

But business strategy is for the most part, enabled by technology. Spear commented that technology is fundamentally changing the manner of B2B interactions, in much the same way the Industrial Revolution transformed the business landscape of the day.

Most industry players agreed that it is very hard to log the amount of transactions currently completed on B2B exchanges. Spear said this is because many people lump non-exchange-based transactions into their figures.

But Lightfoot pointed out: "The reality is that exchanges are taking longer than anticipated to integrate and set up." This is because exchanges are like an ecosystem, said Spear. It takes time to find the correct balance.

Huber believes the most prominent market place right now is CommerceOne SA, though he thinks TradeWorld could soon be a major player. Spear agreed that the momentum is taking off. "I believe that 2001 could be the year that B2B really starts flying in SA."

The challenge, according to Hodgson, will be for the owners of exchanges to have the guts to hang in there.

Lightfoot described the legal issues surrounding exchange operations: "It is a case of competition - and unfairly locking parties in and out." This issue finds precedent in various US anti-trust cases, but there are also the issues of foreign exchange and taxes. Spear believes there`ll be less of an anti-trust concern in horizontal industry exchanges.

When it comes to government becoming involved in the operation of exchanges, Spear said, "any government will be slow to move. What is encouraging is that these issues are at least on government`s radar screen."

While other panellists believed it would have a transparency effect on government`s internal issues and processes, general consensus is that it would not have a direct affect in addressing market problems. And all participants agreed that industry regulators should let the market evolve, saying any kind of prohibitive government involvement now could kill off the whole process.

Huber believes government can help by getting parastatal companies to buy into the new economy, which would create the infrastructure that would help small business get to the marketplace.

All panellists agreed that service level agreement management and integration are vital to the success of an exchange.

"This is where the lack of service level agreements are causing failures - buyers and suppliers are connecting but not committing to the exchanges," said Huber. He believes another essential element is the level of transparency that businesses are willing to show in terms of pricing and stock.

Another key point is the need to maintain high quality client services, while at the same time completing transactions quickly and efficiently. The same technology driving that efficiency can contribute to excellent client services in the form of customer relationship management, said Huber.

Ultimately, the panellists agreed that it`s a case of "vasbyt" until profitability is achieved.