B2B has role to play in SA

Mark Levitt, CIO of dynamic pricing solutions company, SalesBid says that, despite recent skepticism about whether B2B models are appropriate in the South Africa environment, he believes that B2B still has an important role to play in SA as long as the real benefits of improved efficiencies can be achieved.

Many web system suppliers are jumping on the current B2B marketing hype, producing simple web-based systems that are merely meeting places for companies to transact. This is definitely not the real B2B. In fact these systems are often weak attempts at foisting a repackaged B2C type environment on an enterprise. Such systems do not offer systems integration between the two companies, losing the prized B2B benefits which generally include lower transaction cost and efficiency savings in automating the extended supply-chain processes.

The acronym 'B2B' has been over-hyped and misused. Initially a marketing term, indicating businesses targeting businesses, the term has crept into the IT vernacular. But what is the real B2B? The idea of businesses doing business with one another has appeal in itself, but the real value of B2B is its ability to replace expensive company-to-company network infrastructures with the almost free Internet for intra-company data transfer. In order to separate the B2B IT concept from the B2B marketing concept a new acronym 'B2Bi' has been coined. This simply implies an extranet - or Internet-based networking of the IT systems of two or more companies. This integration could be 'tightly-coupled' which means it connects directly with that enterprise's computers, or 'loosely-coupled', which means that the system is maintained by an external ASP (Application Service Provider), who acts as an infrastructure and hosting partner.

The basic cost of setting up a complete, traditional, proprietary Electronic Data Interchange (EDI) system can run into millions of rands. For this reason it is clear that properly integrated Internet-based B2B systems - which are vastly less expensive - will succeed in South Africa and other developing countries. Generally the larger companies which have the most to gain from efficiency savings are reaping the greatest rewards right now in the B2Bi arena. However over time, as systems become more mature, even the smallest players will be attracted by the huge magnetism of B2B exchanges and marketplaces.

B2B exchanges:

The concept of B2B exchanges has taken off all over the world. There are different types of exchanges, such as procurement exchanges, which allow companies to extend their procurement process or vertical 'hub and spoke' exchanges - where commodities are traded between buyers and sellers in a particular industry.

It is natural that this type of 'congregation' of relevant players in an industry is successful. The downside, of course, is that everyone is trying to copy this model, meaning that each industry may have many different competitors angling for a piece of the pie. In order for winners to emerge they need compelling competitive advantages. The two most notable ones are; firstly the industry leader should be participating in that exchange - or at least a group of companies that together would move prices in that industry. Secondly, the exchange should be run by players who are industry experts, with strong insider connections. Furthermore, speed to market is important for those competing systems that have these advantages.

The role of technology:

Most industry insiders who wish to use their competitive business positioning to create an exchange have an IT decision to make. There are generally 4 options for them to choose from:

Firstly, they can build their own IT systems in-house: this would only be a reasonable choice if that enterprise is heavily focused on this type of IT - although this would be very rare.

Secondly, they can outsource the IT development to an external IT company: this would normally imply that the exchange would then host and manage the IT system themselves. This seems a more reasonable approach than the first, but it has its problems too, in that such companies may quickly find themselves at the mercy of a company that has created a proprietary solution for them.

Thirdly, they can buy an off-the-shelf solution from a known vendor: again this seems a sensible solution, but the cost will be high and the flexibility of that off-the-shelf product would have to be evaluated.

Lastly, they can partner with an infrastructure player: this generally would be the most sensible approach. At very low cost, and generally great speed, a system could be set up that addresses the need of the B2Bi solution. Infrastructure players provide expertise, technical knowledge and in many cases will host the IT systems, with 24x7 monitoring.

B2C vs B2B

B2C systems are generally web-based and easier to construct, which is why they were the first to gain dominance on the Internet. B2Bi deals with all the complexities of business systems integrating with each other and tends to be far less web-page-focused which makes it less 'sexy' to the masses, although a very attractive option to enterprises seeking massive savings from better efficiencies. Almost anyone can set up a basic B2C system but only a select few can construct complex B2Bi systems.

With the shift in the markets, many B2C players are feeling compelled to enter the B2B space. These players will more than likely fail merely because they lack the skills in B2Bi. However, by providing the 'real' B2B benefits of improved systems and processes and ultimately efficiency - B2B will become a dominant force in the SA business arena.