Read this article to

• Know how B2B are changing the e-commerce landscape
• Understand the intricacies in B2B strategies
• Be aware of what organizations should do to succeed in the marketplace

Do B2B have a future, or are they bubbles waiting to burst? While the media and researchers offer conflicting views on this, without a doubt the dotcom bust has bust taken the sheen off net-based business models. New players are now treating a cautious path. But B2Bs are definitely here to stay. What should the players do to remain in the game?

The press does play favorite…. sometimes! Dotcom obituaries have given way to essays on B2Bs. Hardly a day passes when our senses are not impinged with B2B strategies, success stories, disintermediation and the impending B2B doom (or boom). Consider what various research and consultant groups have to say.

• Money spent on B2B transactions already surpasses consumer transactions 10-1 (Aberdeen Group)
• B2B is estimated to become a $2. 7 trillion worldwide industry by 2004 (Forester Research)
• Indian has the potential to earn revenues from e-business solutions worth $ 10 billion by 2008 (Nasscom-McKinsey study 1999).

At the same time, we hear rumors of Ariba closing down operations in India, stock prices of major B2B solutions providers plummeting and net-based companies incurring quarterly losses. More recently, the Gartner Group has predicted a bloodbath in the Asian B2B segment, when ninety per cent of the existing B2B (in Asia alone) will perish.

Businesses have been communicating with each other since the beginning. What has changed, however, is the technology that carries the communication, from pigeons to mail to fax to EDI…and now to communication via the internet. This has opened vistas of opportunity like never before.

Classifying B2B marketplaces on the basis of mutually exclusive categories can be erroneous because newer models of B2B are still evolving, and there is much overlapping in the types of transactions and services rendered in different marketplaces. Nevertheless, B2B companies can broadly be categorized on the basis of nature of ownership, types of transactions and services rendered. They can be private or public, horizontal or vertical, infomediaries, procurement exchanges, brokering sites and third-party marketplaces.

Indian scenario
In India, through the exposure to B2B marketplace is still limited, we do have all types of companies. "Apart from the PC penetration in India being lower than other parts of the world, the trends are the same in terms of services and functionality provided by B2B companies," Says Devangshu Dutta, Director, LinkApparel, that not only links buyers and sellers of apparel industries but also provides them supply chain optimization and other value added services.

In India a large number of B2B portals provide simple catalogue services-providing information on the availability of items to buyers and suppliers, thus acting as infomediaries. They basically provide a matchmaking platform between buyers and sellers, with services like Request of Quotation (RFQ), free listing, queries, etc., with little or no auction services. Then there are companies that provide multiple bids auctions, reverse auctions and managed auction services like SteelRX.com and LinkApparel.

There is also an emerging trend of large players in a particular industry segment coming together to form a private exchange. This has happened more in the steel (metaljunction.com - a collaborative effort on the part of SAIL, Kalyani and TATA) and automotive sectors. We also have examples of large companies having created private B2B exchanges for transaction between their own suppliers and dealers, like LG Electronics and Samsung, for instance.

India also has the advantage of the presence of global B2B solutions giants like Sesame, Ariba, and Commerce One. "We are consciously bullish about the Indian market. India has big IT and healthcare companies, and its telecom sector is exploding. "The economy is doing well and all this presents very good business prospects for B2B solutions," avers Seetoh Hon Chew, COO, Sesami Inc.

Emerging trends
The dotcom bust has brought to the fore the disadvantages of a purely net-based business model. "A 'click-n-mortar' approach is being adopted as market realities have made the players realize that it is important to service the customer from a physical location," says Rishi Sahai, Investment Principal, Infinity Venture Fund, a VC firm that has invested in many B2B startups. "Complete online strategy is not possible in the near future even in technologically advanced countries like the U.S. For this every segment in the value chain should be able to communicate with each other," contends Anurag Saraf, CEO, SteelRX, a B2B marketplace for the steel industry. "We have a very strong offline model, with representatives in six cities who are in constants touch with the customers, " he says.

"It is becoming increasingly apparent that there is little value in just moving transactions online, " feels Asutosh Padhi, Associate Principal, McKinsey, who tracks B2B trends worldwide. "Real economic benefits from B2Bs lie in services around transactions, that enable 'real world' reductions in coordination and processing costs, cycle times and inventory levels," he asserts. He foresees broad-ranging alliances between technology players and providers of real-world services such as quality assurance, logistics and payments.

Double-edged sword
Unlike B2Cs, B2Bs are better-evolved; the technology is more sophisticated and entry barriers are great. Critical mass is achieved with greater difficulty and business models are more defensible. "The threat is of several players with inadequate experience tying to attack crowded vertical with similar value propositions. Eventually such players will head towards bankruptcy," asserts Sahai.

"In India, like anywhere else in the world, when a hype is created everybody rushes to it as if it was gold, but only the serious players who understand the market dynamics will get through," emphasizes Dutta. "There are a lot of me-too and look-alike companies proliferating. So one has to either be unique or very strong - in terms of money and the relationships with buyers and sellers - to survive," he says.

For Rakesh Bhatnagar, CEO, Net4barter.com the biggest threat is attitude. "People spends so foolishly and assume so freely without practicality, that the whole business model goes away. We have to keep in mind that like in offline businesses even B2B need some gestation period."

In effect there is tremendous opportunity for companies, and huge growth potential. Padhi agrees with this observation and feels that the crux of the whole matter is who is going to capture the real value first. The greatest opportunity these exchanges offer is for the existing companies, as it will not only significantly improve their performance - since in India supply chains are highly inefficient and fragmented - but also help companies in significant 'supply consolidation'. Large suppliers will gain from B2B initiatives.

"It is the SME segment that has gained the most from B2B initiatives. SMEs have not only expanded their business reach across India but are actually generating revenues from it," says Brijesh Agrawal, CTO, Indiamart.com, an online marketplace that focuses on the SME segment.

Benefits: Are they for real?

The greatest disadvantage of the internet business model is that one can't simply trust the other party. There are fly-by-night- operators lurching on the net to fleece gullible suppliers. "An intermediary could have simply averted the whole episode," adds Bhatia. Padhi considers the potential benefits of B2Bs to be underestimated. "It is just a matter of time. People expect miracles out of IT systems, but there is a lead-time involved in terms of new technology adoption. To get the benefits, the entire eco-system the company works in, has to embrace the technology and that takes time," adds Padhi.


Disintermediation: Myth or reality?

"Disintermediation will surely happen as far as brokering of information is concerned. Traditional agents and dalals feeding on the opacity of the whole transaction will surely move out," points out Kumud Goel, MD, KLG Systel, which has created a B2B marketplace for the construction industry. Padhi considers disintermediation unlikely, and points out that in many industries intermediaries play a very valid role their function much beyond mere match making, such as credit risk, providing finance, holding inventories, etc. It might happen in some small industries but that is not going to be a general trend. "What will happen is that the lower order intermediaries will evolve quite substantially and they will focus on the higher value-added activities", says Padhi.

Integrating SCM and CRM
ERP transformed the entire transaction processes internal to the organization. But B2B is everything that happens outside the organization, whether on the supplier side or the customer side. Given this split, companies have the option of implementing their own independent SCM and CRM solutions. In Padhi's view, more companies will go for independent CRM solutions, since there is a perceived risk that data needs to be proprietary and therefore needs to be kept within the company. On the supply side, companies will collaborate to create standard solutions, since each supplier supplies to many buyers. If buyers are offered different supply chain solutions in the same industry, it becomes difficult for the suppliers to participate in a meaningful way in the process.

"There is a strong need for developing a set of supply chain standards, with some basic definition of what purchase order, inventory information, etc. are," states Padhi.

For Dutta the key to SCM in a B2B environment is "active collaboration" between organizations in all the processes, right from product development to order management. Saraf feels that SCM and CRM integration is a prerequisite for a wired world.

Logistics bete noire
Generally speaking, logistics involve an entire gamut of things - sourcing requirements, inventory management, demand estimation, order tracking, delivery logistics, etc. "Optimal logistics demand that the right quantity of the right product reach the right place at the right time," says Bhatnagar.

"Problems of logistics are real. Creating an infomediary is not going to help. It is not only the information which constraints the valuechain, but also the infrastructure supporting and enabling it," says Dutta.

CIOs' strategy
The emerging B2B scenario will pose many challenges to CIOs. What should be their strategies and priorities? Padhi feels that the generalization of the role of CIOs will be difficult, but feels CIOs will have three options: first, to setup their own IT systems and get their own packages; second, to join independent exchanges; and third, to get along with other industry players and form their own private exchange. "CIOs should carefully analyze the benefits of each of the options in terms of time and cost savings, standardization, before taking a decision," contends Padhi.

For Dutta the strategy is "do not go by fads". (Read Dr. Milind Oka's series in CIO Enterprise) Companies need to identify the critical areas of the business, for only an honest assessment vis-a-vis competition will serve as a global benchmark.

Roadblocks
The roadblocks for any new concept are not confined only to infrastructural areas. They also have a lot of psychological implications. B2Bs are no exception.

Speed, connectivity, absence of proper payment gateways and bandwidth are its main adversaries. Bhatnagar feels that security is also a major issue. "There is a psychological discomfort when it comes to payment through the net," he says. However, for him, infrastructure is a non-issue. "If you create a solution which is resource hungry and bandwidth hungry then you have a problem. So you need to create an environment that is compatible to Indian systems," he asserts.

For Dutta the biggest issue is mindset; that is, creating the right mental framework for adoption of the system. Fear of what is going to happen in future in the light of economic slowdown and globalization, uncertainty in terms of policy adoption, and doubt in terms of success of the policy are the major factors that impede e-commerce transactions.

For Padhi, huge investments in supplier upgradation programmes and the absence of regulatory infrastructure are the major bottlenecks. Saraf does not consider security as a big issue since most of the transactions are done offline. "For basic security concerns there are standard solutions that are used worldwide," he contends.

The future
Gartner Group's forecast coupled with Cassandra's prophecy about the impending B2B doom has put a question mark on the future course that B2Bs are more at a conceptual and trial stage not only in India but also in the U.S., which makes large-scale B2B transactions look like a distant dream.

"In India government sectors are yet to take the initiative for B2B commerce. And since the government is the biggest buyer in many sectors, the private players will not be able to sell anything to them online," muses Goel.

Hype or no hype, B2Bs are here to stay, but the future will see many obituaries written about players jumping onto the B2B wagon without getting their basics right.



By Satyapriya Verma, Senior Correspondent with TMG.
(Courtesy: CIO India).
This is an extract of an article published in CIO, July 2001.