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Web-only Exclusives
November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

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FEBRUARY 25, 2000 VOL. 26 NO. 7



B2B
Beating the Boat
E-commerce portals are a start. The next step is turning fax machines into plantstands with paperless trading
By JIM ERICKSON

The global trading community is on the brink of an Internet-inspired revolution. OK, you've heard that before, but it seems true in Asia. Manufacturers, suppliers and buyers are coalescing into market-expanding online directories. Portals such as iSteelAsia.com, Global Sources, Alibaba.com and MeetChina.com are attracting thousands of manufacturers and distributors, and the draw is apparent: companies that have moved aggressively into e-commerce are saving up to 15% on the cost of making sales, according to Boston Consulting Group. BCG says by 2003, one-quarter of all business-to-business purchases will be made online.

Photo Illustration by Emilio Rivera III


But B2B portals are only a start. "They are like the Yellow Pages or online dating services," says Richard Lightbound, Asia/Pacific business development director for TradeCard, an Internet start-up that aims to move the revolution further. "They help sellers and buyers find each other, but the problem is none of them can go to bed."

Less colorfully put: for many manufacturers, the trading process that takes place after an electronic purchase reverts to procedures that have not evolved much since the era of the three-masted schooner. Moving large quantities of goods involves many parties - banks, freight forwarders, shippers, inspection companies, customs agents - and generates a white squall of paperwork from purchase orders and invoices to bills of lading and letters of credit. According to Kurt Cavano, TradeCard's chief executive, businesses worldwide spend $420 billion every year on trade financing and paperwork associated with shipping and receiving products.

The dance of documents is so cumbersome that Cavano says up to half of all products shipped overseas reach the buyer before the paperwork catches up. Merchant bankers have coined a phrase - "beating the boat" - to describe a reasonably speedy paper-based transaction. "This is a real challenge for exporters in Asia," says Lightbound. "Imagine if Amazon.com required everyone to send them paper checks because there were no Visa cards. The whole model falls apart."

Using the Internet, TradeCard and a competing company, Bolero International Ltd., are building cross-industry e-commerce platforms that will ultimately allow all aspects of international commerce to be conducted online. Many large, mostly U.S.-based corporations already conduct computerized business using Electronic Data Interchange (EDI). But EDI, which has been in use for years, requires private networks and the purchase of proprietary, specialized hardware and software. That makes EDI too expensive for thousands of Asian companies.

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New York-based TradeCard, whose largest investor is the E.M. Warburg, Pincus & Co. venture capital firm, hopes its Web-based service can provide an alternative. Set for a March launch, it will provide traders with a means to electronically complete their transactions. The company has patented software that provides tracking of shipments, checks delivered items against purchase orders, and triggers payments. TradeCard, in partnership with an international credit insurance agency, offers manufacturers a guarantee that they will be paid when the contract is fulfilled. Companies must be approved in advance to use the system and members are issued smartcards to verify their identity and gain access to TradeCard's network.

According to Cavano, transactions over www.tradecard.com can be completed at one-fifth to one-tenth the cost of conventional deals. A flat fee of $150 is charged for goods worth between $10,000 and $50,000. "We can do that because we are not processing a bunch of paper, we're moving electrons over the Internet." Trades that normally take a week or a month can take place in minutes, he says.

Financial services firms see TradeCard as a threat because it eliminates various forms of trade financing such as letters of credit - currently provided by banks. Britain-based Bolero.net, however, is indirectly backed by the banking industry. It is an initiative of the Through Transport Club of London, an international transport industry association, and the Society for Worldwide Interbank Financial Telecommunication (SWIFT), a global banking cooperative.

Barry Morse, Bolero's chief executive, says the company's goal is to build an open platform that is flexible enough to allow for all forms of trade financing and business methods. Bolero does not even provide software for customers to access its network. Companies must develop or buy their own, ensuring compatibility with in-house computer systems. "No one can create an application infrastructure that can meet the needs of a ball-bearing manufacturer, a top-five bank, a freight forwarder, and all the other parties in a typical trade," explains Morse. "Bolero does not force companies down any one path."

That approach, at least in the short term, does little to ease the problems of businesses trying to exchange electronic documents in differing formats. But Bolero is working on a kind of universal lexicon, a set of data definitions based on XML - the emerging standard alphabet for e-commerce on the Net - that ultimately would allow companies to exchange relevant data regardless of the format the document is stored in. That means the network will be able to adapt to individual companies, rather than the other way around.

Both TradeCard and Bolero are signing up Asian partners and customers. In November, TradeCard reached an agreement with TradeLink, an e-commerce joint venture between the Hong Kong government and 11 private companies. Bolero, which began operating in Japan in September, has signed up more than 20 major customers to its system. Among them is Mitsui, Japan's largest company and the biggest trading house in the world.

Competing solutions and standards could ultimately slow the move to electronic commerce. "Many traders are still fairly old-fashioned," says Joseph Tsai, chief operating officer for Hong Kong-based Alibaba.com. "You can't force them to adopt something they are not already using." Trading procedures "are hard to standardize," he says. "I'm not even sure it's possible."

Nevertheless, Boston Consulting Group predicts that over the next three years, Internet-based global trading networks will displace EDI as the common link between companies. Ultimately, says Bolero's Morse, the Internet will allow companies to migrate from paper, to e-documents, to super-efficient, all-electronic procedures that supersede conventions. "That's Nirvana," he says. "That's where we really take a big bite out of costs and inefficiencies." It's a promise that will be worth far more than the paper it's written on.

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