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APRIL 28, 2000 VOL. 26 NO. 16 | SEARCH ASIAWEEK

B2B
Grandaddy of Them All
Global Sources was around back when folks thought B2B was a sci-fi robot. Challengers will have to run to catch up
By ALLEN CHENG

The business that Merle Hinrichs launched in 1971 was pretty conventional even in those simpler times. The young American expat thought the time was right for a print magazine that showcased products of Asian manufacturers for Western buyers. But what Hinrichs didn't realize when he founded Asian Sources trade publications in Hong Kong was that he had laid the foundation for the region's first business-to-business Internet company.

Nearly two decades later -- before the Net entered the public consciousness -- Hinrichs went digital. In 1989, he expanded his successful publishing business by helping clients place and receive orders over private computer networks. Six years later, he struck out for cyberspace, inaugurating Asian Sources Online as Asia's first Web-based B2B portal.

It's nice to have a really big head start. Today the company is firmly established at a time when most would-be B2B competitors are still setting up shop. Now called Global Sources, it still publishes magazines -- in fact, it runs more than a dozen. But, while the bulk of revenues are derived from the Old Economy, it is in the New Economy where the company's future lies. Global Sources has poured $20 million over the past five years into its portal (www.globalsources.com), which matches manufacturers with buyers all over the world. The site spans a variety of industries, including hardware, general merchandise and consumer electronics. Most manufacturers are located in Asia, but portals are also set up for producers in South Africa and Latin America.

Putting buyers together with sellers is just a beginning. In March, the firm unveiled an upgraded version of GlobalSources.com, offering services that allow customers to conduct many aspects of their business, from placing orders to delivering goods, online. "The job we do today is very similar to what we did 29 years ago, which is to be a matchmaker between buyers and sellers around the world," says Paul Mottram, Global Sources vice president of marketing. "Every bit of the process between the buyer and seller is a transaction, and we support all of that." The firm hopes now-skittish dotcom investors will appreciate the company's fundamentals as well as its expansion plans. After scrubbing a back-door listing on Nasdaq scheduled for April 14 -- the day the exchange recorded its highest point drop ever -- Global Sources is going ahead with plans to go public. The company is taking over a subsidiary of U.S. aviation company Fairchild Corp. to gain a place on Nasdaq.

With global trade projected to hit $5.8 trillion this year, up from $5.4 trillion in 1999, Global Sources is tapping a vast market. But new rivals pose a threat. In the past six months, more than half a dozen Asian B2B "super-portals" have sprung up, according to Joe Sweeney, an analyst with research firm GartnerGroup. Sites such as Alibaba.com, Bexcom.com, and TX123.com are still building up their user networks. Global Sources officials claim they operate one of the biggest e-commerce client bases in the world -- a business community of 192,000 buyers and 80,000 suppliers.

The company has something else its competitors can at this juncture only wish for: profits. Last year Global Sources made $9.5 million on $66.9 million in sales. Roughly one-fourth of revenues came from its online business, a record for the company.

Staying on top means Global Sources will need to continue to expand its line of value-added services, which competitors will have a hard time matching. In the works are strategic partnerships that company officials hope will help make Global Sources a full-service e-commerce provider. Among planned offerings are electronic letters of credit through e-commerce trading platform provider Tradecard.com; quality inspections by Bureau Veritas; credit checks by Dun & Bradstreet; logistics and shipping by as-yet unnamed vendors. "We aim to provide a complete offering," says Craig Pepples, Global Sources' chief operating officer.

Electronic commerce is enabling large manufacturers and traders to slash operating costs. Global Sources hopes to confer those benefits on smaller customers as well. Since 1989, the company has sold an order-management software package called Transact, but its entry-level price tag of $80,000 is too steep for most. "There are so many small businesses in Asia that are professional in dealing with buyers but can't afford the software necessary to link up with the networks of large buyers overseas," says Douwe Cramer, president of Global Sources' e-commerce division. The solution: let clients "rent" rather than purchase management software for $1,100 a month, thus helping customers lower I.T. capital costs as well as operating expenses. Global Sources stores the software applications on its own computer servers, which users access on an as-needed basis through the Internet.

Targeting smaller clients with money-saving solutions is a smart move, says GartnerGroup's Sweeney. In the Greater China region, for example, about 95% of the companies are minnows, and most of them lack the ability to link up electronically with clients overseas. "The killer application is a digital supply chain for Asian SMEs," he says.

Sweeney predicts a welter of B2B players will enter Asian markets over the next two years. The winners will be those that capture and retain market share. To do that, they'll have to provide Internet-based answers for logistics, shipping and online financing. Specialized "vertical" portals -- those that trade only in certain commodities or components -- also stand a chance of carving a niche for themselves among broad-based "horizontal" portals such as Global Sources, says Sweeney.

New portals also need capital to survive the shakeout years. Most B2B trading platforms currently charge up to 8% commission per transaction, but the onslaught of new players is driving down prices. Sweeney reckons Global Sources' U.S. listing will give them an edge, because they will be able to more easily raise capital from U.S. investors. "It's going to give them cash to fight this war on multiple fronts," he says.

Pepples, 39, is unshaken by the recent tech-stock meltdown. "What we're seeing on the Web is equivalent to the Industrial Revolution," he says When the battle is over, only a few companies will be left standing. Global Sources is doing all it can to make sure it is one of them.

Write to Asiaweek at mail@web.asiaweek.com

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