C1ME nears the point of delivery

But how will it operate, what’s it done with all that venture capital funding and can the business to business marketplace model even work in the Middle East?

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By  David Ingham Published  February 4, 2001

Introduction|~||~||~|The wait is almost over. Nearly one year after setting up in the region, Commerce One Middle East (C1ME) is readying to flick the switch on a network of online procurement hubs that aim to redefine the way companies do business together. These hubs, known in the trade as business to business (B2B) marketplaces, carry with them enormous promise – the possibility that companies can dramatically reduce procurement costs by moving their internal buying processes online.

The market has certainly been keen to know what C1 was going to do. When the company first announced its entry into the region it attracted enormous attention. The company was, and still is, a leader in developing business to business marketplaces, but one year ago they were the hottest sector on an already buoyant NASDAQ stock market. Senior employees from some of the region’s largest technology companies were jumping ship to join the new upstart. Perhaps even more than all that though, C1ME carried with it a mountain of venture capital cash that was the envy of the region’s predominantly cash-strapped Internet companies.

Yet as the months have ticked by since its arrival, technology stocks have taken a beating, the marketplace concept has come under scrutiny and a lot of questions have been asked about how the company would operate locally. Observers wanted to know when the company would actually launch its localised marketplaces; what has it been doing with the millions of venture capital it’s raised; and could the concept of procuring supplies online ever take off in a region where business is predominantly done face to face? Meanwhile, as C1 waited, other B2B marketplaces have sprung up all around, like Tejari, MENABusiness, and Businessdubai.

Now it seems that after nearly a year of active behind the scenes work, the final pieces of the Commerce One Middle East puzzle are falling into place. By the middle of the year, there should be a network of country-focused, C1-backed B2B marketplaces operating across the region.

Commerce One’s technology will be used to run the marketplaces and the Commerce One Middle East holding company will have a stake of 15-30% in each. The remaining equity in each marketplace will be divided between prominent local private businesses, banks and telecomms companies.

||**||Worth the wait?|~||~||~|In a rare press interview, David Brown, chief executive and C1ME founder, said that the company could have switched on the marketplaces months ago. What has been far more important, he argues, and what’s caused the delay, is laying the foundations that will ensure the marketplaces are a success. “We could have launched in May last year, but would we have been successful? The answer is probably not,” says Brown. “There is growing support for the Commerce One Middle East model, which is local marketplaces for local consortiums.”

By the time you read this editorial, the ownership consortiums for marketplaces in Egypt and Qatar should have been announced. That follows announcement of Kuwait’s ownership consortium in late December. There’ll be announcements on the crucial UAE and KSA markets towards the end of the first quarter.

Once these consortiums are announced, a period of what the company calls ‘scoping’ follows. After this four week process of market analysis and final technical fine-tuning is complete, the marketplaces go live.

The involvement of large local players in the marketplaces is at the absolute heart of the Commerce One Middle East business plan. Like anyone else, C1 knows that any market, whether it’s in the heart of Riyadh or out on the Internet, only works if buyers and sellers come to it. This is what Brown calls “liquidity.”

So how do you guarantee that buyers and sellers come to any online marketplace that Commerce One is involved in? C1ME’s approach has been to sign up some of the largest family trading groups, banks and telecomms companies in the Middle East as shareholders in those marketplaces. “They have signed up knowing they will use this technology to reduce their procurement costs,” says Brown.

The names of some of the marketplace shareholders that have been bandied about are impressive. In Saudi Arabia, Al Faisaliah Group’s name has been mentioned; Naser Mohammad Naser Al Sayer and Al-Rashid Group are confirmed shareholders in Kuwait; and the names of major telecomms companies frequently come up.

It’s finalising these ownership consortiums that’s the reason why Commerce One is still yet to launch almost a year after its announcement. “Deployment is the easy part,” says Brown. “The important thing is whether you can achieve the market dynamics. We’ve been making companies unite that are competitors. I think to do that in seven months is remarkable.”

||**||Business buy-in|~||~||~|The presence of at least three banks and courier company Aramex on C1ME’s list of partners is also vitally important in achieving its objectives. The inclusion of these players allows online payment and online arrangement of product delivery to become part of the marketplaces.

That’s crucial because what marketplaces are trying to achieve is the total automation of what is now a manual buying process. The basic argument of vendors like C1 is that manually procuring supplies costs businesses fortunes, fortunes that can be saved by switching to an online procurement model.

British Telecom is one of the major examples that B2B marketplace proponents quote when they talk about how great this new way of doing business could be. The company put in place an online procurement system and was able to cut the cost of processing each order from $113 to $14. “They went through pain [installing the system],” says Brown. “The pain was worth the gain.”

What Brown and C1 want to work towards is a model where every step of the purchasing process can be carried out on a C1 marketplace. They envision a procurement manager being able to log onto a marketplace (through an Internet browser) and then being able to look through catalogues posted there by suppliers. Once a decision to buy has been made, payment, calculation of duty, insuring the delivery and arranging shipment can be done online there and then – a totally paperless buying process.

Whether or not you believe that this state of low cost, paperless procurement nirvana can be reached, there are plenty of things to do before it can even happen. First of all, you have to entice companies to try the online procurement model and once they’re online you have to make sure there’s plenty there for them to buy.

That’s where having prominent regional companies on board as shareholders helps. Those companies will be ready to use the marketplace both as buyers and sellers early on. Having those large companies will doubtless help create the type of exposure and publicity needed to get other companies thinking about using the marketplaces.

||**||Partner focus|~||~||~|C1ME knows it can’t wait around for natural market momentum to bring businesses online, however. Brown says signing up sales partners in each territory is: “One of the key focus areas for 2001.” Those partners will be people close to the purchasing and IT departments of businesses – IT systems integrators, Big Five consultants and financial services companies. Brown also says there’ll be an incentive programme to encourage sellers of supplies to put their catalogues online.

Clearly, the answers to questions such as what you can buy online and how much money you could save by doing it are impossible to answer at this stage. It all depends on who joins the marketplaces as sellers. What is clear is that the eight confirmed marketplaces will definitely be horizontal in the nature of the goods they sell.

In terms of potential cost savings, C1 says ‘yes’, regional companies will doubtless be able to save money through access to a wider range of suppliers and by having more efficient processes. But the company also tries to steer the argument into other areas.

Brown gives a hypothetical example of a company whose central computer breaks down, rendering business impossible. Go to a marketplace, he says, and you can find a replacement in a few hours.

Brown takes it down to an even simpler level. When you’re patched into a potentially huge network of buyers and sellers through a business to business market, you can keep your inventory levels to a minimum. “I feel the end game for everyone is: ‘how do we operate with minimum inventory with maximum delivery time,” says Brown.

Others argue that if you take the concept of B2B marketplaces too far, however, you end up with a situation where buyers just compete madly on price. If marketplaces create total price transparency, that’s when established relationships, things that are highly valued in this region, can go out of the window.

That’s a concern expressed by Nick Leighton, managing director of NettResults Management Consultancy, and a close follower of B2B markets. “If trading on-line increases business efficiency and effectiveness, then it’s a good thing,” he says. “But if it means losing relationships with established partners and squeezing them so business becomes ‘best price’, be warned. Before you know it we’ll be living in a world of low quality, cheap products — great for 10 Dhs shops, not so great for businesses and individuals who are concerned with service.”

Leighton believes that it’s vital for companies using marketplaces to work with their existing partners to investigate how marketplaces can work for both of them. “From our experiences, the successful companies are working with their partners — opening dialogues to discover whether going on-line will improve their relationship and help cut costs, not forcing them to join purchasing networks. It’s more about developing existing relationships than finding new ones.”

That’s a point that Abdul Kader M. Bibi, C1ME’s marketing director, takes up. “You’re not losing the business relationships, you benefit from them at a higher level,” he says. “Those people you used to work with, you still work with them but online.” The message clearly is: work with the same people, just work with them better.

||**||Possible IPO|~||~||~|If all of Commerce One’s plans work out, there could be some very wealthy people working at the company. There’s a definite goal to float the company on an international stock market, but what gets floated will be much bigger than the Commerce One Middle East holding company.

At a time agreed by C1ME and the eight marketplaces in which it holds 15-30% stakes, those marketplaces will merge back into the C1ME holding company. Commerce One Ireland is also owned by Commerce One Middle East, as is 20% of Commerce One India.

Based on the idea that together they’re worth more than the sum of their parts, there’s a possibility that the rest of Commerce One India may merge into this larger company come IPO time. That’s the plan; first comes the delivery.||**||

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