Trading places

Tejari has set its sights on becoming a regional marketplace. However, rival exchanges tout different models, which they believe better suite the Middle East.

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By  Neil Denslow Published  September 24, 2002

I|~||~||~|Ever since their emergence during the dot-com boom, e-marketplaces have vowed to transform the way organisations do business. By bringing a number of companies together in an online environment, they promise to accelerate transaction times, reduce costs and extend trading boundaries.

However, within the Middle East, the model has been slow to catch on, as shown by the collapse of Commerce One’s plans to form a host of marketplaces across the region two years ago. Since this inauspicious start, a number of other players have tried to promote exchanges, although few are aiming to create the all-embracing public exchanges promised by Commerce One.

The biggest player is Tejari, which has just celebrated its second anniversary and opened a marketplace in Jordan. Saqib Iqbal, vice president, operations, Tejari, says the exchange has racked up US$450 million in transactions in Dubai since its launch and that it has attracted 1150 trading members, including 60 large buyers, such as Emirates Group, National Bank of Dubai and EPPCO.

The most active member of the exchange though is Dubai government, which has put its full weight behind Tejari from the start. A host of government tenders are continually advertised online, ranging from printers to construction projects.

This range of purchases was extended even further recently, when the Dubai Civil Defence Department bought new fire engines via the marketplace. To buy them, the department followed the standard procedures for using Tejari — it posted a tender online detailing what it wanted to buy, along with its delivery requirements. Suppliers responded by sending back bids and an auction ensued before a bid was chosen. The vehicles are scheduled for delivery before the end of the year.

Nasser Al Shamsi, IT director, Dubai Civil Defence Department, says that by using Tejari the department has cut transaction costs by an estimated 15-20%, while also accelerating the procurement process. “The old way of buying things was a waste of time… now it is all automated through Tejari,” he says.

While the government is enthusiastic about purchasing through the marketplace, private organisations are seemingly more reluctant to take part. For many companies the main reason for joining Tejari is the chance to take part in the government auctions. Only Tejari members can take part in these auctions and therefore only Tejari members can win government contracts.

Aliya Habib Khan, marketing executive, Al Habtoor Motors, says that while Al Habtoor Motors was interested in using the marketplace to attract non-government customers, they needed to join Tejari in order to secure fleet business from the government.
Similar motives persuaded watch retailer, Seddiqi & Sons to sign up as well.

“The basic reason [we joined] is that we wanted to take part in the government auctions. All government organisations have to route their auctions via Tejari and as a non-member we couldn’t participate,” explains Arun Mennon, brand manager, Seddiqi & Sons.
While they are interested in using Tejari to take part in tenders, few private companies — especially small ones — seem to be interested in using it for procurement. Seddiqi & Sons, for instance, has no plans to use Tejari for buying supplies, while Khan says that in 18 months as a member, Al Habtoor Motors “hasn’t seen any small companies asking for just two pickup trucks.”

Tejari contends that a growing number of companies are using the marketplace for purchasing as they become familiar and comfortable with the system. Iqbal says that the dominance of the government on the exchange is purely because of its size, not because it is the only buyer.

“The municipality and these [governmental] organisations have a lot of requirements, so you see them a lot. The others have less frequent needs, but they do come and make purchases and sometimes their requirements are quite large,” he adds.

||**||II|~||~||~|The goal is to establish Tejari as a region-wide horizontal marketplace facilitating transactions online in return for subscription fees. However, Steve Muddiman, vice president of marketing, EMEA, Ariba, says that such a business model has failed to take off elsewhere in the world, as suppliers don’t see why they should trade via an exchange instead of dealing directly with their customers.

“The evidence suggests that once the supplier sees who they are being put in touch with, they find a way of removing the need to subscribe. The value that a marketplace offers... [therefore] has to be strong enough that the customers and suppliers stay with it because they believe it is adding something of value,” he says.

To try and create this value added service, exchanges in the region are offering extra features. Tejari, for instance, cites its numerous transaction management tools, as well as its range of online catalogues.

Elsewhere in the Middle East, exchanges such as OmanTradaNet and businessdubai.com are targeting SMBs by providing additional services that help companies with limited technology utilise e-commerce. OmanTradaNet, for instance, works as an online repository for communications between companies and it is training internet café owners to help smaller businesses use its system. Businessdubai.com also promotes services to help offline businesses use its online services.

“Even if you don’t have an e-mail address, we can still promote your product by becoming your communications agent,” explains Dr. AK Mathur, director of marketing, businessdubai.com.

Globally, a more common business model for making companies stick with a marketplace is to target vertical industries and then cater for its specific needs.
Pharmaceutical exchange, ArabiaRX, follows this model in the Middle East by offering users assistance in dealing with governments’ often complex buying processes. Razmig Hovaghimian, CEO of ARX, says that such services make a vertical exchange more likely to become profitable than a horizontal one.

“Industry supported marketplaces (ISMs) are key because they give subscribers a vested interest in the exchange… [and] this in turn quickly generates market liquidity for it,” he argues.

Rogier Mol, research analyst, European B2B & emarketplaces, IDC, adds that for an ISM to be successful “it requires translating industry knowledge into an e-business application without disrupting existing relationships and traditions in the industry.”

||**||III|~||~||~|This though suggests a change of emphasis, as the goal is to make the existing supply chain more efficient, instead of finding new suppliers. Nauman Ahmad, business applications specialist, Microsoft, also believes that companies are more interested in private exchanges, which they control, as they want to enhance their existing supply chain.

“If you visit the purchasing department of any large organisation, they already have set relationships and pre-negotiated contacts, with prices and delivery schedules [in place]... They’re not ready to go to marketplaces, re-look at the vendors, re-assess all the vendors who are there, re-look at their bank statements and their delivery capabilities. They already have all these in place,” he contends.

Most companies negotiate a long-term contract with a supplier and the buyer just orders the supplies whenever they are needed. This model is particular common in the Middle East, where it is not unknown for big companies to have used the same supplier for 20 years. The buyer has limited interest in switching to an unknown competitor and the supplier may also have become a one-client business, which has no interest in finding other customers.

Because of the importance of these existing relationships, companies are looking to utilise the internet to enhance supply chain management. The return on investment (ROI) comes not from squeezing suppliers to get cheaper prices, but from indirect cost savings, such as lower warehousing expenses and less money being tied up in stock.

Marketplaces within the region are recognising this trend by offering supply chain management functionality through an ASP model. “You’ve got your regular suppliers, so why not trade with them electronically?” asks William Rowe, general manager, BahrainTradaNet.

Commerce One is also moving in this direction by launching, what Simon McIver, director of sales and marketing, Commerce One UAE, describes as more “enterprise-focused” products. He says that the company has not given up on its goal of launching public marketplaces across the Gulf, “but the market’s evolving and we’ve had to evolve our product set too. The focus is moving much more towards ‘behind the firewall’ rather than the big full-blown exchanges,” he says.

Aregon, for instance, has an open online catalogue, but Hazem Malhas, the company’s CEO, says much of its business is in hosted supply chain management and private marketplaces that are “by invitation” only. He adds that using such a centralised system makes purchasing more cost effective, especially for larger companies, which may find that different departments were paying different prices for the same product.

||**||IV|~||~||~|The centralisation of the procurement process is a massive undertaking that requires the cataloguing of a company’s entire inventory. Muhammed Goheer, general manager, Millexell, says that a large group could easily have over two million stock keeping units (SKUs). While there are standard models available, such as the United Nations Standard Products and Services Code (UNSPSC), putting all these goods into a logically arranged computerised catalogue is clearly a mammoth undertaking.

The sheer size of the task, and the expensive involved, is deterring companies from putting their catalogues online. Khan, for instance, says that Al Habtoor Motors decided to put only its 30 most popular vehicles onto Tejari. This alone took her four hours to complete because of the detail that was required. Plans to put the parts inventory onto Tejari were subsequently shelved.

“The parts are just too many. We have over 200,000 parts and… while you can say ‘20,000 only,’ that’s a lot of cataloguing, If I catalogued 30 things in four hours, [the parts department] will have to get somebody to catalogue for them for days,” she says.

These types of complexities hamper any exchange, but the Middle East has extra issues that will hinder the creation of a truly regional marketplace. One of the biggest problems, which even prevents competition within a country, is agency agreements. These deals are exclusive distribution contracts, signed by a manufacturer and local company, which make the local partner the sole supplier of a particular brand within that area.

For instance, Seddiqi & Sons is not able to market its goods overseas because it has a designated area in which it can sell its products.

“We can’t deal in a market other than the UAE. Some of our brands are just Dubai and the Northern Emirates,” explains Menon.

Clearly, if only one company is legally able to sell the product, then a marketplace cannot offer any greater range of suppliers, which negates one of the reasons for joining. This issue may be on the wane though, because as the region nears entry to the WTO and the introduction of a free market, agency deals will come to end and businesses will be able to use online exchanges to shop around between different suppliers in different regions.
However, even if a company can buy from another region they still need to pay for it and the supplier needs to get the purchase to them. Muhammed Al Shammary, general manager, e-Commerce Group, says that truly regional exchanges will only be able to take off once the Middle East is fully online and the surrounding infrastructure, such as online payment and logistics, is ready.

“The speed of telecommunications is very important, but so is the logistics. The e-payment banking industry, for instance, has not really done its job and they haven’t taken the initiative in supporting a project like ours, which will benefit the whole business community,” he complains.

Given the difficulties of transporting goods long distances, payment transactions, exchange rates and the various import/export regulations, sceptics contend that a regional marketplace will never take off. Instead, companies will prefer to carry on trading locally with their existing partners that they know and trust.

“I don’t think the [marketplace] business model suits the region,” says Alan Livingston, general manager, OmanTradaNet. “I don’t think there is sufficient volume of cross-border trade to justify a regional exchange.”

Such sentiment explains why exchanges in the region are focusing on national markets or specific industries. However, it remains to be seen whether even a specific focus can persuade enough companies to join up and make exchanges in the region viable.||**||

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