BT Dot.com: Interview with John Yoshimuru, AT Kearney's Managing Director South East Asia

DOT.COM: INTERVIEW
''An Encounter With a B2B Cheerleader''

When a man predicts the Indian e-commerce market will be worth $5000 million, or Rs 23,500 crore by 2004, he's either 'plumb loco' or knows something we don't. Since the man in question happens to be John Yoshimuru, AT Kearney's Managing Director South East Asia and Head, Operations Practice, Asia, who is putting the finishing touches on a study of the Asian B2B market, we'd like to think it is the latter. BT caught up with Yoshimuru on one of his recent visits to India to find out what it is he knows.

Given the state of the Indian B2B market, and projections by NASSCOM (National Association of Software and Service Companies) that the value of all e-commerce in India in 2000 was just Rs 2,300 crore, how do you justify your projections?

We understand the B2B scenario in India is very promising. From a readiness perspective, environmental perspective, and a technical perspective, most of the pieces are in place for the adoption of B2B in a significant way. The technological infrastructure exists and is good, the skills of people are, in general, very good, and the political environment is stable. A lot of the ground work is in place.

I will not say these projections are a prediction of what will be in 2004. Those are forecasts of what it could be in that time period, if the country and the companies in it adopt e-commerce and address some historic barriers. It can get there if all impediments are removed, but there are many barriers currently to be removed. That's why you have seen very little penetration.

Globally, everyone is a little disillusioned with the whole B2B thing: lots of hype, and nothing to show at the end of the day. Are there some lessons Indian companies need to learn from what happened with B2B e-commerce in the West?

Focus on the value. Don't do it just because it is a get rich quick scheme. Do it because of the fundamental value that it is going to provide. And don't underestimate the (magnitude of) change required. It's not just (about) buying technology and putting it out there; it's about working with your suppliers; it's about saying 'let us talk on how we both need to change our process to use this new net market'. It is very hard to change, and when we combine it with technology it generates a great degree of reluctance. That's why the adoption rate is very low.

Are the services B2B intermediaries and e-marketplaces offer companies enough reason for the latter to convert?

No , I don't think they do. What they offer is the technology and a kind of pre-packaged solution. But each company really wants a customised market for its own needs and its own applications. The larger companies can afford it, so most of them will develop, on their own, something specific to their needs. The issue with companies like commerce one and Ariba is that they are trying to market a generic package that does not provide value to either the large companies or the SMEs.

So, what does an e-marketplace have to do to succeed in a country like India?

It needs to provide value to both the supplier and the buyer. (The e-marketplace initiative) must be driven by companies that already have relationships with buyers and sellers. If you just build a marketplace and think that people will use it, they won't. People don't like to change and if I am historically buying from you I wouldn't like to change. Leveraging existing relationships is the key. It's less threatening to both the parties.

Is there a best-in-class example in the region on how e-marketplaces can be created?

There's one that is up and running and providing value to suppliers and buyers in Australia. Cyberlinks is a horizontal market that has companies from various industries participating. They purchase jointly through the marketplace-indirect material, temporary labourers, telecom services, and office supplies. The site aggregates the volume of all companies. Seven or eight of the companies initially contributed to start the marketplace. It is successful because players were committed to the marketplace, and will buy through it. Most of the companies have been able to save an average of 15 per cent.

Does that mean getting a horizontal marketplace to work is easier than, say, getting one focussed on one industry to?

It is more difficult to start in an industry-vertical, because competition is an issue. It also leads to some fear among suppliers. In the US there are three auto companies and they control the market; so the supplier is worried that if he doesn't participate he won't have any customer at all. So the threat to the suppliers is much greater in the industry-vertical. In certain markets like the US there are legal barriers to creating marketplaces where the volume gets so consolidated that it makes it anti-competitive.

You've said that your study shows that the B2B domain has been impacted by low participation and high failure rate? Is there anything companies can do at all to get out of this rut?

If B2B marketplaces are backed by companies then the participation rate is much more predictable. So in markets like India, Japan, and Korea where the relationships between the suppliers and buyers are well-defined, there is a readiness to adopt the B2B way.

What will it take to make online marketplaces succeed in India?

I think a couple of companies need to be bold in the marketplace in India, and show success. Then the other companies will jump on board.

Most Indian B2B marketplaces provide basic services, but they seem to lack a clear revenue model...

I think the model they should adopt is the one based on the value that's been created. Just saying I am going to have a subscription fee or I am going to charge a percentage of the transaction, discourages people from participating. Instead the revenue model should be, 'we will take a percentage of the value that is created'. So, if you save a million dollars by using this process, we will take 3 per cent of that.

-Seema Shukla and Vinod Mahanta

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