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The evolution of digital markets
Online catalogues and auctions Online exchanges
BUYING has never been a problem since the commerce has gone electronic. The advance rapid developments occuring on the e-commerce scene has resulted in making online shopping as one of the key elements of internet. The evolution of online shops, such as buy.com, ebay .co.uk, amazon.com and yahoo.com to name a few, all come under the category of B2C (Business-2-Consumer) environment. But what kinds of activities take place in a B2B (Business-2-Business) environment specially when they deal in through the virtual environment of the internet.
After the explosive growth of the B2B market in 2000, venture capitalists started to realize that most value-creation in the economy occured in the supply chain. Therefore, investing in B2B trading platforms (which includes the Supply Chain) became their major area of interest.
The first concept that we need to understand is that what kind of activities take place in “exchanges,” that is stock exchanges, commodity exchanges, etc. To put it simply, it is trading. People bid on stocks and commodities and the highest bidder takes the lead. Online exchanges are very similar to conventional exchanges. They have a factor called the Market Tone (M-Tone). It acts as a platform for many business organizations, allowing them to communicate with one another.
In an M-Tone environment the interested parties/firms are able to search online catalogues from other companies, and at the same time are also able to display their own products and offerings to other potential buyers. In the “catalogue approach,” the sellers list there products with prices, specifications and delivery terms in order to form an online ordering program.
The “auction approach,” on the other hand, usually takes place in a B2C environment, such as ebay, amazon, etc. Finally, we have the exchange markets where various buyers and sellers bid and ask prices using the same approach as used in the NYSE or KSE. A good example of an online exchange program is
Pakistan has one of the largest car vending industries in Asia. Can you imagine what would happen if our industry starts catering to global clients? Surely, we will be able to earn a lot of foreign exchange and our economy would grow substantially. But this is again only possible if we develop an infrastructure that gives the details of each and every vendor and his offerings to the global market. Such an infrastructure (for instance, Market tone) will not only be advantageous for our automotive industry but also industries, such as textile, leather, etc. Another added benefit of these exchanges would be for those companies who just want to sell off their left-over inventory at a cheap rate.
Adoption of XML can facilitate data sharing which clearly shows the power this low cost language carries within it. XML (Extensible Markup Language) is a standard which has replaced the traditional EDI (Electronic Data Interchange) process.
We touched upon the value-addition process in the beginning which takes place in the Supply Chain. Now when the concept of M-Tone is being implemented you will witness the strange phenomenon of companies implementing their e-business strategy at each stage of value chain. We know that material producers, manufacturers, distributors and retailers are a part of the Supply Chain, therefore in implementing the concept of M-Tone here will surely make a huge impact in this B2B segment. Now companies are specializing in any of these Value-Addition steps and are implementing their e-business structure within these steps.
Another important implication of the M-Tone is that it could link B2B internet trading markets with the real financial market in such a way that companies and their resource could be viewed as portfolios. An increase in the value of an e-firm’s stock would clearly indicate the major decline in its pricing and a major increase in its output. The concept of M-Tone is not only associated with e-procurement but also with the facts that every buyer is a seller and every input is an output.
Online exchanges can be used for the acquisition for a firm’s input (raw materials) in order to produce lower priced outputs. Here is where the analysts believe that nearly 35 per cent of the internet transactions will comprise of once exchanges are completely online. We have already seen a number of exchanges, such as KSE, NYSE, and LSE, etc., but now we will a new breed of online exchanges that will deal a stock exchange style.
Some very good examples include
One more important implication of such exchanges is that they reduce market place friction by allowing a number of buyers to interact with a number of sellers, thus providing variety to both the parties.
As time goes by and bandwidth becomes cheaper, companies will be more then willing to invest in these exchanges. An estimate shows that the return on investment through online trading is around 300 per cent for the larger players in the market. In financial markets these online exchanges will play a significant role as countries will be able to consume large sums of foreign exchanges easily. In Pakistan’s case, the textile and leather industries will help us in capturing a huge chunk of the market as well as earn foreign exchange.
In the near future, it will be through the Market Tone concept that many products and services will be brought and sold in a relatively efficient exchange environment. Market Tone will also be helpful in reducing costs by allowing firms to buy goods that are cheaper and better than the ones being sold in the conventional market.
The writer
