Boo.com has gone belly-up and shareholders in Lastminute.com need a holiday, but the e-revolution marches on.
Silicon Valley is awash with business angels, venture capitalists and bankers who are preaching the new message: forget everything that was said about B2C, the future is B2B and the future is bright.
In Dubai, that preaching has been echoed, and it’s been backed up with action. The launch on 20 June of Tejari. com was the third step taken by the government towards the creation of e-Dubai. The formal establishment of the Dubai Internet City (DIC) in February was followed by the announcement in March by UAE Defence Minister and Dubai Crown Prince Sheikh Mohammed Bin Rashid al-Maktoum that within 18 months, the government of Dubai would conduct all its business online. Tejari. com is the exchange through which a lot of that business and much more will be conducted.
‘We are building an electronic marketplace for the region, which is leveraged off Dubai’s history and strong position as a regional trading hub, ‘ says Lubna al-Qasimi, Tejari. com’s managing director. ‘As with any marketplace, for electronic trade to work it needs to have a strong logistics network and efficient transport nodes. These are the great strengths of Dubai.’
Tejari. com is no ordinary e-venture. It is an initiative launched by Sheikh Mohammed and incubated by the Dubai Ports Authority (DPA). ‘At the moment, Tejari. com is independent, ‘ says Sultan Bin Sulayem, chairman and managing director of DPA, and the man responsible for the idea of an e-marketplace.
‘But it is part of the family of government enterprises that is the driving force of Dubai’s development. It is part of the family that includes the Jebel Ali free zone (JAFZ), DPA and DIC.’
The business plan for Tejari. com is simple.
The online exchange will attract businesses from all over the world to register their product catalogues and view those of others with an eye to placing orders electronically. ‘Our aim is to increase transparency and information flow and allow businesses to benefit from all the efficiencies associated with electronic trade, ‘ says Al-Qasimi. ‘The companies which register with Tejari. com will get better access to market intelligence, spend less time gathering that information, get potentially better pricing on products bought and possibly discover the availability of new products.’
The objective is two-fold: new business will be attracted to Dubai; and those companies already based in Dubai, and those that use it as a trading hub, will have a better platform for doing business. ‘This is another part of the process by which Dubai is being developed into a 21st century business centre, ‘ says Bin Sulayem.
‘It is about bringing equality, transparency and efficiency to the market so more companies will want to be based here. It is about reducing costs and upgrading facilities.’ He adds that the e-initiative is Sheikh Mohammed’s alternative to millennium celebrations. ‘Rather than building domes and wheels, he is giving access to the electronic age.’
However, as many e-businesses in the US and Europe have found, rhetoric and vision only count for so much. For the project to be a success, companies have to sign up and do business on the site. ‘E-markets are about building a community, ‘ says Al-Qasimi.
‘Some have been built on vertical and some on horizontal structures. We’re aiming to build a comprehensive market for the region.’ The plan is for Tejari. com to play on Dubai’s strengths: the proven logistics and transport infrastructure provided by DPA, JAFZ and the international airports in Dubai, Sharjah and Abu Dhabi; and the emirate’s geographical location offering access to the CIS, Europe, Asia and Africa.
The crucial issue is building critical mass within the online trading community. ‘The bigger the market gets and the more active it is, more and more people will want to be part of it, and fewer will be able to afford not to participate, ‘ says Al-Qasimi.
The targets set for Tejari. com are an indicator of the project’s importance. By the end of the first 12 months of operations, the site is aiming to have 1,000 companies registered. It wants to have reached the point at which an average 500,000 transactions a year are conducted online worth a total of $10,000 million.
Carrot and stick
To get there, both the carrot and the stick are going to be used. Unlike almost all other e-ventures, Tejari. com has a guaranteed demand side: with the government of Dubai committed to conducting the bulk of its purchasing through the Tejari. com platform, a large number of companies are effectively forced to participate, or risk losing a large part of their business. Tejari. com officials deny that any coercion is involved, and are unwilling to put a figure on the value of government transactions that will be pushed through the site, but make no effort to deny the advantage they will bring.
‘This is part of the e-government initiative, and the government will act as a lead player, ‘ says Al-Qasimi. ‘E-procurement is only one part of e-government but it is a very important part. Demand side is brought to the table, which will accelerate the development of critical mass by attracting suppliers online.’ She adds that there are high hopes for other public sector procurement being conducted through Tejari. com’s marketplace.
‘The federal government of the UAE is already looking at ways of joining the game, and it’s likely that other governments in the region will also want to join, ‘ she says. If their suppliers are already members of the Tejari. com community, there is no good economic reason for them to stay away.
The carrot comes in the form of savings that companies can make through online trading.
‘What we are offering is supply chain management, ‘ says Bin Sulayem. ‘This is an exchange with electronic inventories that are constantly updated, and a mechanism for placing orders. We are allowing participants to streamline their own processes and still have a better knowledge of their market. Efficiency is built in.’ The marketplace is also extremely functional. There are systems that allow closed tendering processes to be conducted, lists of preferential contractors to be established, auctions for surplus stock, and reverse auctions when sellers into a market are competing for a single buyer. It is estimated that the total cost of transactions could be reduced by as much as 20 per cent if conducted through the Tejari. com exchange.
‘In the second phase, Tejari. com wants to drive the fuller integration of the supply chain, ‘ says Al-Qasimi. ‘E-business is the driver for change in most industries and it will allow new strategic alliances to be formed. Tejari. com will be the platform through which this integration takes place.
The aim is to build efficiency through automation.’
In the meantime, the push for critical mass is underway. ‘We had 30 companies registering in the first week, and 60 registered by the end of the second week, ‘ says Al-Qasimi.
‘What is really pleasing is that many of those to have already signed up are companies based in Japan, the UK and the US. We also have registered companies from Saudi Arabia, Lebanon and Egypt.’ Few stipulations are placed on which companies will be welcomed into the community, but the focus has clearly been put on those dealing in finished products such as capital goods, white goods, automobiles and other retail products for transhipment.
The big local names to have joined include the Al-Futtaim Group, Dubai Transport Corporation (DTC), Emirates, Emirates Petroleum Products Company (Eppco) and Emirates National Oil Company. In fact, the press conference for the launch of Tejari. com was based around the first transaction on the market, a AED 46 million ($12.5 million) order placed by DTC with Al-Futtaim for 855 Toyota cars. With Dubai Duty Free’s approval, its 500-700 suppliers are also being approached to join the community.
Suppliers and buyers
Online government procurement may initially be the outstanding feature of Tejari. com, but it is not planned to stay that way. While most of the private sector companies to have registered so far are, in the main, suppliers rather than buyers, their very presence in the market will contribute to its growth. ‘The marketplace is for the private sector, ‘ says Bin Sulayem. ‘All the government departments will be onboard, which will initially make Tejari. com attractive, but the larger the market gets, the more varied will be the business done on it.’
Wholly owned by the government of Dubai, Tejari. com has not been set up as a profit-making entity. ‘We are aiming to provide a service to start with, and our initial aim is to reach into new markets, ‘ says Al-Qasimi.
Details of Tejari. com itself are thin on the ground. Officials are unwilling to reveal the company’s capital or the cost of establishing the platform. ‘I will say that we have invested a lot of money in this project, ‘ says Bin Sulayem. ‘If you want the best, then you have to spend good money.’ There is also the issue of how quickly you want the best. On 17 April, the idea of establishing a digital B2B marketplace was announced and Oracle Corporation, the architect and engineer of the market, was given only 60 days to complete the project. The urgency seems to have been generated partly by the desire to have ‘firstmover ‘ advantage – other projects, including the stretch of global player CommerceOne’s reach into the region, are underway. ‘The 60-day implementation plan was done to prove our commitment, ‘ says Al-Qasimi. ‘Also, by getting into the market first it is easier to build alliances and branding. By being first, we will be able to build our community faster.’
Tejari. com’s cost base may not be transparent, but its revenue streams are identifiable. With the aim of attracting companies online as quickly as possible, Tejari. com charges companies for subscription, rather than imposing a tariff on each transaction.
‘This way not only will companies see their own costs, but they will also know that the other members of the community have also paid to be there and hence are serious participants.’ The rate of the subscription fee varies according to the profile of the company. For suppliers, it will be a product of the number of goods offered in their electronic catalogues, and on the buy side a calculation is made based on the expected number of online transactions and the quality of the customers with which it does business. It is estimated that monthly subscription rates will vary between $200-10,000.
A number of initiatives are being explored with local and international banks that could see online financing options, including letters of credit and trade financing facilities, bolted on to the marketplace.
‘We are looking at forming alliances that will add value, and e-payment facilities would certainly add to the efficiency of the market, ‘ says Al-Qasimi.
As with most e-ventures, it is far too early to forecast Tejari. com’s future. But in Sheikh Mohammed and DPA, it has the best of parents, and its siblings – DIC and JAFZ – will certainly help it through its infancy. At the very least, it will bring a new way of doing business to the region.