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B2B marketplaces haven’t yet transformed the way industry works.
But they are beginning to make a mark

- 12/03/2001

Every Wednesday and Friday, Teauction.com, a B2B e-marketplace promoted by Williamson Magor, Apeejay, Bagla and Dhunseri Tea, conducts online auctions to sell tea. In the six months since Teauction.com went live, the hammer (or its digital equipment) has fallen on hundreds of types of tea, weighing over 15 million kg and worth Rs. 100 crore, with scores of sellers and buyers participating, including biggies such as Tata Tea and Nestle. Teauction.com chief executive officer Rakesh Bhutoria, an ex-GE Capital man, believes that in the next financial year his portal will hold auctions worth around Rs.800 crore.

His peers, heads of other e-marketplaces (Business world spoke to nine of them) are equally bullish on the future of B2B exchanges. Together, they claim to have brokered online deals worth Rs.812.50 crore in the last year or so (see list). But a few others, such as A.V. Ram Mohan, chief executive of Satyam Webexchange (a subsidiary of Satyam Infoway), which launched seven e-marketplaces, Machine tools and a general horizontal) in the past six months, dismiss these statistics. “I would love to have a close look at those transactions,” he says, laughing.

So, have B2B exchanges, ever since their much tom-tommed debut last year and promise to revolutionise the way industry works (see ‘Watch Out! Here They Come’, BW 18 September) begun to make a difference yet? Or are they still more hype than substance?

Notwithstanding what the bosses of e-marketplaces, say, the value of trade, when put in perspective, is small. For example, the Rs.100 crore worth of auctions at Teauction.com account for only 1% of India’s Rs.10, 000-crore tea auctions business. Seen in the perspective, the B2B marketplace is still a non-starter.

Yet, these nifty little digital exchanges – offering a meeting place for buyers and sellers to trade just about anything including finished products, raw materials, surplus inventory, spare capacities, used machinery, disposable assets and scrap through a variety of options such as online negotiated deals, auctions and reverse auctions and virtual fairs – aren’t going entirely unnoticed either.

The most significant reason why B2B auction sites can’t be dismissed is that they are getting users to pay for their services. Take the case of the Mumbai based clickforsteel.com – promoted by the Ruias of Essar, though some equity will be shared with participating companies – which conducts online auctions of a tonne of steel every day, worth roughly a crore. Clickforsteel charges between 0.75% and 1% of the value of a transaction as its fee, which works out to around Rs 0.7 crore on the back of the Rs 70 crore in trades it has snagged so far. Again, Teauction.com has already made Rs 1 crore in transaction fees for the Rs 100 crore worth of tea it has auctioned so far.

Predictably, of course, e-marketplaces that focus on non-commodity items like used machinery, surplus inventory, maintenance and office-repair requirements have begun to command a higher transaction fee, though their volume is relatively lower.

In New Delhi, for example, trade2gain.com, a start-up promoted by Jay Choudhary, Subroto Banerjee and Sanjay Mehta over a year ago, already has 20 marketplaces, each dedicated to fulfilling the complete indirect material disposal requirements big-ticket clients such as Maruti Udyog. Tata Steel, Telco Compaq, Colgate-Palmolive and Glaxo-Welcome.

Trade2gain has already facilitated 160 online auctions worth over Rs `120 crore, charging between 3% and 5% in transaction fees. Its biggest success has been with Maruti, which has completed four online auctions of scrap including aluminum chips, corrugated boxes and air compressors worth about Rs 25 crore through January and February. Trade2gain has also seen the value of its average transaction go up from about Rs 20 lakh six months ago to over Rs 1 crore now, touching Rs 3 crore more than a few times.

Again, the Chennai-based auctionindia.com (recently acquired by the Chennai-headquartered TVS group) has been charging between 2% and 6% transaction fee for most of the 42 online auctions (worth Rs 12 crore, mostly in indirect materials) that it has completed.

Sure, you could say that the margins are still small, though it can be argued that these marketplaces, specially the ones dealing in commodities, are betting on the huge volumes of business they hope to get. Trade2gain’s president and managing director Subro Banerjee voices the dilemma that many e-marketplaces perhaps face today: “The biggest challenge for all B2B marketplaces will be to have customers that pay and yet get them to transact a certain volume at the minimum.”

While transaction fees are emerging as the primary source of revenue for B2B sites, a few are also experimenting with the idea of getting users to pay for making use of the site. Take the case of the Bangalore-based matexnet.com, promoted by Jagan Vasan, who earlier worked as a consultant in the US. Subscriptions account for about 30% of Matexnet’s revenues.

Vasan says that around 400 companies access the site frequently for all kinds of information, and at Rs 14,500 for an annual subscription; he has found an alternative revenue model to transaction fees.

Again, clickforsteel has started charging its 5,000 registered users around Rs 5,000 annually for accessing the site. And about 15 new users are signing up every day. Similarly, about 10,000 of the 40,000 users registered on Sify’s marketplaces are paid users.

Many of course, are skeptical about whether registration wills sork as a revenue stream. “We are not sure how many of these users will actually renew their registration. This can’t be a significant revenue stream,” says V. Sriram, head (strategy practice), Icra Advisory Services, who adds that some market makers are now morphing into technology providers. But Satyam Web exchange’s Ram Mohan remains bullish: “Three years from now, we hope to have half-a-million paid users,” says he.

Much of the registration revenue that Mohan and his peers hope for will depend on how much the users actually benefit from their sites. The common pluses of using a B2B exchange are cost savings, freeing up of capital, opening up of new markets, increased speed and efficiency in non-core activities like disposal of scrap.

In India too, the initial benefits have been no different. For example, sellers on Teauction.com have seen their transaction costs come down from about 8% to 3% and the selling cycle time from nine weeks to about five weeks. Prospective buyers can make or postpone purchase decisions by browsing and scanning unique satellite-based images and weather reports for almost every single tea plantation in the country.

Clickforsteel’s Bharathan says that Essar’s realization on steel sold through online auctions has gone up by around Rs 200 to Rs 300 per tonne.

Or take autopartsasia.com, also based in Chennai, which offers it small and medium-sized component manufacturers an opportunity to make contact with global after-market importers. With 500 buyers from 58 countries using his site, chief executive officer N. Vaidyanathan says Autopartsasia.com has already generated online enquiries worth $ 10 million, of which $ 0.55 million have been converted into online transactions.

Meanwhile, fast-moving consumer goods company Hindustan Lever Ltd. (HLL) has achieved more than a 35% cost saving through a reverse auction at Auctionindia for Rs 1 crore and an electrical-wiring contract for its new personal products plant coming up in Assam. Again, Madras Cements found a supplier offering impactors and conveyors for Rs 55 lakh on Matexnet; that’s far less than the Rs 1.7 crore that the company’s regular suppliers would have charged for the same thing, says Vasan of Matexnet’s.

Industry watchers, of course, say that while these transactions may seem ‘interesting’, in the overall context of commerce here, it is a small sum. For example, a saving of Rs 53 lakh on a bottom line of Rs 10,142 crore is small change for HLL Indeed, most of the big corporate such as HLL Nestle India, Tata Steel and Telco have conducted only a few transactions on B2B exchanges so far. That apart, the entire support framework that is required for the smooth flow of online transactions on these e-marketplaces still does not exist. Online payments, logistics support, online escrow mechanisms, online risk profiling or even a simple data service on the finances of companies participating in these marketplaces (along the lines provided by Dun & Bradstreet in the US) are not available.

Even the very seriousness of the user companies, which are currently registered on such e-marketplaces, is questioned. Says T.E. Gautham, senior analyst, Icra Advisory, the consulting arm of the rating agency: “These marketplaces also face problems of frivolous listings and registrations. Nobody knows how many serious users are really there.”

Predictably, therefore, the issue of how many of the 30-odd B2B exchanges that have sprung up so far will survive is still open. Sure, Teauction.com is claiming revenue of Rs 4.2 crore (Rs 1 crore from online auction and the rest from implementation, integration and so on, for members) and a pre-tax profit of Rs 2.5 crore, quoting financials audited by Ernst & Young. Again, clickforsteel is confident of breaking even this June. Yet, as the overseas experience shows, the going will be tough, and many of the e-marketplaces will fall by the wayside.

A recent report by AMR Research, a leading US-based research house on e-business, forecasts that bankruptcy, mergers and acquisitions could swallow up as much as 90% of the current crop of online B2B marketplaces.  The research company predicts that the number of exchanges will shrink from 600 currently to less than 100 companies by the end of 2001. AMR also predicts that only two or three such ventures will survive in each industry.

Some of that activity is already visible here. The TVS group’s acquisition of Auctionindia is an indication of things to come. You can expect many more such deals in the future. “Independent marketplaces are fast running out of money. We do not know if they will still be around six months down the line,” says Gautham, who points to the recent failure of supply (a B2B exchange across industries) in the international context. His boss reiterates the same point. “I think what we are seeing now is some liquidity in the B2B e-marketplaces that have been promoted by the industry.

“However, the independent exchanges are nowhere near achieving any critical mass,” says R. Raghuttama Rao, ex-officer, Icra Advisory. “But there are silver streaks. Specific activities such as disposal of surplus inventory, procurement of indirect materials, etc., are where these independent exchange are making an impact,” adds Gautham.

For the moment though, the consensus opinion is that independent initiatives don’t stand much of a chance unless they align and share ownership with industry. Globally too, even reasonably well-established independent vertical marketplaces such as chemdes.com have folded up. Which is why even strong players like Sify are keen to align with industry players. “We are willing to play the subservient role of a technology enabler. In all our marketplaces, the industry has been offered ownership,” says Mohan.

But that too may not underwrite survival. For example, the much-written about, eight company-promoted as yet unnamed auto portal in India (the promoters include Ashok Leyland, Hero Honda, TVS Suzuki, Bajaj Auto, Telco, Mahindra & Mahindra, Hindustan Motors and Maruti) is yet to take off. Those associated with the initiative say that one of the reasons why it has been a slow starter is that the partners aren’t sure about how they can benefit from it.

Of course, there is no dearth of optimism regarding e-marketplaces. Two research firms, Forrester Research and Gartner Group, predict B2B e-commerce transactions will top $7 trillion by the year 2004, of which 37% will be done via B2B marketplaces. More than 80% of the Global 1,000 companies will participate in B2B e-marketplaces by 2002.

The Asia region’s B2B e-commerce market is estimated to grow from $9.2 billion in 1999 to $995.8 billion in 2004. Both Forrester and Gartner forecast that over the next five years, e-market makers would be a primary driver of e-business transformation in the region. If you believe in these numbers, it’s clear that some Indian e-marketplaces will definitely prosper. The question is, of course, which ones.

Crisil in pact with Teauction.com

- 30/01/2001

The Credit Rating Information Services of India (Crisil) has entered into an alliance with Teauction.com, a leading B2B online tea exchange, to provide e-commerce evaluation and e-commerce rating services for the Teauction.com exchange participants. Under this alliance, credibility first (a division of Crisil) would be working with teauction.com to offer the first of its kind performance ratings to tea industry participants.

Teauction.com demands parity in tax with GTAC

- 24/01/2001

The first ever Internet tea auction company about to go into business in Assam has demanded parity in sales tax with the Guwahati Tea Auction Centre (GTAC).

The GTAC, which is the only tea auctioning body in Assam enjoys a two per cent central sales tax.

Teauction.com Limited, a company approved by the Tea Board dealing in online trading, has shares of tea giants such as the Williamson Magor group and Hanuman Tea Company.

Without parity with GTAC, the company would have to pay 4 per cent central sales tax thereby incurring a loss, tea operations senior manager, Ahmed Reza said here yesterday.

The company has opened a website on Assam tea, he said.

Reza said in other States such as such as West Bengal and Tamil Nadu, the company had at par status with four auction centres, the same should be applicable in Assam.

He said that the Union Commerce Ministry had abolished the tea marketing control order of selling 75% of the production mandatory through the auctions which had resulted in increase in tea being sold in the private market of which the State Government earned no revenue,

If the sales parity is introduced the company can function as a support to the existing GTAC which would result in increase in transaction and hence revenue for the government.

Reza claimed that out of the 462 million kg of tea produced in Assam, 21 million kg was sold in private market but when the teauction.com gets going it would attract 74 million kg from the private market valued at about Rs. 535 crore.

He said with sales tax on the sales of Rs. 535 crore at 2 per cent the government gains an additional sales tax revenue of Rs. 10.70 crore in the first year alone.

Moreover, the share of tea sold through through the teauction.com was bound to increase as Internet and e-commerce become more easily available, he said.

In a memorandum to the Chief Minister Prafulla Kumar Mahanta the company said the auctioning through the Internet would provide complete transparency and ensure equal distribution of tea to all corners of the country.

Tea auction through Net holds promise


Auction through the Net ? Yes, that’s the need of the hour. In a bid to improve the economy of Assam, besides creating an environment conducive to the healthy growth of the industry, an internet site with the name of teauction.com was formed recently. 

The auction through the internet holds immense promise for development of the State. 

Tea Auction Ltd., is India’s first industry promoting digital exchange for bulk buying and selling tea through its proprietory online auction system approved in the form of an all India license by Tea Board under the Union Ministry of Commerce. With the status of organizer of public auctions, Teauction.Com has a public auction status similar to all the six auction centres in India. The shareholders of Teauction.Com are Williamson Magor, Apeejay Surendra Group, Hanuman Tea Company, Dhansiri Tea & Centurion Bank Ltd. 

Teauction.com Ltd has been recognised by the other tea producing states of West Bengal and Tamil Nadu as another auction centre and has been accorded the sales tax parity with the existing physical tea auction centre. Interestingly their appeal for sales tax parity with Guwahati Tea Auction Centre is under consideration. 

The entire system is kept as similar to the present physical auction system as possible. The entry of the buyers is restricted to buyer members of the six presentation centres, Samples reach the buyer in advance of sale. Auctions are held every Monday in South India and on every Friday in North India. 

The new Internet-based online auction website has been appreciated by all sections of the industry, particularly the buyers and sellers. Teauction.Com is one of the major IT projects for the state of Assam which would give employment not only in tea but also in IT industry since this online auction system will catapult Assam into the IT map of India. The tea producing community is looking forward to an efficient system which will reduce the cost of sales, the benefit of which will passed down to the lowest level estate workers.

Introduction of another auction centre of Assam teas will bring sizable quantity of the production into the auction system thereby, re-creating seller confidence and generate much deprived revenue for the state of Assam in the form of sales tax.

A different cup of tea

-Jan 8 to 21, 2001

It's a system that offers a ready market, fair prices, no payment problems and has been around for a hundred years and more. Ever since the first tea auctions took place in Calcutta 150 years ago, conducted by J. Thomas & Co., the country's oldest and largest tea brokers, all the tea producers had to do was concentrate on producing. The auction system took care of the rest. Finding buyers, settling the price, deciding on the qualitative merits of the myriad varieties of tea, sampling endless cups and grading them, was done by tea brokers who charged a nominal 1 per cent of the proceeds as brokerage.

Compared to the numerous tea producers, who yield around 800-odd million kg of tea annually, brokers are fewer and earlier were mostly based in Calcutta. In the '80s and '90s the tea producing regions of Assam and North Bengal saw two major auction centres come up in Guwahati and in Siliguri both doing brisk business. South India, a major tea growing area accounting for 25 per cent of the crop, sees a lot of activity in its tea auction centres at Coonoor, Cochin and Coimbatore.

Currently, 480 million kg of tea, roughly 55 per cent of the all-India produce, is routed through the auction system. Says P.K. Sen, Chairman and Managing Director of J. Thomas & Co. Pvt. Ltd

"We essentially provide a useful service to the industry at a low cost." However, recently a section of the industry has been disgruntled about the six-week-long processing period involved - from transporting the tea right up to its sale - and the increase in costs. Aditya Khaitan, of Williamson Mogor group, one of the largest bulk tea producers in the country and a prominent user of the auction system, is one such producer. His chief grouse is that costs are no longer low. If they continue to rise, he and like-minded producers may have to think of other means to sell their tea. "The mode of selling has to be more responsive to the cost structure of the system," says Khaitan.

"If auction costs are inflated now, it's largely because of infrastructure costs, especially in the northeast sector, where tea is grown," argues Sen. Poor infrastructure - inadequate roads and communication - which makes transportation expensive, adds to the cost of movement of teas, which is accentuated by the long processing period. Tea auction houses in Calcutta are trying to keep costs down - a task vital to their survival but difficult -  not just in transportation or warehousing, costs of which have gone up significantly during the last decade. They are also attempting to bring down the high sampling costs. The move currently is to make the auction system a no-frills one.

An IIM study has suggested measures to trim the system and bring about a more streamlined method, which would involve less sampling. According to Sen, there are two aspects, to this that need to be kept in mind: the present auction system handles large volumes in a regulated manner that would be almost impossible to replicate outside the system on this scale, besides it offers much information on the product. Consequently,

despite the cost constraints, the auction system continues to be the favoured route to selling teas. As Khaitan points out: "The auction system definitely has merits. It is a competitive, transparent system, which ensures fair bidding under experienced and reputed brokers." More ever, auctions are fairly export-led, and marketing costs by independent companies are phenomenal and beyond that of a small independent producer. Therefore, the small producer is a major beneficiary of the auction system.

Virtual trade in tea futures on the cards 

The stage is all set for the launch of virtual trade in tea futures with teauction.com, the one and only tea auction centre in the cyber world, pitching for getting necessary clearances from the Forward Markets Commission (FMC). If teauction.com gets the FMC green signal, it will go down in the history of commodity trade as the first ever virtual exchange offering forward contracts in agricultural commodities.

The commodity markets' regulator has already decided to kick off forward contracts in tea along with a slew of other commodities including oil and oil cake and natural rubber. The Tea Board has taken the first step in setting up the forward contracts by roping in the Bangalore-based Indian Institute of Plantation Management to lay out the roadmap for tea futures.

Teauction.com takes NIIT, 4 top tea brokers to court

If you thought it would be easy to launch a portal with just a good B2B idea and enough cash or some typical angel funding, you may be mistaken.

At least this has been the experience of software giant NIIT Limited and four leading tea brokers of the country - J. Thomas & Company, Carritt Moran, contemporary Targets and Assam Tea Brokers.

Teauction.com, a tea auction portal, promoted by the Ayush Bagla owned city-based Hanuman Tea, has gone to Calcutta High Court (CHC) in an effort to stop NIIT and four top tea brokers from launching a similar tea auction site.

The Williamson Magor group of the Khaitans, the Apeejay Surrendra Group and Centurion Bank have reportedly picked up around 46 per cent stake in teauction.com. The site was developed by Web Development Corporation owned by the Todis of the Shrachi group.

Teauction.com has alleged that NIIT has hacked into its source code and is also party with the four brokers in developing the new tea auction site.

NIIT, J Thomas, Carritt Moran, Contemporary Targets and Assam Tea Brokers have hotly denied this. They have unanimously reiterated that they have not accessed any of teauction.com source code. They have also mentioned that the law does not stop anybody in developing a portal, which replicates its brick and mortar business model.

CHC has, for the time being, allowed an injunction in favour of teauction.com. But Justice Pinaki Ghosh will continue to hear the matter hereafter.

Teauction.com has acquired a licence as "auction organizer" from the Tea Board of India. The Calcutta Tea Traders' Association, Siliguri Tea Auction Center and the Guwahati Tea Auction Centre are the other three licenced auctioneers for North Indian tea.

With an average weekly offering of only about 3000 packets, the market share of teauction.com is only around one per cent in a weekly packet tea market of 3,00,000 packets of North Indian tea.

In face, besides teauction.com there are many more B2B and B2C portals selling packet teas. With teanetcom.com being one of the first such portals, Satyam Infoway has also joined the band-wagon by developing a tea portal, mainly for the South Indian variety.

NB: There appears to be an error in printing in the above article in the 6th para, kindly read "Assam Tea Brokers" as "Eastern Tea Brokers".



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