Survivor

Born during the height of the dotcom bubble, Bayan1rade has survived the crash.
Now, it's ready for takeoff.
By Heinz Bulos
October 2002

arol Carreon`s standard biodata
runs twele pages. 1wele pages!
It coers thirty years o industry
experience, including senior-leel stints
or the priate sector ,IBM, SGV,
MegaLink, SAP,, academe ,Uniersity o
the Philippines, Deelopment Academy
o the Philippines,, and the goernment
,Bureau o Internal Reenue,
Department o linance, Commission on
Llections,. She has traelled the world
or industry conerences, rom Japan
and New Zealand to London and the
United States. ler proessional network
runs ar and wide. She was a
aledictorian in grade school,
salutatorian in high school, one o ie
Outstanding Coeds o U.P., and ranked
second in her MBA class. She`s 54, with
3 children, and she still cuts a striking
igure. I am reading the resume o
superwoman.

It take a superwoman to get six rial
conglomerates - Aboitiz Lquity
Ventures, Ayala Corporation, Benpres
loldings, JG Summit, Philippine Long
Distance 1elephone Co., and United
Laboratories - and hundreds more
buyers and suppliers to operate in an
electronic marketplace. Certainly, her
General Manager position at MegaLink,
a consortium o competing banks,
helped. So did her job as Deputy
Commissioner o the BIR, where she
headed the Inormation Systems Group.
And surely, so did her work prior to
Bayan1rade, as Managing Director o
SAP Philippines, a leading proider o
enterprise applications. In other words,
she`s the right person or the job.

Scorecard

he company she`s heading now
as chie executie oicer,
Bayan1rade Dotcom, Inc., can
boast o its own accomplishments. Its
2001 total transaction alue o P5.5
billion is 22 more than its target o
P4.5 billion. As o the irst hal o 2002,
it generated P3.8 billion in alue pass
through ,VP1,, representing the amount
o transactions that changed hands.
1hat`s 86 o VP1 or the whole o
2001. As o August, it`s already at P5
billion.

Carreon noted, Bayan1rade has
matched reenues up to August or the
whole o 2001.` Considering that the
months o September to December are
peak months, it is possible VP1 could
reach P8-10 billion, a 100 growth rate.

Catalogue purchasing, at P2 billion or
the irst hal o 2002, accounted or
more than hal o transactions, and
online bidding, at P1.8 billion, took up
almost hal. Already, e-catalogue
purchasing VP1 has exceeded that o
2001`s P1.5 billion. L-bidding is 62 o
last year`s P2.9 billion. 1he Philippines,
i.e. Bayan1rade, is considered the e-
bidding capital o the world.
Neertheless, the goal o reducing the
ratio o e-bidding actiity to e-
procurement rom 5:25 to 60:40 has
been exceeded. L-bidding or online
auction is really a price game, which is
not a sustainable model. Procurement
works best or large olume and regular
purchasing requirements, a boon or
both suppliers and marketplace
operator. \hat has eoled as a strategy
was to make e-bidding an entry point, a
come on i you will, to online
procurement.

C 1
1he number o purchase orders
processed as o June 2002 is 23,000, a
23 increase oer last year. 1he number
o awarded bids or the irst hal o this
year is 30, or 90 o last year. lrom
just 6 consortium buyers and 60
suppliers in 2000, Bayan1rade now has
182 e-catalogue buyers and 5 e-bidding
buyers, and 500 e-catalogue suppliers
and 1,200 e-bidding suppliers.

It has been cited by local and regional
magazines and is considered one o the
best-managed and astest-growing e-
marketplaces in the world.

Already, it has three ertical e-
marketplaces or construction,
electronics, and power and utilities, and
has just signed an agreement with the
inancial sector.

1he construction ertical called
myCVP.net is composed o Ayala Land
Inc., D.M. Consunji, LLI Corporation,
lort Boniacio Deelopment
Corporation, Greenield Deelopment
Corporation, and SM eVentures, Inc.
Launched in October 2001, it`s now
generating P6 billion in alue pass
through reenues.

In lebruary o this year, Bayan1rade
launched another ertical or the
Semiconductors and Llectronics
Industries in the Philippines ,SLIPI,,
which is generating hal a billion in
VP1. Members include 1exas
Instruments, Amkor 1echnology,
Analog Deices, lujitsu, 1oshiba, and
litachi.

1he Asia Paciic Utility Group ,APUG,
in May 2002 chose Bayan1rade to
operate their e-marketplace oer
regional and global players or its
technical competence and alue
proposition. 1hey are now conducting
pilot bids. 1he APUG is an international
group o electricity and gas companies
collaborating on supply chain, materials
and procurement management.

Recently, it has signed an agreement
with the Bankers Association o the
Philippines ,BAP, or a inancial e-
marketplace, which will soon be
operational. 1he company is also eyeing
2 to 3 more industry sectors this year.

So ar, the consortium members hae
inested P45 million, just hal o the
total programmed capital call o P850
million. Bayan1rade is already sel-
suicient. Carreon is proud to note that
the members hae already recouped
their inestment through cost saings.
1he aggregate saings in purchasing
costs runs to at least P500 million,
already in excess o the consortium`s
original equity inestment. 1he aerage
saings is around 12-13, and can go as
high as 0. Processing costs has gone
down rom P300-1,000 per purchase
order ,PO, to only P200. 1he time it
took to process POs also decreased
rom 2-3 weeks to less than 3 days.

\hat makes Bayan1rade`s perormance
een more remarkable is that it is
operating at the most inopportune time.
Bayan1rade was born in June 2000 and
launched in Noember o the same year,
a ew months ater the dotcom crash.
1he years 2000 and 2001 saw the
downall o many B2B players in the
U.S., rom almost 1,000 to around 200.
L-markets olded up, were gobbled up,
or simply aded away. It was not exactly
the perect time to start an online
business. 1here was the Nasdaq bubble
burst, September 11, the global
recession, and political upheaals.
Locally, the major competitors o
Bayan1rade - PhilBX and CateringX -
hae gien up the ghost.
SourcePilipinas.com, while still around,
is rumored to be haing problems as
well.

Key success factors
o what has made Bayan1rade not
just surie but succeed in the
market 1wo basic things:
commitment o the consortium
members and excellent management.

Carreon explains the reason or their
success: Bayan1rade is ounded by a
consortium. \e hae 180 trading
members and so we hae critical mass.
And we worked together well.` In a
press release, Carreon debunked the
report that competitors can`t work
together in an e-market, "In act, the
consortium model is the most successul
e-commerce model globally.`

A consortium-sponsored B2B
marketplace has distinct adantages. It
carries with it the existing purchasing
power o the consortium members. In
the case o Bayan1rade, the purchasing
olume o the six conglomerates -
around P100 billion annually - already
account or 10 o the total purchase
spend in the Philippines. 1ogether with
its erticals, Carreon in press statement
said that amounted to 40 o total
Philippine purchase spend.

1hat kind o leerage naturally attracts
suppliers. In act, there`s already a
deault supplier base once the
conglomerates encourage` their current
suppliers to sign up. 1he company has a
98 sign-up rate or new suppliers.
lrom 360 catalogue suppliers last year
to around 500 as o August this year,
that`s almost a 40 increase.

But really, in a buyer`s market, it`s the
buyers that drie the growth. A key to
Bayan1rade`s success, more than its set-
up, is the commitment o the members.
Manila Llectric Corporation ,Meralco,,
or instance, conducted the highest VP1
or e-bidding. Ayala Land Inc. ,ALI, had
the most number o e-bidding eents.
1he Philippine Long Distance Company
,PLD1, generated the highest alue pass
through in e-catalogue procurement and
also processed the most number o POs.
United Laboratories Inc ,Unilab, had
the most number o actie suppliers.
Uniersal Robina Corporation ,URC, o
the JG Summit Group, Ayala Land Inc.
o the Ayala Group and Union Bank o
the Aboitiz Group pioneered an
aggregated bid.

1his kind o commitment has led
Bayan1rade to quickly reach liquidity,
the single most important actor that
determines the inancial health o an e-
marketplace. \ith buyers increasing
their olume and breadth o purchases,
sellers get encouraged. Less actie
members get encouraged. 1he saings
generated by both parties attract
companies to join the marketplace, thus
increasing the number o participants.
1he leel o trading olume increases.
And the cycle goes on.

\illiam Brandel, an analyst at the
Aberdeen Group, said in an L-
Commerce 1imes report noted that
mega-exchanges or industry-sponsored
B2B exchanges are in the best position
to succeed. 1hey hae deep pockets
and hae receied a lot o unding that
has allowed them to continue their
operations longer than other
marketplaces. Also, the ounders o
these marketplaces are, so ar,
committed to their ongoing operations
and hae the power to drie them to be
successul by participating in them.`
Certainly, gien that Ayala, JG Summit,
Benpres, and PLD1 hae been burned
by their B2C experiments, they had a lot
o motiation to make Bayan1rade
work.

It helped also that there were just a
handul o major players to start with.
And with the demise o two
competitors, Bayan1rade is beneiting
rom the orphaned buyers and suppliers
o PhilBX and CateringX. Carreon said
they considered buying out PhilBX but
S
decided it may be more cost-eectie to
acquire customers on their own. She
conirmed that members o both
exchanges hae transerred to
Bayan1rade.

1he two independents most likely had
problems reaching liquidity. Unlike
Bayan1rade which had a captie market
or its members, PhilBX and CateringX
had the diicult task o persuading
buyers to sign up. PhilBX also charged a
lat ee regardless o transaction amount.
So een i buyers increased their
purchase amounts and not the
requency, PhilBX`s reenues do not
increase proportionately. Bayan1rade on
the other hand charges a 1.5
commission or catalogue purchases and
2-3 or reerse auctions, as mentioned
in an earlier Businessworld interiew. In
an interiew with Computerworld
Philippines, CLO Olier Sicat pointed at
the goernment`s inability to support
electronic inoices.

Asked to comment, Carreon said, 1hat
problem has been in all stages o IC1
use. It was there in the 0s when legacy
systems were in place. 1hat will always
be there. Goernment will react to the
pace it`s used to.` She added, I don`t
consider that a stumbling block. \e
don`t buckle at obstacles, we press on
with sheer determination.`

In a local mailing list, it was reported
that a CateringX employee blamed the
Oracle sotware they were using. But
Carreon pointed out that I1 products
hae become a commodity, It`s how
you use the sotware ,that`s important,.`

1he demise o PhilBX and CateringX
could also be an issue o unding.
PhilBX committed P150 million and
CateringX allotted P300 million, a
raction o Bayan1rade`s authorized
capital, which was around P1 billion
,later raised to P2 billion,, although only
less than hal o that has been used. But
certainly, the consortium members had
the resources to increase unding i
necessary. PhilBX probably did not hae
that luxury. CateringX, a Lucio 1an Jr.
,son o the taipan, company, may hae,
but the results may not hae justiied it.
1an`s Uniize Group also owns part o
SourcePilipinas.com, along with \apster
e-Conglomerate. 1his other independent
exchange is still aloat, but has been
taking a low proile lately.

But certainly, one key actor or
Bayan1rade`s success is its top-caliber
management team. Carreon has a wealth
o experience in general management,
enterprise applications, and project
management. She`s a consistent leader
and perormer since her student days.
And she is a surior.

Raised by a widowed oicial o the
Department o Lducation, Culture and
Sports ,DLCS,, Carreon had at an early
age stroe to better her amily`s lot. She
won scholarships at the International
School and the Uniersity o the
Philippines, where she graduated with a
Bachelor o Science in Mathematics.
lrom an entry-leel systems serices
representatie ater college, she has
quickly made her way up to top-leel
positions.

Bayan1rade`s board has recognized
Carreon`s accomplishments by naming
her Vice-Chairman, retaining her CLO
title. Lance Gokongwei, Chairman or
this year, noted that Carreon has been
instrumental not just in the growth and
deelopment o Bayan1rade, but in the
reinement o bona ide e-commerce
business models globally. Carol has
anticipated shits in the industry, in
markets, and technology and leeraged
that strategic insight to continually reine
Bayan1rade`s business model, its
organizational structure, and the
application o technology.`

ler second-in-command, Dante
Briones, was promoted as President and
chie operating oicer ,COO,. Briones
himsel has had an illustrious career,
haing been CIO o Coca-Cola Bottlers
Philippines, Inc., Corporate Business
Systems director o JG Summit
loldings, Inc., MIS Manager o Sara
Lee Philippines, Inc., among others.

Challenges
espite Bayantrade`s
accomplishments, it aces
serious challenges. Despite the
heay olume o transactions, the 80,20
principle still rules: 20 o members
generate 80 o the transactions. 1he
others are waiting at the sidelines. 1hey
want to see how much alue it can oer,
explained Carreon. 1here are cases o
members who, ater signing up, end up
not participating at all. 1his resistance to
change is a major hindrance. She said
1here are some that haen`t used us as
much. Some are aster and some, not as
ast.` but she expects that it will be
standard business practice in a short
while.` She said, 1o me, it`s less o a
technology issue and more an issue o
change management.`

1he initial hype that sellers will easily
ind eager buyers on an e-marketplace
has led to rustration. It`s a problem
aced by suppliers with no existing
relationships with buyer members who
signed up in an e-market. It`s the same
problem or those that hae resisted the
initial lure to join the bandwagon.

IDC, an I1 research irm, conducted its
e\orld 2001 surey and ound out that
84 o the 1,500 I1 managers sureyed
in Korea, China and Australia were
amiliar with the concept o e-
marketplaces but only 10 participated
as a buyer and only 16 as a seller.

Gibs noted that purchasing managers
are typically airly slow on the
technology adoption cure. Many
companies are still moing rom ax and
electronic data interchange ,LDI, to the
\eb.`

In an interiew with Computerworld
Philippines, MSI-Digiland managing
director Jimmy Go explained that most
o their resellers would rather call and
place their orders than to purchase
through their \eb site. Another
common practice is haggling. \e ind
that they still preer human interaction -
they want to talk to someone who they
can haggle and negotiate the price with,`
he said.

Another impediment to e-marketplace
adoption is the perception, and in most
cases the reality, o competing solely on
price, an asymmetry o interests between
buyers and sellers, particularly in buyer-
led e-markets.
1he worry among suppliers is that an e-
marketplace will lead to
commoditization. Rather than using
serice, quality, or speed as a
competitie adantage, sellers are orced
to compete only on price. Suppliers are
likewise wary o exposing their buying
partners to competitors. 1here are also
concerns about possible collusion,
especially in ertical exchanges where
competing buyers would collude to
squeeze the margins o suppliers.
Carreon disagreed to this iew, 1his is
just demand aggregation, where buyers
increase their buying power. 1his should
not be seen as squeezing suppliers`
margins but as a way or them to be
more eicient.`

She added, 1here are two types o
marketplaces: buyer marketplaces and
supplier marketplaces. 1he marketplace
o the uture will be neutral.`
Bayan1rade, or instance, is deeloping
a marketplace or exporters.
Multiple strategy
D
he biggest challenge for
BayanTrade is to sustain its
growth. So far, its pursuing a
multi-pronged strategy for growth.
lirst, it reorganized by establishing
strategic business units ,SBU,
responsible or speciic customer
segments, rather than by serice such as
e-bidding and e-procurement. It also
outsourced its non-core actiities such
as data hosting to ePLD1, public
relations to 1eamAsia, and parts o its
back-end systems to SAP.

Second, it`s aggressiely pursuing non-
consortium members into the old. On
aerage, 20 new suppliers and 5 new
buyers sign up eery month. 1he plan is
to increase the olume pass through mix
o consortium-to-non-consortium-
members rom its current leel o 90-
10 to 60-40 by year-end, then to
30-0 by end o 2003.

1hird, it`s ocusing on increasing
transaction alues with existing buyers
and sellers. One way o doing this was
by adding greater lexibility to the
system through a recent upgrade o their
Commerce One MarketSite platorm.
lor instance, it now supports multi-
ariable bidding, so it`s now possible to
include non-price actors such as
deliery time and product warranties.
Another approach was to increase the
number o commodity groups rom 35
in 2001 to 63 in 2002, giing more
product categories aailable or
purchase. It`s also encouraging its buyers
to expand their purchases rom the
highly-traded computer equipment,
oice supplies, and other maintenance,
repair, and operations ,MRO, items to
direct materials. Carreon said they are
already seeing an increase in the
purchase o direct materials as well as
industrial supplies, one type o MRO
category, which eentually leads to
direct materials, as buyers moe their
purchases rom oice items to actory
items.

lourth, it`s adding new erticals eery
year. Not only does this strategy expand
Bayan1rade`s market but it also
encourages speciic sectors to go beyond
purchasing indirect materials to direct
materials particular to their industries.
Bayan1rade expects these ertical
exchanges to contribute around 40 to
its reenues. Carreon said, \e`re
signing two more ery soon, hopeully
three.` Although no speciic sector was
mentioned, it`s likely that it will target
industries where the consortium
members o Bayan1rade already hae
businesses in, particularly ood and
retail, as well as the consumer packaged
goods sector. 1he company is also
eyeing the lucratie goernment sector.
In act, they`re in the shortlist o the
goernment`s e-procurement project.

lith, it expanded its serices rom
transaction-based ones such as online
bidding and procurement to alue-
added, and higher margin, serices, such
as LRP integration, consultancy, and
logistics. Carreon said they already hae
two LRP integration projects,
consultancy serices or two clients, and
a pilot transaction or e-inancials. She
noted that transaction acilitation is a
cost-breakeen model. 1his is a shit
rom being a marketplace to a total
solutions proider. Proitability comes
rom serice components.`

1his expansion towards consultancy and
integration is an outside-in strategy, as
opposed to the inside-out strategy that`s
becoming a trend or enterprise
application endors such as SAP and i2.
A lot o big corporations hae already
inested heaily in LRP and want to
leerage on their existing technology
inestments. 1he current buzz is on
enterprise application integration and
supply chain management that extends
to suppliers and customers.
T

\e're seeing an expansion o enterprise
resource planning ,LRP, technology,
rather than outside-in` orces like e-
marketplaces,` Gibs told the L-
Commerce 1imes. So we hae existing
enterprise inestments growing
outwards towards partner relationships.`

Carreon doesn`t consider the likes o
SAP as direct competitors, In the
whole scheme o things, there is a role
or each one.` She noted that according
to Giga Inormation Group, 25 o
B2B e-commerce reenues would come
rom e-marketplaces and the rest rom
priate LDI ,electronic data
interchange, and LDI VANs ,alue
added networks,. She added that it`s
only the more progressie companies
that will pursue an inside-out strategy.

Sixth, Bayan1rade is looking towards
the small and medium enterprise ,SML,
market, particularly the export sector, by
building a supplier portal. Carreon said,
SMLs will hae a much bigger role.
\e`re touching SMLs as we go into
each ertical. But we want especially the
sector to be isible in the global
market.` According to an IDC report,
the second stage o B2B growth in the
Asia-Paciic area will consist o small
and mid-sized businesses jumping into
the B2B market.

loweer, joining an online exchange
has been diicult or SMLs. 1here`s the
cost o putting up and maintaining a
catalogue o products, especially painul
or those that sell in hundreds o
categories. And i their potential buyers
participate in other exchanges, then that
cost will be multiplied. Carreon noted,
Len among marketplaces in the
Philippines, suppliers will be doubly
hit.`

1his lack o interoperability, in act, is a
problem o buyers as well, which hae
to integrate their procurement systems
with multiple marketplaces. lortunately,
some e-markets such as members o the
Global 1rading \eb hae banded
together with interoperability
agreements. In addition to using the
same technology platorm, the members
agreed on common security, pricing, and
serice leels. Supplier content is also
syndicated among the broader
membership o the Global 1rading \eb
to reduce the cost o building and
maintaining catalogs or the market
operators and suppliers.

Bayan1rade has addressed the problem
o catalogue cost. It`s building content
reineries, resources or creating online
catalogs, partly to sere regional
marketplaces and partly to make it easier
or its suppliers.

Seenth, the company is also looking
orward to online collaboration, which
many experts beliee is the next step or
marketplaces. lorrester`s Orlo noted
that companies also are more likely to
collaborate on product deelopment in
order to reduce costs while growing
their business as the sector awaits a
recoery.

Bayan1rade continues to eole rom a
simple transaction acilitator to a total
solutions proider. Carreon said in a
press statement, Aside rom direct
buying and selling serices, Bayan1rade
proides e-Payment, e-Logistics, LRP
integration, content and sourcing
serices, and solutions proisioning.`
1he company also plans to oer project
management or construction irms,
collaboratie design or electronics and
demand consolidation or utilities
companies.

Lighth, it has detly proided lexibility
to its members through a combination
o horizontal and ertical, and public
and priate platorms. Companies can
purchase less sensitie MRO items in its
horizontal, public marketplace and buy
direct materials in a speciic ertical
exchange or in a hosted priate
exchange.
1he worst thing you can do is to
commit to one model - it's actually
aluable to participate in dierent
models,` said Andy Bartels, research
leader or e-business applications at the
Giga Inormation Group, in an
interiew with the L-Commerce 1imes.
\ou don't hae to use e-markets or
eerything. It may not work or your
purchasing, but it might be good or
your supply chain planning.` 1he best
approach is to mix-and-match.
In a press statement, Briones said, One
reason our model is working is that 99
percent o the trading relationships on
Bayan1rade are priate, or between one
buyer and one or more sellers. In act,
we are oering a hosted priate
exchange solution companies can
leerage without the huge capital outlay
dedicated priate exchanges require.
1here is a huge cost associated with
putting up dedicated priate exchanges
and companies are compelled to manage
their inestments based on real returns,
not alse promises. Our model proides
the astest, most cost-eicient
alternatie or leeraging the many
beneits o e-commerce.`

In the same statement, Carreon said,
Very large companies will use priate
exchanges because large companies and
multinationals hae the economy o
scale or that to make sense. But that
won't make sense or most companies,
especially in the Philippines where 80
o all irms are small- and medium-scale
enterprises. And those that do hae
priate exchanges - which include our
o our consortium members - still use
public e-marketplaces or the isibility
o suppliers we are able to oer. lor
sellers, they want a larger pie, a bigger
unierse to sell to. \ou can't get that
with a priate exchange.`
In the uture, it`s likely that these arious
e-markets - consortia, independent, and
priate - will link up with one another
to gain economies o scale and
eiciency.
B2B Iorecast
espite the challenges, B2B e-
commerce has a bright uture.
Gartner Research predicts that
B2B e-commerce will reach >1.9 trillion
in 2002. eMarketer, a research irm that
aggregates igures rom arious sources,
pegged 2002 worldwide reenues at
>841 billion, reaching >2.8 trillion by
2004. According to an IDC study, B2B
will account or 83 o online sales in
2002 and 88 in 2006. Asia Paciic`s
share o the B2B e-commerce market
will increase rom 5 in 2000 to 12 in
2005.
IDC predicted that >61 billion in direct
and indirect materials would be sold by
the end o 2002, compared to >12.8
billion spent in 2000, or B2B e-
commerce in the Asia Paciic region. O
the >500 billion the region expects to
generate by 2005, 45 will come rom
e-marketplaces.
O the three key B2B segments - e-
distribution, e-procurement, and e-
marketplaces - IDC noted the last
would be the astest growing segment.
1hose companies that hae built their
online procurement and distribution
systems would be compelled to link up
with e-marketplaces to gain access to the
SML sector.
1he key accelerators o B2B adoption in
Asia Paciic are its strong manuacturing
and export-oriented economies,
increased competition due largely to
deregulation, and the need to reduce the
cost o doing business.
Line 56 Research similarly noted that
while majority, i.e. 81, o companies
D
that conducted B2B purchasing used
direct or one-to-one channels in 2001,
and only 35 used public exchanges, by
2003, 61 would take the public
exchange route, growing at a rate
oer the next 2 years.
1his optimistic outlook, and
Bayan1rade`s perormance, has
prompted the company to predict
proitability in 2003, and a possible
listing in the local, or een U.S. stock
exchange. Carreon said, Deinitely,
when we become proitable. It`s been
part o Bayan1rade`s plan rom the start.
An IPO is ineitable in the next year or
so.` She added that on their irst year,
they ocused on market share, which
they achieed. On the second year, the
target was cash suiciency. 1he third
year`s aim is proitability, and they`re
underway. 1he potential or growth
remains huge. Purchase spend in the
Philippines is around P1 trillion and
Bayan1rade`s share is about 5, or P10
billion. She noted, \e`re just at the tip
o the iceberg.` Indeed, ater suriing
the crash, Bayan1rade is ready or
takeo.