Integrity, transparency vital in online B2B exchanges

By RICHARD BRADDELL

Business-to-business exchanges, through which businesses trade goods and services over the internet, will shift the balance of power from sellers to buyers, revolutionising business procurement.

But the new online exchanges will also increasingly need to resemble traditional stock exchanges in their governance and transparency, says an expert on e-commerce.

Arthur Sculley, formerly a divisional managing director at J. P. Morgan and an author on B2B, said the new exchanges would need shareholder ownership structures and be profit-making, but they would also require rules and management structures ensuring their neutrality.

He is one of a panel of international commentators who will be at the Government's e-commerce summit in Auckland on November 1 and 2. The conference, expected to be attended by 500 businesspeople, will be chaired by Sir Gil Simpson, of Christchurch software development house Aoraki Corporation.

It will also be a forum for the Government to present and discuss its draft e-commerce strategy aimed at fostering the swift adoption of e-commerce by NZ business.

Mr Sculley told the Ariba conference in Miami that exchanges had the potential to cut business procurement costs on average by 15 per cent, and up to half, but lower margins to suppliers would be compensated for by higher volumes and better supply chain management.

Most importantly, he said, a successful B2B exchange must have integrity and it must be transparent.

"Whatever is done on the exchange needs to be made available on an anonymous basis to all members of the exchange, particularly prices on recent trades."

But confidentiality was also vital.

"These exchanges must have Chinese walls in place so that confidential information which companies need to reveal about themselves to trade on the exchange will not be misused or passed to shareholders of the exchange."

Mr Sculley said shareholder ownership was vital because mutual ownership structures of the New York Stock Exchange and Nasdaq had hindered them in the globalisation of stock exchange business.

B2B exchanges are developing along vertical and horizontal lines. Vertical exchanges service specific industries such as pulp and paper, computer chips or chemicals, while horizontal exchanges offer services such as insurance and banking to a variety of industries.

Mr Sculley said exchanges backed by the industry consortiums, such as the giant Transora food exchange that was unveiled in Miami, would differ from the dotcoms in that they would have financial backing and liquidity.

But they also posed a management challenge because, at the outset, their executives would be seconded from the companies that created the exchanges, and that would raise questions of independence.

While exchanges should remain focused on their own industries, they should also play to win, because there is no room for second place. Even in a $US7.3 trillion market, the top players would suck up all the liquidity, Mr Sculley said.

It was therefore important to build the exchange quickly, getting as many suppliers on board as possible.