B2B E-Marketplaces—Strategic Archetypes by pharmphresh30

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									B2B E-Marketplaces—Strategic Archetypes

                       By

                  Christina Soh
            Nanyang Business School
          Nanyang Technology University
                   Singapore


                      And

               M. Lynne Markus
                Bentley College
               Waltham, MA USA

                   May 2002
            B2B E-Marketplaces—Strategic Archetypes
Abstract

        Business to business (B2B) e-marketplaces are practically and theoretically interesting.

They enable business process changes that potentially affect organizational performance, and they

are linked to structural shifts from hierarchical to market relationships, with resulting impacts on

product prices. The impacts, however, are likely to depend on the types of e-marketplaces

deployed.

        This paper integrates prior research on e-marketplace attributes, with electronic markets

theory (Malone et al., 1987), strategic positioning theory (Porter, 1985), and the literature on

strategic archetypes (Miller, 1988), to provide a parsimonious theoretical framework for

analyzing e-marketplaces and understanding their impacts. Two broad archetypes (thematically

related sets of attributes that are likely to occur together) are posited from the literature—the

brokerage archetype and the integration archetype.

        The framework is applied to two empirical e-marketplaces to illustrate how it can be used

to surface the different configurations of attributes in e-marketplaces. The distinctions we

observed between the e-marketplace configurations, when we applied the framework, were

theoretically based, fine-grained (based on multiple attributes), and parsimonious (thematically

related). We believe therefore, that the framework offers considerable benefits to researchers in

their investigations of e-marketplace performance and impacts.
Introduction

        Business to business (B2B) electronic marketplaces are practically interesting, because

they enable business process changes with potential performance impacts. E-marketplaces are

also theoretically interesting, because they have been linked with shifts from hierarchical to

market-like business relationships (Malone, 1987) and with lower prices for purchased products

(Bakos, 1997).

        The impacts of e-marketplaces, however, are likely to depend on the types of e-

marketplace deployed. There have been several prior attempts to identify essential B2B e-

marketplace attributes (Bakos, 1997; Kaplan and Sawhney, 1999; Davenport, et al., 2001).

Generally, these efforts have captured only a few relevant e-marketplace attributes, and they have

captured different attributes. Consequently, the field lacks a holistic perspective and explicit

guidance about which e-marketplace attributes are most relevant for particular research needs.

        This paper unifies prior analyses of e-marketplace attributes into a parsimonious

theoretical framework based on Porter’s (1985, 2001) theory of strategic positioning, Miller’s

(1988) concept of strategic archetypes, and Malone et al.’s (1987) theory of e-marketplace

impacts. We illustrate the framework with examples of actual e-marketplaces. The framework

should be useful in future studies of e-marketplace performance and impacts.


Theoretical Background

        Prior analyses of electronic marketplaces have identified a variety of differentiating

characteristics. Bakos (1997), for example, examined the types of products traded on e-

marketplaces (commodity vs. differentiated), the ownership of e-marketplaces (by intermediaries,

buyers, or sellers), and their communication activities (price vs. product information). Kaplan and

Sawhney (1999) considered type of products traded (direct vs. indirect goods), type of trading

activities (systematic vs. spot sourcing; catalogs, negotiated prices, auctions), and bias (seller-



                                                                                                      1
biased, buyer-biased, or neutral). Wise and Morrison (2000) discussed product attributes

(complexity vs. standardization), product cost, and fragmentation of buyer or supplier base.

Davenport et al. (2001) contrasted e-marketplaces that focus on aggregation of buyers and sellers

(for discovery and matching) and those that focused on integration (for better transaction

efficiency); they note that there may be fundamental trade-offs between these two value

propositions. Finally, Lennstrand et al. (2001) identified value-added contribution (competition

vs. cooperation; disintermediation vs. facilitation of integration), trading mechanisms (catalogs,

auctions, reverse auctions, exchange), sources of revenues (transaction fees, membership fees,

etc.), and ownership structure.

        Unfortunately, applying some of these classification schemes can be challenging, since

some empirical e-marketplaces exhibit more than one attribute value on supposedly exclusive

categories. For example, whereas Kaplan and Sawhney (1999) differentiated between e-

marketplaces with catalog mechanisms and e-marketplaces with auction capabilities, Nunes et al.

(2000) noted that many “all-in-one” e-marketplaces provide both catalog and auction services.

        Further, while there is clearly some overlap among different e-marketplace classification

schemes, there is also considerable divergence (see Table 1). No one framework encompasses all

attributes identified in the others. Consequently, these frameworks give researchers no consistent

guidance about how the attributes relate to each other and how to select attributes most

appropriate for various research purposes.

                                         --------------------
                                              Table 1
                                         --------------------

        We observed that the range of attributes identified in prior analyses can be usefully

classified within the conceptual categories of Porter’s (1985) strategic positioning theory. Doing

so provides a theoretical rationale for hypotheses about the relationships among the attributes and

helps researchers assess the conceptual limitations of selecting certain e-marketplace attributes

over others. Further, using Porter’s framework in combination with Miller’s (1988) concept of


                                                                                                     2
strategic archetypes provides a solid theoretical basis for classifying e-marketplaces in empirical

studies of e-marketplace impacts.

        To justify these claims, we first briefly describe Porter’s theory of strategic positioning as

it relates to e-marketplace attributes. Next, we show how Miller’s concept of strategic archetypes

can be used to identify a parsimonious set of e-marketplace types and to differentiate among

them.


Strategic positioning theory

        Michael Porter’s (1985) theory of strategic positioning is the dominant perspective on

business strategy. Using it to classify e-marketplace attributes is theoretically advantageous,

because strategic position is theoretically linked to firm performance. Therefore, e-marketplace

types derived from strategic positioning theory can be expected to exhibit relationships with e-

marketplace performance. Further, as we show below, because a strategic positioning analysis of

e-marketplaces encompasses the different “interconnection effects” (communication, brokerage,

and integration effects) of electronic markets theory (Malone et al. 1987), e-marketplace types

derived from strategic positioning theory can also be expected to exhibit relationships with e-

marketplace impacts (e.g., changes in industry structure).

        The three key concepts of strategic positioning theory are value proposition, product-

market focus, and value added activities (Porter, 1985; 1996). Briefly, value proposition is the set

of benefits a firm offers its customers. Product-market focus is the way the firm targets its

customer segments and selects its product offerings. Value activities are the things a firm does to

deliver the value proposition to the target product-market segments. Strategic positioning theory

holds that superior performance comes from tight linkages among a distinctive value proposition,

a carefully crafted product-market focus, and a set of unique value activities that cannot be easily

imitated by other firms.




                                                                                                      3
        It takes a bit of invention to adapt Porter’s three strategic positioning concepts to e-

marketplaces. First, as intermediaries, e-marketplaces have two types of customers—buyers and

sellers. Buyers and sellers may have very different needs, requiring different value propositions.

For example, the value proposition of brokerage (Malone et al., 1987) may appeal to buyers

through the promise of lower product prices, but may antagonize sellers (Bakos, 1997),

prompting them to avoid an e-marketplace, contributing to its failure. Similarly, the product-

market focus of an e-marketplace may be different for buyers than for sellers. The e-marketplace

may, for example, target large global retailers and small Asian suppliers. Finally, because e-

marketplaces are IT-enabled intermediaries, analysis of their value activities must include

different IT-enabled features for product buying and selling, payment, logistics facilitation, etc.

        Table 2 summarizes definitions of Porter’s strategic positioning concepts, their

application to e-marketplaces, and our operationalization of these concepts. A few points bear

note:

    We operationalize e-marketplace value proposition in terms of the three electronic

    interconnection effect types posited by Malone et al. (1987) to be related to e-marketplace

    impacts. The three types are: communication (ability to transmit and access large amounts of

    information quickly and at low cost), brokerage (access to large numbers of buyers and

    suppliers; ability to search and evaluate many alternatives quickly and at low cost), and

    integration (tight coupling of buyers’ and suppliers’ processes, enabling lower inventory

    levels and greater responsiveness). It is important to differentiate among these e-marketplace

    value propositions, since Davenport et al. (2001) have noted that there may be fundamental

    trade-offs among them.

    We operationalize e-marketplace product segments in terms of the range of industry

    segments (called verticals) in which an e-marketplace participates and the nature of the

    products traded (commodity, standardized, differentiated etc.). These attributes have been

    identified as important in prior analyses of e-marketplaces (Bakos, 1997; Kaplan and


                                                                                                      4
    Sawhney, 2000). We operationalize e-marketplace market segments as the size and

    geographic location of buyers and suppliers (Porter, 1985), as well as the e-marketplace

    neutrality/bias towards buyers and suppliers. Independently owned e-marketplaces are most

    likely to be neutral, while those owed by a single buyer or supplier or by a consortium of

    buyers or suppliers are likely to be biased towards the owners’ interests (Bakos, 1997; Wise

    and Morrison, 2000; Kaplan and Sawhney, 1999).

    While prior research has largely focused on matchmaking activities (Kaplan and Sawheny,

    1999; Wise and Morrison, 2000; Lennstand et al.; 2001), we operationalize value activities in

    terms of six broad categories of IT-based e-marketplace functionality reflecting the stage of

    the procurement cycle being supported (Weller 2000): 1) Content provision (industry news

    and discussion forums); 2) Matchmaking (catalogs, request for quote/proposal (RFQ/RFP),

    auctions, negotiation); 3) Post-sale transaction automation (online purchase order, invoices,

    and payment); 4) Logistics facilitation (warehousing, transportation); 5) Collaboration

    support (supply chain management, sharing of inventory information, sharing of design

    information; and 6) Other (software implementation services, consulting, training).

                                       ---------------------------
                                                Table 2
                                       ---------------------------

        Overall, the strategic positioning framework of value proposition, product-market focus,

and value activities encompasses the e-marketplace attributes identified in prior analyses (see

Table 1) as well as electronic markets theory (Malone et al., 1987). In addition, it provides a

theoretical link between e-marketplace attributes and e-marketplace performance and impacts.

        One problem remains: The number of distinct e-marketplace strategic positions is

potentially quite large. How can they be clustered for empirical studies of e-marketplace

performance and impacts? The concept of strategic archetypes, developed precisely for this

purpose, is discussed next.




                                                                                                    5
Strategic archetypes

        The literature on strategic alignment focuses on the fit between a firm’s strategy and its

environment, because fit is believed to have positive implications for firm performance (Miller,

1988; Venkatraman, 1990; Zajac, 2000). Strategic fit can be understood in two ways—as the

bivariate alignment between pairs of strategic attributes or as the holistic alignment of a

comprehensive set of strategy attributes (Venkatraman, 1990). In recent years, the holistic

approach has been favored, because the concurrent alignment of numerous important attributes is

believed to be more predictive of the performance of empirical firms than the fit between any

particular pair of attributes.

        One holistic strategic alignment approach aims to isolate a limited number of strategic

archetypes and to assess the similarity or difference between the archetypes and the

configurations of individual firms. Archetypes are gestalts of frequently recurring clusters of

attributes (Miller, 1988). Archetypes are believed most useful when they posit how and why the

attributes are related. However, when archetypes are derived inductively, theoretical relationships

among attributes are not clear (Miller 1996). Therefore, Miller advocates a process of surfacing

the major theoretical theme(s) that tie the attributes of archetypes together. We use the three

main concepts of Porter’s strategic positioning theory as the theoretical starting point for our

identification of e-marketplace strategic archetypes.

        Based on prior e-marketplaces literature, we propose at least two1 broad e-marketplaces

archetypes—brokerage2 and integration. Each archetype exhibits a logical fit among value

proposition, product-market focus, and value activities. The brokerage archetype focuses on

providing buyers and suppliers with improved access to each other for the purpose of better

matching of needs (Malone et al., 1987). The brokerage value proposition fits best with products


1
  An e-marketplace archetype based solely on the communication effect (Malone, 1987) does not appear to
be commercially viable today.
2
  Finer discriminations are possible. Thus, the brokerage archetype may come in single vertical industry
and multiple vertical industry flavors.


                                                                                                       6
that are low cost, commodity or standardized (Bakos, 1997), and markets that are fragmented,

resulting in e-marketplaces that are unbiased or buyer biased. The value activities that closely

support brokerage are aggregated catalogs and/or auctions (Kaplan and Sawhney, 1999). The

integration archetype focuses on improving the efficiency of buyer-supplier interactions through

tighter coupling of their processes. Since integration requires cooperation and standardization of

formats and processes among buyer and seller companies (Davenport et al., 2001), it fits best with

high price differentiated products (Wise and Morrison, 2000) in markets that may be consolidated

on either the supply side (Bakos, 1997) or on demand side. The activities that are required to

support integration include post-transaction automation, logistics facilitation and other

collaboration support (Weller, 2000). Figure 1a and 1b graphically represents the archetypes.

                                          ---------------------
                                          Figure 1a and 1b
                                          ---------------------

        We further propose—based on Porter’s strategic positioning theory and the e-marketplace

arguments of Bakos (1997), Davenport et al. (2001), and others—that empirical e-marketplaces

with configurations that more closely match the archetypes will perform better than those whose

configurations exhibit weaker fit. It is beyond the scope of this article to test these propositions.

However, we illustrate our framework’s usability and utility by employing it below to identify

and differentiate the configurations of two empirical e-marketplaces.


Method

        The goal of understanding how and why organizations differ (and the potential impacts of

these differences) is best met by rich, qualitative case studies (Miller, 1996). To facilitate valid

comparisons, we selected e-marketplaces that trade in the same category of goods (electronics

components used as direct material inputs for the assembly of electronic products). Within this

sector, we selected two e-marketplaces (Global Sources and Converge) that differ in their market

focus (multi-vertical industry and single vertical industry, respectively), because Porter’s theory



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states that market focus is an important aspect of strategic positioning that is associated with

differences in value proposition and value activities, thereby revealing clearly different

configurations.

        Global Sources is an independent e-marketplace that operates in multiple verticals

(electronics being one of the most important). Given its origins as a publisher of trade directories,

we expected it to have a brokerage value proposition. Converge is owned by a consortium of

OEMs and contract manufacturers, and it is narrowly focused on the electronics vertical only.

Many consortium e-marketplaces have integration value propositions, because consortium owners

seek to reduce costs through improving the efficiency of interactions with their buyers or

suppliers. We therefore expected Converge to emphasize the integration value proposition. Table

3 summarizes the key characteristics and histories of the two companies.

                                         ---------------------
                                               Table 3
                                         ---------------------

        Data for the study were obtained from company websites, annual reports, analyst reports

and press articles. The data were read by two independent coders, who assigned codes to each

paragraph, following definitions summarized in Table 2. The Global Sources case was used to

train the coders. The level of agreement between the two independent coders (number of

paragraphs with assigned the same code by both coders divided by the total number of

paragraphs) for the Converge case was 85%.

        After coding, within-case analysis was performed by summarizing and classifying the

statements on value proposition, product-market focus, and value activities for each e-

marketplace. The results of the within case analysis are shown in Tables 4 and 5. Configuration

diagrams (Figures 2 and 3) were also prepared from these tables to provide a clearer picture of the

configuration of elements for each e-marketplace.




                                                                                                    8
Findings

Global Sources

        Global Sources provides information and intermediary services to bring together buyers

and suppliers in global trade who might otherwise have difficulty finding each other—a

communication and brokerage value proposition. (See Table 4 for details.) Although Global

Sources serves many vertical industry segments, it has two main product categories—electronics

and general merchandise—offered by small, Asian suppliers to a limited number of buyer types—

global OEMS and large Western retailers (e.g., JC Penny and Sears). Global Sources performs a

unique service by acting as a neutral, “honest broker” in these target market segments.

                                         ---------------------
                                              Table 4
                                         ---------------------

        Global Sources’ value activities closely fit its value proposition of communication and

brokerage between large Western retailers and OEMs and small Asian suppliers. The company’s

online communication activities are extensive, befitting its 25-year history as a print catalog and

magazine publisher; they are supplemented by its traditional print offerings and CD-ROMs. Its

matchmaking services include online product catalogs (“electronic showrooms”) that suppliers

can customize to better feature their products, a request for information (RFI) feature, product

alerts for buyers, and searching by product, supplier, and country. The Global Sources site does

not, however, support searching on price, nor does it actually enable fully automated online

purchasing. (In 2000, the company began piloting online transaction capability.) However, the

company does provide tools to enable large buyers to manage orders and information about

relevant products and suppliers. And, since many small Asian suppliers have limited IT

knowledge and skills, Global Sources helps them get online. The company has several hundred

sales representatives who visit suppliers and, with the aid of digital cameras and standard



                                                                                                      9
templates on their laptops, help suppliers create and upload their product and company

information.

        We characterize Global Sources as a “broad-simple brokerage” configuration, since it

targets many verticals and has few (but well developed) brokerage mechanisms focused on

catalogs, searching, and RFIs. Its value proposition has a good fit with its product-market

segments (standard products, fragmented supplier base, and geographically remote buyers), and is

also well aligned with its primary value activities of content management and matchmaking.

Global Sources’ configuration is depicted in Figure 2.

                                       ---------------------
                                              Figure 2
                                         --------------------


Converge

        Because Converge is owned by a consortium of OEMS and first tier electronics suppliers,

we expected it to have an integration value proposition, and, when we first examined Converge, it

did. Today, after its Feb 2001 acquisition (from VerticalNet3, an independent e-marketplace that

operates in multiple verticals, including electronics), of NECX—a well-established and active

electronics exchange—Converge has evolved a value proposition restricted to brokerage and

communication. Having added to NECX’s brokerage functionality, Converge is leveraging

NECX’s exchange expertise, leaving VerticalNet to pursue the integration solutions business

arena. (See Table 5 for details.)

                                        ---------------------
                                              Table 5
                                        ---------------------
        Although Converge has a brokerage value proposition apparently similar to that of

Global Sources, Converge’s configuration looks quite different. (See Figure 3.) First, Converge’s




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product-market segmentation is more focused. Converge operates solely in electronics

components and computer products, whereas Global Sources operates in 27 verticals and offers

much general merchandise. Also, whereas Global Sources caters to small Asian suppliers and

large global buyers, Converge appears to be targeting large global buyers and suppliers.

                                               ---------------------
                                                    Figure 3
                                               ---------------------

           Converge’s greater product-market focus, as well as the relative sophistication of its

customer base, explains Converge’s more extensive brokerage value activities. Compared to

Global Sources, Converge plays a more active role in matching buyers and sellers—for example,

by providing hourly automated searches of unmatched RFQ/RFS (request for quote/requests for

sale) against updated supplier inventory lists and new buyer demand and by having a team of

sourcing specialists locate the products and buyers/suppliers and help in price negotiations.

Converge also offers a wide range of matching activities, including different types of forward and

reverse auctions. Finally, it offers significant logistical facilitation, having its own product

inspection and sanitization facilities, as well as shipment tracking. Overall, we characterize

Converge’s configuration as “focused-complex brokerage”, because it targets a single vertical and

has a comprehensive range of matching and post-matching services.


Discussion

           The strategic archetypes framework enables making distinctions among empirical e-

marketplaces that are theoretically based and simultaneously both fine-grained (that is, based on

multiple important attributes) and parsimonious. Because the framework is theoretically based, it

shows how e-marketplace attributes are related to each other and conceptually linked to

performance and impacts. Because the framework enables fine-grained distinctions, it reveals



3
    VerticalNet, in return, took an equity position in Converge.


                                                                                                    11
interesting observations such as Converge’s radical shift of strategy following the NECX

acquisition. And because the framework enables parsimonious distinctions, strategic

configurations and archetypes can be used successfully in empirical investigations of e-

marketplace performance and impacts.

        For example, the high degree of fit between Global Sources’ configuration and that of the

brokerage archetype stands in sharp contrast to the lower degree of fit exhibited by VerticalNet

(Soh and Markus, in press) and helps explain why Global Sources is so much more successful

than VerticalNet. Similarly, the surprising finding of this study that Converge, a consortium e-

marketplace expected to have an integration value proposition, actually has a brokerage value

proposition, might help explain any observed differences in performance between Converge and

other consortium e-marketplaces. In addition, strategic archetypes analysis supports making and

testing predictions about the kinds of impacts e-marketplaces will have. Converge, for example, is

much more likely to drive down prices than Global Sources, since the former has more price

transparency in its matching services. Furthermore, Converge’s strategic bundling of specialized

sourcing and logistics services is better able to support procurement outsourcing by buyers than is

Global Sources’ configuration.


Conclusion

        E-marketplaces are interesting—both practically and theoretically—as evidenced by the

growing literature analyzing their attributes and types. In this paper, our contribution is a

parsimonious integration of various prior analyses of e-marketplace attributes with electronic

markets theory (Malone et al., 1987), strategic positioning theory (Porter, 1985), and the literature

on strategic archetypes. This integration involves several elements: identification of important

attributes, operationalizations of these attributes in the specific context of e-marketplaces, and the

positing of theoretical linkages both among the attributes and between the configurations and

such outcomes as performance and impacts. We have illustrated the usability and utility of our



                                                                                                   12
framework with case data. While much work remains to extend the framework and test its

theoretical propositions, we believe that the framework offers considerable benefits to future e-

marketplace theorists and empirical investigators.




Table 1: E-Marketplace Attributes Mapped to Strategic Positioning Theory
Concepts
                                  Bakos       Kaplan &       Wise &        Davenport        Lenn-
                                  (1997)      Sawhney       Morrison         et al.       strand et
                                                (1999)       (2000)         (2001)        al.(2001)
                                           Value Proposition
Aggregation/Integration
Competition/Collaboration
                                   Product-Market Focus (Product)
Commodity/ Differentiated
Product
Manufacturing/ Operating
Input
High/Low Product
Cost
                                    Product-Market Focus (Market)
Ownership – third party,
buyers or sellers
Neutral, buyer or seller
biased
Fragmented/consolidated
buyers or sellers
                                            Value Activities
Price & Product/ Product
only information
Systematic (catalog)/spot
(auction)/bid-ask




                                                                                                    13
Table 2. Operationalizing Strategic Positioning Concepts for E-Marketplaces

Construct     Key Attributes          Applied to e-               Operationalization in This Study
              (Porter, 1985)          Marketplaces
Value         •   Benefits offered    •   Includes                Website statements about benefits to
Proposition       to customers            communication,          buyers and to sellers in three
              •   Uniqueness of           brokerage, and          categories:
                  value                   integration benefits    1. Communication—ability to
                  proposition         •   Uniqueness may              transmit and access large amounts
                  important for a         arise from mix of           of information quickly and at low
                  strong strategic        types of benefits, as       cost
                  position                well as the extent      2. Brokerage—access to large
                                          of the benefits             numbers of buyers and suppliers,
                                                                      consideration of many
                                                                      alternatives and selection of best
                                                                      alternative at quickly and at low
                                                                      cost
                                                                  3. Integration—tight coupling of
                                                                      buyer and supplier processes
                                                                      enabling lower inventory levels,
                                                                      greater responsiveness
Product-      •   Segmentation        •   E-Marketplaces can      Website statements and observed
market            based on product        be focused              capabilities for:
Focus             and customer            narrowly on few         1. Product segments—
                  characteristics         industries or           • Verticals that the e-marketplace is
              •   Choice of being         broadly on multiple         in.
                  broadly targeted        industries              • Whether the products traded are
                  (many segments)     •   The E-marketplace           commodity/standardized, (eg. oil,
                  or narrowly             focus refers to             agricultural products, standard
                  focused                 serving single or           electronic components, etc.) or
              •   Product                 multiple verticals.         differentiated (eg. fashion items,
                  characteristics     •   Products can be             healthcare services, etc.).
                  include size,           commodity/standar       2. Buyer and seller segments
                  price features,         dized, or               • Neutral towards buyers and
                  performance,            differentiated.             sellers, or biased (eg. owned by
                  etc.                •   Customers include           consortium of buyers or sellers).
              •   Customer                both e-marketplace      • Size of buyer and seller firms (eg.
                  characteristics         buyers and                  large multinational corporations,
                  include industry,       suppliers.                  small and medium enterprises)
                  buyer strategy,     •   Buyer and supplier      • Geographic location of buyers
                  technology              focus can be                and sellers by region—North
                  sophistication,         neutral, buyer or           America, Asia, Europe, Middle
                  size, ownership,        seller biased.              East
                  geography, etc.     •   Buyers/sellers can
                                          be large and few, or
                                          small and many
                                          (fragmented)
                                      •   Buyers/sellers can
                                          be geographically
                                          dispersed or
                                          focused.
Value         •   Activities         •   Value activities       Observed website capabilities for:
Activities        performed by           offered by e-          1. Content provision—industry news,
                  the firm in            marketplace can           discussion forums
                  order to               be broadly             2. Matchmaking—aggregated catalogs
                  provide value          classified as:            and sellers’ public storefronts,
                  to customers           content                   capabilities for supplier/product search,
              •   Distinctive            provision,                RFP/RFQ, auction/reverse auction, and
                  value activities       matchmaking,              online negotiation
                  contribute to          transaction            3. Post-sale transaction automation—
                  strong strategic       processing,               buyer’s catalogs and portals, online
                  position               physical                  P.O., invoicing, payment
              •   Distinctiveness        facilitation,          4. Logistical facilitation—warehousing,
                  comes from             collaboration             transportation, quality assurance
                  different value        support                5. Collaboration support—private
                  activities or                                    sellers’ extranets with pricing
                  from doing                                       personalized to individual customers,
                  value activities                                 inventory visibility, design sharing
                  differently                                   6. Other—e.g., software licensing,
                                                                   consulting


   Table 3: Case Background Data
                            Global Sources                                    Converge
Key          Independent, neutral                           Consortium-owned
Charac-      Multi-vertical industries, including           Focused on electronics vertical
teristics    electronics.                                   Primarily direct goods
             Primarily direct goods
Company      • 1971: Began as Asian Sources – a trade       •     May 2000: Founded with $100m funding
Evolu-           directory publication company based in           from 15 founders – AMD, Agilent,
tion             Hong Kong.                                       Canon, Compaq, Gateway, Hitach, HP,
             • 1980s: Separate trade publications for             Maxtor, NEC, Samsung, SCI Systems,
                 electronics, hardware, timepieces,               Solectron, Synnex, Tatung, Western
                 fashion accessories.                             Digital.
             • 1993: Largest trade publisher in Asia        •     Aim to “deliver supply chain efficiencies”
                 with 1,300 staff in 29 countries,                and “reduce founders’ $200m annual cost
                 particular strong presence in China.             of direct materials by 5 to 10% over the
             • Had added CD-ROM versions of                       next 3 years.”
                 directories, Chinese language              •     Jan 2001: Completes acquisition of
                 trade/executive magazines.                       NECX from VerticalNet, a global
             • 1995: Launched e-marketplace,                      electronics trading exchange with $1b in
                 bringing traditional base of Asian               annual trades in U.S., Asia and Europe.
                 suppliers online. Large buyers such as     •     Enters into a 3 year software licensing
                 Dell, Compaq also used its marketplace.          and services agreement with VerticalNet
             • Main revenue source from storefront                for VerticalNet’s Solutions platform to
                 hosting and product listings.                    form backbone of Converge’s trading
             • 1999: Renamed Global Sources.                      operations.
             • 2000-2001: Set up geographically             •     April 2001: AMR Research’s top trading
                 focused e-marketplaces for Korea,                exchange for the Electronics industry.
                 Thailand, Singapore, Turkey, India and     •     June 2001: Announces comprehensive
                 Malaysia.                                        end-to-end suite of supply chain and
             • Piloted online transaction software.               collaborative services.


                                                                                                     15
Table 4: Global Sources’ Attributes
Construct    Attributes
Value        Communication:
Proposi-     • “Helping to make global merchandise trade more efficient and effective through integrated cataloging, messaging”
tion         • “provider of information to electronics engineers, exporters and executives throughout the Asian region.”
             Brokerage:
             • “enabler of global merchandize trade”
             • “allows buyers to efficiently search for goods, either by product or geographic areas,…”
             • “present suppliers’ product and company information in a consistent, easily searchable manner…”
             •    Suppliers get “direct access to more than 259,000 buyers worldwide including a wide selection from the worlds largest buyers”
             • “Highly promoted to buyers worldwide” in “print media, on the internet and at trade shows”
Product-     Product verticals
Market       •    27 industry verticals, 7 sectors (electronics, computers, telecommunications, general merchandise, fashion)
Focus        Buyers and suppliers
             • Neutral towards buyers and suppliers.
             • Large global buyers “that purchase in volume for resale”. “International export suppliers”.
             • Mostly smaller, Asian (90%) suppliers
Value        Content:
Activities   • Daily news reports, industry news, product surveys, special reports, shipping schedules, inspection services, links to travel guide
             Matchmaking:
             • Listing of products and suppliers
             • Search by product, supplier, country
             • New product alerts for buyers
             • Supplier marketing websites (storefronts) supported by a “Private Supplier Catalog” content management tool
             • Request for Information (RFI)
             Post-sale Transaction Automation:
             • Private Buyer Catalog tool for large buyers to maintain personalized product and supplier information
             • Tools to support management of procurement document flow across departments in multiple languages and currencies
             Logistical Facilitation: None
             Collaboration Support: None
             Other Activities:
             • Services for suppliers to photograph products, set up catalogs, etc.
             • Website software
             • Monthly print trade magazines & CD ROMs
             • Trade shows




                                                                                                                                                     16
Table 5: Converge’s Attributes
Construct    Attributes
Value        Communication:
Proposi-     • “ generates and publishes a robust set of market information tools and services to help you make more informed purchasing, sourcing and
tion             selling services.”
             Brokerage:
             • “systematically and confidentially matches the supply and demand records of more than 6500 Converge trading partners globally,…”
             • “Reach a broad supply based to uncover buying opportunities…”, “Reach a broad global customer base to uncover new selling opportunities”
             •    “Site Market Analyst…sits at customer site,..proactively seeking open market opportunities”
             • “…leverage the expertise of Converge Market Specialists…”
             • “The overall size of the Converge auction network combined with the guaranteed prominence and credibility of each auction participants,
                 enables auction to close at optimal market prices.”
             • “Strategic sourcing and selling events..to enables buyer and sellers to find and award long-term contractual agreements…proven to get 15-20%
                 reductions for manufacturers and distributors”
Product-     Product verticals
Market       • electronic components, computer products and networking equipment
Focus        Buyers and suppliers
             • Large, well known global buyers and suppliers in the U.S., Asia and Europe
Value        Content:
Activities   • Pricing trends (spot market pricing), industry news, trading floor news, commodity insight reports, newsletter.
             • View results of past auctions
             • Master part reference database of 7m unique manufacturer part numbers.
             Matchmaking: spot and systematic sourcing
             • RFQ/RFS with automated hourly matching against new inventory and demand listings
             • On-site market analyst using expertise to with Converge traders and market intelligence team to source or sell.
             • Forward and reverse auctions, either open or closed, with/without anonymity of originator.
             • Forward to reverse auctions for long-term contracts.
             Post-sale Transaction Automation: None
             Logistical Facilitation:
             • Escrow
             • Product inspection by Converge quality control
             • Removing buyer/seller identification from product packaging
             • Converge shipment tracking capabilities
             • Network of proven 3rd party logistics provides
             Collaboration Support: None
             Other Activities: None




                                                                                                                                                       17
Figure 1a: Brokerage Archetype

                                  Value Proposition
                              Providing improved
                              access and matching of
                              buyers and suppliers




    Product-Market Focus            Brokerage                Value Activities
   Products:                        Archetype
   Low price,                                             Content Management and
   commodity/standard                                     Matchmaking:
   Markets:                                               Catalogs and auctions
   Fragmented, unbiased or
   buyer-biased




Figure 1b: Integration Archetype


                                Value Proposition
                             Lower coordination costs
                             via tighter coupling of
                             buyer-supplier processes




   Product-Market Focus           Integration              Value Activities
                                  Archetype
 Products:                                              Post transaction
 High price,                                            automation, logistics
 differentiated/complex                                 facilitation, collaboration
 Markets:                                               support
 Consolidated




                                                                                      18
  Figure 2: Global Sources’ Configuration
                                               Value Proposition
                                       Brokerage and Communications:
                                       Enable global merchandize trade
                                       by providing access to information
                                       on products, buyers and suppliers




          Product-Market                                                           Value Activities
    Moderately specifiable products:                  Global                    Content Management:
    General merchandize and standard                                            Online industry new, print
                                                    Sources
    electronic components                                                       magazines, CD ROM
    Many buyers and sellers:
                                                  Broad-Simple                  directories
    Neutral                                        Brokerage                    Matchmaking:
    Large western buyers                                                        Extensive product catalogs
    Many smaller Asian suppliers                                                and support for small
                                                                                suppliers



  Figure 3: Converge’s Configuration

                                           Value Proposition
                                Brokerage and Communications
                                Access to many buyers and sellers, providing
                                strong support for matching.
                                Providing information on electronics
                                commodity pricing trends and industry trends.

                                                                            Value Activities
   Product-Market                                                    Content Management
                                                                     Commodity pricing reports, part
Standard products
                                                                     reference database
Focused on single electronics
                                                                     Matchmaking
vertical.
                                               Converge              Comprehensive range of services
Commodity electronics
                                               Focused –             from automated hourly matching of
components such as memory,
                                               Complex               RFQ/RFS, Auction (forward/reverse,
CPU, etc.
                                               Brokerage             open/closed, known/anonymous,
Many buyers and sellers within
                                                                     spot/strategic), Customized,
single industry
                                                                     specialist sourcing services
Neutral towards buyers and sellers.
                                                                     Logistical Facilitation
Large, well known global buyers
                                                                     Conducts product inspection and
and sellers, OEMS, component
                                                                     handling, and shipment tracking.
manufacturers, distributors.
                                                                     Third-party escrow services



                                                                                                         19
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