SAPMarkets: Private exchanges are "in"

Opportunities for public exchanges in Asia will be "very limited," according to SAPMarkets, while demand for private exchanges is expected to boom.

Opportunities still exist for private e-marketplaces in Asia, even as worldwide demand for public e-marketplaces, or e-exchanges, shrinks.

SAPMarkets Inc president Mayur Shah, for one, believes that the number of public exchanges in Asia will be "very limited," considering the growth of private exchanges around the region. SAPMarkets is a wholly-owned subsidiary of German software giant SAP AG.

E-exchanges are Web-based platforms--private and public--that allow companies to trade with one another. Private exchanges are run by proprietary enterprises that control entry into the marketplace, while public exchanges are owned by independent third parties that open their marketplaces to anyone who qualifies.

Their dwindling numbers notwithstanding, public exchanges are far from dead. In fact, market research firm International Data Corp estimates that the value of commerce flowing through e-marketplaces (both private and public) will rise to US$1.2 trillion by the year 2004.

"There will be a few more (public exchanges) that will be announced (in the region)," said Shah. "But large enterprises need private exchanges, so we will see (more) growth in private exchanges."

For one thing, US-based Shah sees private exchanges delivering more value to an enterprise than public exchanges, particularly in the area of supply chain management--that is, in managing the organization's key suppliers.

Supply chain collaboration within a private exchange may include automated contract negotiation, order management and fulfillment, scheduling of storage and delivery, anticipation of inventory demand and collaboration on product designs.

Some attractive features of the private exchange platform are its closed environment and established relationships between owner and participants, as these factors allow private exchanges to play a role in supply chain integration.

"Private exchanges have a far greater likelihood of integrating their processes with their core partners if those partners are well-defined, and if there's already a relationship and a level of trust (between) those partners," said Meta Group senior program director Michael Barnes. "That's simply not possible with the public exchange."

To Zia Yusuf, managing director of SAPMarkets Asia Pacific Pte Ltd, the outlook for private exchanges in the region is "very attractive."

According to him, the developed economies in the region are mostly dominated by large conglomerates whose business operations and influences span across multiple layers of industries and regions--an ideal environment for private exchanges.

"Anytime the business environment is complex, with multiple lines of businesses, (there is) a very strong need for an exchange to sit in the middle (of it, and manage it all)," he said.

The trend toward mergers and acquisitions will also help create bigger organizations, with even more complex webs of business relations. "We are seeing an increased interest in the area of private exchanges (because of this)," Yusuf added.

The company, which launched its Asian operations here in February, declined to reveal its projected revenues from private and public e-exchanges. However, it indicated that the regional office would be making the shift toward building private exchanges--a move that's in line with its parent company's announcement in April this year.

"From a customer perspective, we are focused on potential private exchange customers," said Yusuf.

SAPMarkets now has close to 50 customers in the region, including Hong Kong's Haier company, Sony Playstation Australia and Japan e-markets. Company executives are currently in the process of closing deals with several more exchanges, both private and public, revealed Yusuf.