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Interesting
Reversal
By Michael Alan Hamlin
June 23, 2003
e-commerce and technology are respectable
again, as a flurry of recent news reports have announced. The value
of goods and services traded over the Internet in the U.S. has actually
surpassed what were once considered rosy projections of US$1.3 trillion
by this year. According to Forrester Research as reported in BusinessWeek
recently, the actual number is not far from being twice that amount,
at $2.4 trillion. Online publishers, consumer retail sites, and
business-to-business e-commerce practitioners that survived the
dot-bomb are reporting not just increased revenues, but real profits.
The wild swings between the two extremes
that characterized the e-commerce and technology bubble and bust
are not representative of reality. But investors are unfortunately
often swayed more by perception and spin than reality because it
is so much more pleasant - or alarming. Which is why we have bubbles
and burst bubbles, anyway.
But how about the reality in the
Philippines? Two companies, BayanTrade and Yehey!, provide some
insight (Full Disclosure: Both these companies are clients of my
firm.). Last week, BayanTrade celebrated its third anniversary helping
companies institutionalize e-commerce. During that time, the number
of companies selling products and services using BayanTrade's services
has grown from 360 to over 2,000. It has 250 active buyers, and
facilitated around P8 billion in trade last year.
There are a couple of interesting
things about BayanTrade. First, it has done a good job, in my view,
of refining its business model as e-commerce has evolved. It started
out as an e-marketplace and has become a service company that designs,
implements, and manages e-commerce processes and services for its
clients. It has no physical infrastructure itself, other than PCs
that sit on desktops. The real e-commerce infrastructure - the hardware
portion anyway - is outsourced to a data center. It has developed
a service niche based on acquired expertise and process knowledge
that its clients value enough to make BayanTrade what president
Dante Briones calls financially self-sufficient.
The other interesting thing about
BayanTrade is its role as an international e-commerce hub. Many
of the transactions that take place on BayanTrade involve a supplier
or suppliers selling products and services to Philippine companies.
And there are instances in which Philippine companies sell products
and services to international buyers. But there are also a growing
number of transactions that involve no Philippine firms at all,
other than BayanTrade.
Australian power company Powerlink,
for example, has spent P126 million over several months buying such
things as giant surge arresters, post insulators, and cables on
BayanTrade. And in the process it saved P64 million, or about half
as much as it spent on these direct materials. With those kinds
of savings, Powerlink has a powerful incentive for tightly integrating
BayanTrade into its procurement processes. Not surprisingly, Briones
expects the number of purely foreign transactions to grow substantially
this year.
BayanTrade specializes in B2B - sounds
like a quaint term in the aftermath of the crash, but it's still
relevant - while Yehey! concentrates on consumers, or B2C. Like
BayanTrade, there are a couple of things that stand out about Yehey!
First, according to Yehey! director Juan Chua, the company is now
profitable, and he believes it is on the track to sustainable growth
and greater profitability. As other international portals and publishers
have also reported, Yehey! is experiencing strong growth in online
advertising revenues. This is particularly significant because growth
is driven by global brands like Nokia and HP, rather than by other
dot-coms, as was the case before the bubble burst.
The other thing is that unlike BayanTrade,
Yehey! does maintain its own infrastructure, including a server
farm composed of somewhere around 40 fast web servers. But the servers
are located in the U.S. When others hear this, the assumption is
quite often that the servers are in the U.S. because access to the
U.S. Internet is faster than intra-Philippine connections, and the
technology environment more stable. In fact, those aren't the reasons.
The reality is that it is just significantly cheaper to keep the
servers in the U.S. than it is to keep them here.
"We got a great deal,"
COO Kevin Khoe told me last week. Yehey! actually benefited from
the dot-com bust because so much space became suddenly available
in technology parks in the U.S. The company not only made a great
deal on the space, the space was already wired, and even included
the racks for the servers. All Yehey! had to do was move in the
hardware and plug everything in.
That's interesting, but what really
interested me is this: the servers are there all by themselves,
humming away, with no human presence at all. Everything is managed
over the Internet from Manila. That's not just low value-add, it's
no value add.
Which brings me to my main point
about Yehey!, which is that the value-added work takes place here
in Manila, and is uploaded to the no value-added server farm in
the U.S. And that's a pretty interesting instance of role reversal:
the developed economy provides the low value-added component, and
the developing economy provides the high value-added component!
In fact, both BayanTrade and Yehey!
are great examples of meaningful role reversal, and their examples
provide a very encouraging picture of what's possible in the Philippines.
(Michael Alan Hamlin is the managing
director of consultancy TeamAsia and the author of three books on
Asian economies and companies. His latest book is Marketing Asian
Places, of which he is a co-author (Wiley, 2001), and he is currently
at work on High Visibility: The Making and Marketing of Asian
Professionals into Celebrities. Write him at mahamlin@teamasia.com.).
Copyright © 2003 Michael Alan
Hamlin. All Rights Reserved.
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