insights on business exchanges from Epiq Tech

Business Exchanges

By now, most people are familiar with business-to-consumers web sites where a number of vendors offer their goods and/or services for sell through an automated, electronic catalog system. After all, that is the system used by the Internet's largest online consumer marketplaces. When brick and mortar businesses saw the success of such systems, it was a natural leap for a few cunning entrepreneurs to invest in business-to-business exchanges that were places where both buyers and sellers could reduce their costs, expand their customer base, and fill their procurement needs. While many of these ventures failed, those that remain have provided significant benefits for the companies that use them.

One benefit of the B2B exchange is time. Because the the transactions are automated and because the vendors have generally been pre-qualified, companies spend less time finding a supplier and placing an order than they would with traditional purchasing methods. On the other end, the seller benefits as well because it takes them less time to receive an order and, therefore, they can get it to the customer in less time and get paid faster.

Money is another benefit of B2B Exchanges. Since the individual vendors are competing with one another and since buyers have the opportunity to shop around in one convenient online location, buyers have the chance to select a vendor who is more cost-effective or who packs added value into a slightly higher price. Accomplishing the same thing without a B2B Exchange would be considerably more time-consuming and difficult.

A third advantage of B2B Exchanges is that they make it easier for overseas businesses to find a market. Prior to the Internet, businesses had a much more difficult time contracting their work out to companies in India, China, and other distant locations. The time required to travel there and to make the deals almost negated any financial benefits that would be gained from the partnership in many cases. Today, of course, the B2B Exchanges are readily open to any company regardless of their primary geographic location, so Indian companies can be used as vendors just as easily as American companies can. Likewise, overseas companies that need to handle their purchasing can also use the exchanges for that purpose.

All of these benefits are true, on average, regardless of the type of B2B Exchange being used. Currently, there are three main types. Most common is the public exchange. These are run by third parties and are typically open to all businesses. The majority of these exchanges do have specific standards that the businesses must meet in order to join. The second type are private exchanges. In these types of exchanges, a large corporation is usually in charge. The rest of the exchange is made up of that corporation's primary vendors. For example, a large chain of discount stores might run an exchange with their suppliers of their clothing, electronics, and beauty supplies. Finally, there are the consortia. Unlike the other exchanges, these collectives are made up vendors in one particular industry. For instance, computer manufacturers could form a consortium to purchase components.

Despite the three available types of B2B Exchanges, not all have been successful. Within two years, over a thousand of these exchanges failed. Most of them simply didn't make it because they lacked an understanding of both their market and their customers. Even though many of these exchanges did not succeed, it does not mean that there isn't room for additional ones in the market. Savvy entrepreneurs could put together an exchange if they take the time to learn what their customers want and to find their niche in the market. For upstarts, there is not sense trying to compete with the major players in the field directly. Instead, specialization and differentiation are key elements for standing out and making a name for new exchanges in the B2B world.

Although the failure of so many exchanges may seem to signal a decline in the field, it really just opened the gates for smarter, more focused operations.

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