Global Trade Applications in Global Credit Crunch - Part III

Part II of this blog series allowed members of the two global trade management (GTM) software providers, TradeBeam and Precision Software, to voice their outlooks on the market (in light of the recent global trade decline). But at the end of the post I introduced the question of the possible threat to GTM providers coming from the large enterprise resource planning (ERP) providers.

Given that SAP, Infor and Oracle now have their own GTM offerings, and QAD has recently acquired Precision Software, what can GTM pure-players do against becoming a commoditized offering? In other words, what is it that the likes of Trade Beam, JP Morgan Chase Vastera, GT Nexus, Kewill, or Management Dynamics (and Precision Software if we look at its autonomous operations within QAD) do much better than ERP guys, so that ERP guys will not eat everyone’s lunch? Is it still about some functional features, or also about the service side (consulting and know-how)?

Well, it is not really a core competency for ERP guys to maintain content on denied or restricted parties lists and import/export schedules codes for each corner of the world. The global trade processes and compliance content management components are “nasty buggers” that could complicate an (already complicated) ERP system, but it is notable that SAP has long ago moved in that direction despite the complexities of the space.

Despite being initially skeptical, I later begun to understand why the large ERP vendors have moved into this arena. Indeed, so many transactions plow through corporate ERP systems from a global perspective that ERP providers would rather own this component than let someone else take their business. In fact, to the extent they could automate the rules, tariffs, restrictions, etc. why not offer these features inside their own ERP system?

This proverbial best-of-breed dilemma and survival question is no different from the one that has been asked on a more general basis over the last twenty years: how can niche specialist vendors survive given the growth of functionality within the major ERP suites? And the answer remains the same: by being more nimble and able to react to the needs of the market in a more timely manner.

ERP Threat: Fact or Fiction?

Given that we are in a period of dynamic changes across the international marketplace, I would say that there is plenty of room for companies like TradeBeam, Management Dynamics, and so on, to flourish as long as they are able to respond to their customers' needs.  True, the ERP vendors will catch up, but by then the most nimble GTM vendors will be creating a new baseline for what it takes to be best-of-breed.

To that end, Alex Thompson, VP of Product Strategy at TradeBeam, whose other comments we have previously seen in Part II, said:
“Pure-play GTM providers have superior functionality, as we focus specifically on automaton in the context of the changing rules of global trade.  In addition, we have our own proprietary Global Trade Content, rather than outsourcing this key function, so that we can directly control the quality of content and level of service, and we have the expertise and ‘know how’ on staff to support our feature build out and offer value added consulting services to clients.”

Moreover, TradeBeam, via good business connections (in addition to good offerings), in addition to its solid offerings, has a strong partnership network in China. Namely, since April 2007, the China International Electronic Commerce Co., Ltd. (CIECC) has deployed TradeBeam’s GTM platform to the Chinese market, and currently has over 4,000 customers.

The CIECC, which is sponsored by the Ministry of Commerce of the People’s Republic of China (MOFCOM), markets and sells TradeBeam’s on-demand software solution to a market of over 1,000,000 businesses in China using its sales organization in more than 100 offices throughout China. In plain English, Chinese importing and exporting companies are encouraged to use the TradeBeam platform to process trade transactions, get money (rebates) back from the government for taxes paid on domestic inputs, to clear the currency, etc.

Software Plus Services Does IT?

Global trade is a truly tricky (if not even ugly) space that relies as much on people as on software, and the people element of it will have to always reside outside the IT system. Navigating the maze of international trade is a huge business, and to that end, Li & Fung Ltd comes to mind. Li & Fung  can probably best be described as a global trade intermediary within the contract manufacturing world.

The firm takes orders from global firms for manufactured items (things like low-end toys, apparel, etc.), and then works with its massive network of manufacturers to make sure that the order gets placed and fulfilled in a timely fashion. The company has individual managers for manufacturing firms that are in charge of placing the order and making sure that quality goods are produced. Once the goods are produced, they can work through the tariff system and arrange transportation so the goods are physically delivered on-time.

What Li & Fung essentially offers is know-how and relationships. The company can match up producer to buyer, and manage all supply chain complexities for companies that don’t want to own production plants in remote regions. It is based out of Hong Kong (China), so the network of contractors it deals with are mostly in Southeast Asia.

In any case, my point here is that if the GTM players use the Li & Fung model of sort, and specialize in the “soft fuzzy” things like relationship building and global supplier-buyers matchmaking, they have a great long-term play. Conversely, if they try to limit themselves to mere transactions (where software is key), I believe they might get cannibalized over time by the big ERP providers.

As the final conclusion, the more GTM applications providers move more toward a Li & Fung-like value-adding model and move away from software, the better they will be. What is your view of the GTM vendors’ future, both in light of the current global conditions and onslaught of large ERP providers? Also, what are your (best) export/import practices as well as experiences with particular GTM applications?
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