Term Paper on "Global Sources and Strategy"

Term Paper 15 pages (6739 words) Sources: 1+

[EXCERPT] . . . .

buyer-centric, seller-centric and independent B2B models as defined in the case are actually the first generation of exchanges that Merle Hinrichs, founder and CEO of Global Sources will encounter as he seeks to capitalize on the electronic enablement of buyers and suppliers throughout the Asian region. Global Sources is seeking to capitalize on the strength of their content, yet will find that in the world of electronically enabled buyer, seller, Industry Sponsored Markets (ISM) and Independent Marketplaces, there will over time be an abundance of competition. During the timeframe of this study the industry is moving so rapidly that Mr. Hinrichs' analysis in Exhibit 4 is comparable to a blurred snapshot rather than a clear, high resolution image of the market. With that allegory in mind, the costs and benefits of each of the exchanges has he has defined them are analyzed. One critical point emerges however from this analysis which will be touched on after the costs and benefits analysis; only those exchange architectures that enable business processes while allowing buyers and sellers to remain independent will survive. That is a critical take-away from this entire case, and while Mr. Hinrichs and his teams have crafted an exceptional portal strategy that is quickly maturing to a full exchange due to added functionality, without a clear, defining process-based target that resonates with businesses, Global Sources will find increasing competition from just competing on content or website enablement alone. With these thoughts in mind, here is an analysis of the costs and benefits of each type of models or exchanges. First, the buyer-centric model that is based on a market maker, who by definition is instrumental in defining an industry, for example a Wal-Mart, Intel or Cisco, anchors this exchange structure. Cost, primarily accrued by suppliers in pursuit of procurement relationships with market makers, include re-vamping their systems if necessary to provide real-time price and availability, and second, paying for system connectivity and integration to the exchange itself. In some cases these types of buyer-centric models also required a yearly subscription fee as Ariba had subsequently done for example for all buyer-centric exchanges they had created (Karpinski, 2000). The benefits of this model primarily accrue to the buyer or market maker in the form of very aggressively priced products and also suppliers whose primary focus is in creating new solutions to the market maker's problems. The fact that buyer-centric models force price and availability competition for the buyer, in addition to serving as the impetus for many different suppliers to accelerate their product development strategies in an attempt to land a contract with the buyer are the two of many benefits to a buyer using this model. This concept of a buyer-centric model, like Figure 4 in the case study, is more of a blurred image than one that is crisp and focused. Buyer-centric models face rapid consolidation when price, availability and time-to-market are the only differentiating factors. In sequent generations of exchanges, clearly the buyer-centric processes will be consolidated into more comprehensive platforms supporting far more valuable and complex business processes (Zahay, Handfield, 2004).

Supplier-centric marketplaces or models as defined by Global Sources during this period, and while the company has defined them as portals and exchanges, they are actually a hybrid of these as they lack support for end-to-end business processes during the time period of the case study. There are many costs associated with supplier-centric models including infrastructure, content management, and integration of content management systems and the continual improvement of search functionality. There are also costs associated with supplier-centric portals from the standpoint of qualifying purchases, managing orders and completing transactions all online. Supplier centric models then have two very significant costs in integrating all of their content together and presenting a unified and navigable experience to customers on their website, as they have in many cases forced them there to purchase supplies, as the case study mentions. There is also the cost per transaction online, which needs to be continually monitored to ensure it is as cost effective as presumed given it is electronically enabled. The two major benefits of this model include using advanced guided selling, content management, and personalization options online to guide customers to purchase higher-margin products, thereby generating higher levels of profitability over time. There is also the benefit of not having to contend with a distribution channel and pay a percentage of the sale to channel partners as a result. Supplier-centric models also have the ability to create cross-channel promotions and realize the potential of multi-channel management by integrating their Web-based selling efforts with other selling channels as well.

Independent B2B models have many potential benefits and are the structure that Mr. Hinrichs put Global Sources into in the context of the case study. The greatest costs of this are the continual refreshing of content, and this includes using the many processes, initiatives and strategies mentioned in the case study for capturing content from manufacturers. Global Sources did a very commendable job in the context of the case study in automating product catalogs for their manufacturing customers, many of which still today, in 2009, lack basic Internet connectivity and the ability to automate product catalog functionality. An additional cost is the continual development of professional services, both from an investment and continual operations standpoint. For these two costs however there are significant benefits. First, Global Sources have been able to achieve the role of trusted advisor within the manufacturing companies who have come to rely on them for lead generation, with the case study stating an impressive 80% of their marketing budgets are allocated to Global Sources as a result. Second, there is benefit of the annual annuity-based revenue stream Global Sources has continued to perfect with the services they offer. Back in 1991 with the introduction of the TMX Exporter application which sold for a one-time free of $80,000 and an annual recurring fee, Global Sources found the concept of an annuity revenue stream one that would subsidize the development of entirely new initiatives. The fact that in 2000 the company also began charging monthly fees further underscores how the concept of annuity revenue streams as the basis of financing new growth began to be seen as a hedge against recession and economic contraction of markets. While the case study never explicitly makes this point is certainly implies it by this strategic move by Global Sources.

Of these three models, buyer-centric faces the most severe challenges based on the point made earlier with regard to business processes. The other two models included in this question have the potential to scale to support business processes critical to buyers and suppliers, yet the buyer-centric one does not. Further, buyer-centric and supplier-centric will over time be consolidated precisely due to this process orientation into strategic sourcing and procurement exchanges (Karpinski, 2000).

2.Global Sources' mission statement is found on page 4 of the case. Identify three major strengths that can allow Global Sources to accomplish this mission. Given the factors you identified, how strong is the company positioned to attract investors? Support your position.

In defining the mission statement as becoming "the essential infomediary and business-to-business market maker for volume buyers and sellers worldwide" Merle Hinrichs, founder and CEO of Global Sources for the first time defined a mission statement that was based more on electronic enablement of business processes and less about the company's content management legacy. This was a major shift for the company who has already created an online B2B marketplace, private buyer catalogs, private supplier catalogs, and a connecting (integration) platform and a transaction platform.

Three major strengths the company has that will allow it to accomplish this mission are first its methodology for the collection and publication of content. This has turned into a lead generation program for their customers as well, with the case stating that it is typical for small and medium enterprises to allocate up to 80% of their marketing budgets just with Global Sources for this task. It is comparable to the use of Google AdWords today by many small and medium-sized businesses that routinely spend a comparable amount on this low-cost paid search program of Google to generate click-thrus to their landing pages and websites. Given the methodology being stable and the data collection process being aligned to the needs of small and medium businesses located throughout Asia, Global Sources has a strong point of differentiation relative to the many other content-based exchanges that will emerge in the coming years. A second major strength is the company's extensive knowledge of manufacturers and supply chain networks throughout Asia and how they are all interrelated. This is invaluable knowledge that cannot be easily acquired by competitors. The combination of their unique content collection and management methodology in addition to the growing expertise they have with Asian manufacturers presents the foundation of value that is underscored by their third strength, an increasing level of IT and technology sophistication in the area of content management and… READ MORE

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