of fragmentation creates new opportunities for both buyers and sellers when they can meet each other in an e-marketplace.
A question that I get asked very often relates to the potential for e-marketplaces in the packaging industry. This question has become even more relevant recently since several e-marketplaces are being developed in the packaging industry, though rather belatedly, and e-marketplaces are beginning to generate sizeable revenue in other industries.
In my opinion, the reasons for the slower emergence of e-marketplaces in the packaging industry are threefold. One, the packaging industry did not appear to be as suited for e-marketplaces as other industries that have a larger number of undifferentiated products. Secondly, the materials used in the packaging industry such as metals, polymers, paper, etc. were already being sold on other exchanges. Finally, the sponsors of earlier chemical
marketplaces had also assumed that packaging could simply be treated as a subset of the chemical industry.
Does a packaging e-marketplace make sense?
The packaging industry is not as homogeneous as some of the e-marketplaces would like it to be. For instance, while polymers can be manufactured by only large companies, small and medium sized companies can easily convert it into films, and even smaller companies can convert it into more usable forms. This is true for metals, glass, paper, wood, and all other materials that are used in the packaging industry. Thus, the packaging industry is a mix of
companies of all sizes, and such diversity and fragmentation is not always ideal for an e-marketplace. However, based on the market structure, e-marketplaces make sense in niches.
As I see it, the manner in which business will be conducted in the very near future will be largely dictated by the number of buyers and sellers or the degree of concentration. Of course, this will also determine the power buyers and sellers will have.
Small number of buyers and sellers: If this is a small group, there is no value added by moving to an e-marketplace
since the most effective method of doing business would still be through direct sales. In fact, the Internet only provides a better means of communication within the group.
Small number of sellers and large number of buyers: In this scenario, buyers should seriously consider pooling their resources to develop a consortium. This will not only enable them to reduce their cost of selling, the buyers are also likely to benefit through transparent competition.
Large number of sellers and small number of buyers: In this case, the aggregation model is more likely to serve the interests of both buyers and sellers. A large number of sellers pursuing a small number of buyers is inherently an inefficient selling process and aggregation can eliminate some of these inefficiencies.
Large number of buyers and sellers: This seems to be one of the most common scenarios in the packaging industry. Such a high degree of fragmentation creates new opportunities for both buyers and sellers when they can meet each other in an e-marketplace. This also enables both buyers and sellers to find each other easily and cost-effectively.
If and when should you join an e-marketplace?
At this time, it is becoming extremely hard to predict which business model is going to sustain in the long run. That is clear not only from the speed at which business models are being changed but also from the nervousness in the stock market.
E-marketplaces do provide a relatively cost-effective means of bringing buyers and sellers together, but they have to generate a large volume of trade to become profitable themselves. So far the only companies that have benefited from participating in an e-marketplace are buyers and sellers. This phenomenon partly explains why buyers and sellers are increasingly coming together to sponsor such marketplaces.
Since the initial results have shown positive results for both buyers and sellers, it is a good idea to seriously consider
participating in even more than one e-marketplace. But do not fire your sales or purchasing teams yet. You should continue to be proactive in embracing new business models but also have the speed to change gears if market dynamics changes.