|CyberCash in China. The ground work for large revenues is being made world wide by CyberCash...|
Beijing's Sparkice has a grand business plan — opening China's giant export business on the Net. But how do you lead this trillion-dollar beast to water?
From the May 01, 2000 issue
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This article is part of "Go Global", May 2000
Edward Zeng, CEO, Sparkice:
Photo: Mark Leong/Matrix
Edward Zeng is logging 20-hour workdays in pursuit of a dream: He wants to launch China's largest business-to-business marketplace, a platform that will link China's vast manufacturing base to the Net. Although Zeng is busy mapping out plans and recruiting partners for his Beijing-based company, Sparkice, the lofty project could be stymied by any number of hurdles, including government control of the Internet, limited Net use among Chinese businesses, a ban in China on foreign investment in telecommunications, restrictions imposed by international trading laws, and effects stemming from China's campaign to join the World Trade Organization (WTO) — just for starters.
But 39-year-old Zeng, who is headquartered in Beijing and says he spends every third day on planes zooming across Asia, is an optimist bent on making his new company work. He likes to compare his business, which launched as an ISP in 1996, to the Internet Capital Group (ICG), a company that incubates Net startups; and VerticalNet, a builder of B-to-B trading communities.
Zeng is now launching the latest, and perhaps most crucial, part of his business, a site that will attempt to connect global buyers with suppliers in various industries, such as textiles, electronics, and communications. His goal is to make Sparkice a hub for China's huge export business.
Although the plan sounds distinctly American, the challenges in launching it are unique to China, Zeng said. "If you want to copy the Western model in China, that won't work," said Zeng, talking into his cell phone while rushing down a Hong Kong street. Zeng is perhaps best known for launching the string of Internet cafes in China that caught the fancy of the Western media and President Bill Clinton. He launched the business-to-consumer part of Sparkice last November. Sparkice sells consumer electronics.
His B-to-B initiative could prove lucrative. To date, Zeng has been granted government permission to build a debit payment system with the state-run Bank of China and Virginia-based CyberCash. He plans to make money by selling advertising, and by charging fees for conducting transactions and hosting company sites. What Zeng says he needs now are influential B-to-B dance partners who can help him build marketplaces catering to specific industries.
In launching its online business, Sparkice joins a host of Asian upstarts, including communications and technology company Pacific Century CyberWorks; China's top destination site, SINA.com; search engine and directory company Sohu.com; and Website host and auction site Netease — all of which are contributing to the growing Asian ecommerce market. For many of these companies, ecommerce expansion is linked to whether China's government decides to join the WTO.
Membership in the WTO would open China's markets to foreign competition, as well as Western business ideas, though many bureaucrats in China as well as U.S.-based human rights activists are bitterly fighting the move. "If the WTO [membership] goes through in the middle of this year, things will happen this summer," Zeng says.
Indeed, total online procurement of indirect goods and services in Asia will be worth an estimated $17.9 billion by next year, according to The Boston Consulting Group, which also estimates that 25 companies in Asia Pacific now corner about 60 percent of overall online revenues, although it states there are many markets wide open to American investment.
"There's massive potential for Internet plays in China," says Pete Hitchen, analyst at Solomon Smith Barney in Asia. "You're seeing similar activities to those you saw in the United States two years ago. Investors see a fresh market."
Maybe so, but many barriers exist in China's fledgling market, says Jupiter Communications analyst Drew Ianni, who follows the Asian ecommerce market. For one, only a little more than 5.5 million of China's more than 1 billion people own computers today — with a total of 14 million expected online by 2003, leaving little immediate hope for a booming business-to-consumer rush.
"The B-to-C market is small there," Ianni says. "Everyone gets so excited because there are so many people in China, but we're still only looking at 40 million online in Asia Pacific, including India."
Which is why financial analysts are looking closer at the Asian business-to-business markets: China exported nearly $200 billion in goods last year, with exports growing at 10 percent a year. "Imagine if you can capture 5 percent of that in business-to-business Internet ecommerce," Asian economic analyst Kenneth Courtis says in a recent interview with Asiaweek centered around the economic climate and stock market there. "If you could set it up so that thebuyer of ski jackets in Saskatchewan [Canada] doesn't have to make that trip twice, but only once, and [compensates] by placing orders through the Net, he would be delighted."
Peter Zapf, a former Bear, Stearns&Co. analyst who now heads Asian startup incubator AsiaCommerce, said B-to-B marketplaces will test China's history-steeped cultural barriers. "In Asia especially, a lot of buying and selling is based on trust and knowing who you are dealing with," he says. "You're going to have to find a way to bring trust to trading partners. That will be much harder than in the U.S."
Such issues add complexity to the already intricate, multilayered process of establishing a global exchange, a process which includes currency conversion, credit insurance, and relationships with banks and freight companies, adds Kevin Jones, co-founder and CEO of Net Market Makers, a business-to-business ecommerce consultancy based in Berkeley, Calif.
"People want a road into China," he says. "You can make things cheaply in China, but making sure you find a trusted partner is a whole other thing. It's hard to collect a debt when a debtor is tens of thousands of miles away. [Exchanges] have huge potential, but they have great risks."
Zeng isn't focused on risks, for now. He's got a book tour to tackle and a company to nurture. "We've only just started," he says. And he needs more partners.