Revising concepts for interfirm collaboration - a case-based approach

Table of Contents

Index of figures

Index of tables

List of abbreviations

1 Introduction
1.1 Statement of purpose
1.2 Research focus and goal
1.3 Outline

2 The case of Eastman Chemical Company
2.1 Company background
2.2 Overview of corporate e-business portfolio
2.3 Backbone of current IT infrastructure
2.4 Strategic focus in the chemical industry

3 Comparison and extension of collaboration forms
3.1 Organizational responses to current challenges
3.2 B2B collaboration models
3.2.1 Traditional view of collaboration
3.2.2 Selected non-equity interfirm relations
3.2.3 Selected equity interfirm relations
3.2.4 Strategic outsourcing of non-core activities
3.2.5 From portals and catalogues to e-marketplaces
3.3 Review of collaboration models

4 Creating a framework for dynamic collaboration
4.1 Current challenges and unsolved problems
4.2 Meta-market framework requirements
4.2.1 Ensuring security and privacy
4.2.2 Adapting and standardizing online laws
4.2.3 Enhancing trust
4.2.4 XML-enabled web semantics
4.2.5 Extending on UDDI as global directory services
4.2.6 Extending on Web Services for standardized communication
4.3 Feasibility appreciation of a new collaboration model

5 Introducing the dynamic collaboration network model
5.1 Operational deployment and integration of a MetaHub
5.1.1 Connectivity and implementation processes
5.1.2 Initiation and funding
5.1.3 Structuring transactions and negotiations
5.2 Extending towards a dynamic collaboration network
5.2.1 Specialization as key to success
5.2.2 Implementation
5.3 Market applicability

6 Benefits and potential of networked collaboration
6.1 Macroeconomic analysis
6.1.1 Network theory
6.1.2 Resulting direct and indirect market effects
6.2 Microeconomic analysis
6.2.1 Pareto optima in the evolutionary game theory
6.2.2 Resulting direct and indirect market effects
6.3 Evaluation of the investigation

7 Application of the model
7.1 E-business structure of the chemical industry
7.2 ECC’s e-business leadership
7.3 Forecasting the impact

8 Conclusion and outlook
8.1 Summary of findings
8.2 Further research
8.3 Future perspective

Appendix

References

Index of figures

Figure 1: WebMethod-based enterprise system and trading network

Figure 2: Connection model of business partners

Figure 3: Matrix of collaboration forms

Figure 4: B2B e-commerce models

Figure 5: Decreasing degree of vertical integration in make-or-buy decisions

Figure 6: Weighting of outsourcing problems

Figure 7: XML configuration repository

Figure 8: Interweaving deployment of the MetaHub

Figure 9: Roadmap to value

Index of tables

Table 1: UDDI business registry categories of information

Table 2: Web Services standard 1.0 elements

Table 3: B2B market evolution

List of abbreviations

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1 Introduction

1.1 Statement of purpose

The pressure on today’s companies to outperform their competitors has been amplified by ever-growing customer demands [Hackmann 2002]. Diversification of products and operations in various markets entail heightened levels of uncertainty and risk in the wake of a pronounced economic downturn. Technical advances and strategic reconsiderations in the Business-to-Business (B2B) market have led companies to meet such challenges with new forms of collaboration [Schwoegler 2002; Kontzer 2002]. Especially considering its drawbacks, the success of Electronic Data Interchange (EDI) has confirmed the demand for interfirm connectivity. Combined, current forms of collaboration are limited both in scale and scope, as few companies have had the vision and drive to prepare themselves for what is ahead of proprietary one-to-one exchanges.

Following continuously high B2B trading volume forecasts of over $1 trillion, an increasing number of companies has started to fathom the true potential of electronic procurement (e-procurement) and related business areas [Kaneshige 2002]. Since 1999, industrial organizations have separately attempted to enable common interfirm trade with the help of online trading platforms and e-marketplaces. Over 1,500 e-marketplaces for all kinds of disconnected niche markets were created at a very early stage, often failing to overcome similar technical deficiencies and procedural misalignments [Hackmann 2002]. In most industries, the use of these platforms has been reduced to low numbers of intra-industry transactions between first-movers and strategic visionaries. Despite their damped optimism, companies’ readiness has progressed along with the market potential. Tackling the initial weaknesses, an integrative B2B trading network that is based on true interoperability and openness is now well-positioned to exploit this increased potential.

Still, collaboration in its current forms may not be sufficient: considering the present dominance of customer demands, an increasing number of individual solutions must be mass-tailored to order. At first sight, this leaves companies with no choice but to at least neglect, if not give up the goals of synergies, economies of scale as well as critical mass. In reply to this increasingly dynamic and competitive market environment, companies may outsource supporting functions and focus on their core competences [Zeng 2001; Baaken 2002b, 35]. So far however, Western firms have lacked access to the right partners for the required resources, allowing only the outsourcing of selected operations or collaboration on projects of limited scope [Cauley de la Sierra 1995, 8]. Similar to e-marketplaces, outsourcing has so far not only been restricted in both its strategic and operational scope, but also repeatedly been employed ineffectively or inappropriately [Doig 2001]. To fully account for the challenges of today’s companies and to leverage their dormant potential, e-marketplaces and outsourcing are to be combined.

1.2 Research focus and goal

To date, most scientific research in the field of B2B has centered on formal classifications and the estimation of e-marketplaces’ potential [Dingeldein 2002]. Very little work has yet been dedicated to the analysis of integrative concepts that actively promote interfirm exchanges, such as the combination of current e-marketplaces in a meta-market framework [Schneider & Schnetkamp 2000]. Practical advances as well as substantial theoretical work have predominantly been pushed by a growing number of e-business associations each attempting to define their own market standards. Similar examples of such unilateral discussions have been the treatment of collaboration in an organizational context and the dominant emphasis of e-procurement solutions [Kaplan & Sawhney 2000]. Given this situation, a knowledge gap with respect to prescriptive measures for optimizing collaborative exchanges on a strategic level currently exists.

In response to market demands set forth above, the intent of this paper is the creation of a model that integrates existing business and technology concepts and improves on their application experiences. Based on the strategic use of insourcing (outsourcing of all supporting processes around a company’s core competence), a discussion of the author’s vision of a network geared towards specialization will be featured.

1.3 Outline

Following the introduction, the case of Eastman Chemical Company (ECC) with its various corporate constituencies will be presented to better illustrate the relevance of this topic. Adopting a supply chain focus in the third chapter, existing connectivity concepts - in this paper referred to as collaboration models - will be compared. The summary will evaluate these concepts with regard to their support for strategic interconnections. In chapter 4, the author will compare prerequisites for the successful deployment of such a model including relevant characteristics impacting on current corporate environments. Among other facts, current information technologies (ITs) will be evaluated with regard to the goal of reducing transaction costs. In chapter 5, the author’s own model will be laid out in a two-step approach: an initial integrative concept for immediate application among marketplaces will be ensued by one or a few networked e-hubs geared towards specialization. Chapter 6 will next discuss the model’s future potential as well as benefits of process improvements, cost reductions and new business generation that can result from the effective use of B2B on a global e-hub [Hartmann 2002]. In chapter 7, the model is applied to the previously introduced case for two reasons. Firstly, resulting from the inability to correctly measure the value of a collaboration, a practical application allows to determine in how far the previously discussed potential can effectively be realized [Turner 1988, 89]. Secondly, ECC as a representative company of its industry allows for the transfer of this model to other markets that are also renown for their volatility and suitability for real-time trading of standardized products [Phillips 2000, 60,381-385]. The conclusion drawn in chapter 8 includes a critical review of this paper’s results and gives a brief future outlook.

2 The case of Eastman Chemical Company

2.1 Company background

ECC was founded in 1920 as special supplier for its holding Eastman Kodak Company. It became an independent publicly traded company in January 1994 [Lee 2001]. The Kingsport, Tennessee-based global corporation manufactures over 1,200 chemicals, fibers and plastics products. Fortune 500 -listed [No author 2002b], ECC currently ranks among the top 10 global suppliers of custom-manufactured fine chemicals for pharmaceuticals, agricultural chemicals and other markets [Ng 2002]. The company has tried to recover from a recently slowing economy and a very tough year 1999, managing to uphold revenues at around $5.3-5.4 billion dollars from 2000 to 2002 [Ledford 2002; Ledford & Riddle 2003]. Yet, moderate losses were only accomplished by through strict cost-cutting initiatives such as rationalization of facilities and the reduction of employees to a new total of 15,800 in 30 countries to maintain its level of profit. For all that price pressures persist across all their businesses, Brian Ferguson, chairman and Chief Executive Officer (CEO), expects renewed sales growth in 2003 considering improved economic conditions in 2003 [Ledford 2002]. For further facts about world-wide sites, corporate history and awards refer to [Eastman Chemical Company 2002; Nicks 1993].

2.2 Overview of corporate e-business portfolio

Throughout the year 2000, fundamental business restructuring aggregated corporate products and functions into five operating segments. Similar efforts were taken for the structure and layout of ECC’s IT systems and networks, making the company the first in its industry to seriously engage in e-commerce. Since 1999, ECC’s core e-business strategy can be summarized as:

- Focusing on creating customer-centric solutions;
- Holding a portfolio of e-channel options, choices and solutions for customers;
- Investing in technologies and capabilities that bring value to customers;
- Adopting an external focus;
- Creating partnerships;
- Establishing an ‘e-brand’ to attract customers, suppliers and technology partners;
- Leveraging intellectual capital, industry knowledge, network of contacts, credibility, brand and customer base [Ng 2002, 3-4].

ECC’s reliance on technology required them to keep a constant window on technology, using their venture capital branch. Within two years of its launch, Eastman Ventures has invested in about 20 businesses [The Venture Imperative 2002]. Amid ECC’s basic focus of complementting its core business strategies with new concepts and ideas while diversifying corporate risk, particular attention has been paid to an innovative communications concept. Initiating their major outside connections with the eXtensible Markup Language (XML)-based WebMethods software, ECC was the first in using the Internet to interconnect suppliers and customers with its own SAP R/2 and R/3 systems [McCann 2001]. Still today, the implementation of XML across all supply chains can be considered their biggest first-mover advantage, as it enabled the focused acquisition of strategically crucial information from third parties [Ng 2002, 4]. Such enhanced supply chain transparency resulted in the subsequent provision of important features like order and shipment tracking [The Venture Imperative 2002].

Initiated in 1994, Opentext ’s Livelink was one of ECC’s earliest initiatives to set electronic engineering standards, soon to be extended to an integrated document management system and financial project management. Since these initial experiences, ECC has increasingly focused on standardizing e-commerce and particularly e-procurement within the chemical industry. Special marketplaces contributed to annual purchases in excess of $3 billion [Lee 2001]. Current joint ventures and partnerships predominantly focus on promoting dynamic B2B e-procurement, with the traditional EastmanMarketplace.com model as niche auction platform for selling excess stock in place since October 1999 [McCann 2001]. The most notable examples include a stake in ChemConnect as largest global chemical Internet to conduct real-time transactions for all types of chemicals and the joint venture ShipChem to meet dominant inefficiencies and fragmentation in logistics with integrated financial credit, settlement, and logistics services. Current e-sales account for 15% of total revenues, while ECC continues to invest in system-to-system (S2S) links with a growing number of partners, launching a series of e-business ventures [McCann 2001].

2.3 Backbone of current IT infrastructure

In 1998, ECC’s IT functions were split up into an electronic information systems (eIS) and a number of e-business departments to improve corporate e-business functionality. Currently, approximately 500 IT employees work on the back-office infrastructure in support of the various initiatives described above [Challener 2001]. The world-wide IT systems are interconnected in a hub-and-spoke system. Currently, ECC maintains approximately 1,000 servers around the world, totaling 45 terabyte at the IT-centralizing headquarters.

ECC’s upgrade to SAP R/3 was a fundamental move towards standardizing global Enterprise Resource Planning (ERP) instances. Throughout 2001, major efforts were vested in worldwide ERP-to-ERP interconnections with customers, suppliers and distributors. Besides the digitization of a majority of business processes, Eastman has focused on extending transactional capabilities on its online storefront [Challener 2001]. Through the back-office integration of Eastman.com, ECC provides 24-hour global business functionality to customers, including placing, tracking, and changing of orders as well as downloading information and certificates of analysis. Before connecting to their business partners, ECC released company-wide standards consisting of Dell servers and desktops as well as standardized ERP applications throughout the world.

Figure 1: WebMethod-based enterprise system and trading network

illustration not visible in this excerpt

Source: [Ng 2002]

In subsequent steps that resulted in the interconnections depicted in Figure 1, ECC focused on the standardization and advancement of communication with their business partners, offering WebMethods partner server software, trading networks and the standardized Chemical Industry Data Exchange (CIDX) adapter license free of charge. Through the use of standards such as XML and the Secure Sockets Layer Protocol (SSL), further partners such as the logistics provider Cendian were connected. Functionalities provided by this system currently include the issuing of certificates of analysis, the placing of orders, order changes, order cancellations, the issuing of order acknowledgements, ship notices, invoicing, and payment notices. Further transactions such as production planning, logistics transactions, and vendor-managed inventory are currently being developed [Ng 2002].

From a global perspective, ECC currently aims at realizing a global e-procurement system to connect existing ERP systems, manage supplier catalogues and facilitate outbound ordering among approved suppliers. Its continued efforts towards an XML-based infrastructure that enables rapid inand external communications prove their long-term perspective on interfirm collaboration [Challener 2001]. Withal their strategic focus and first-mover advantage, Craig Knight, digital business and customer services manager for Asia Pacific stated in mid-2002 in relation to their e-business enabling network concept Integrated System Solution (ISS): “Considering how many companies we deal with around the world, we only have 22 companies connected at this stage. We still have a long way to go” [Ng 2002]. The following graph combines the various business partners to be connected:

Figure 2: Connection model of business partners

illustration not visible in this excerpt

Source: own representation of [Ng 2002]

2.4 Strategic focus in the chemical industry

ECC’s vision has been summarized by Craig Knight: “the true value is really being able to connect across the whole value chain from raw materials through to our customers” [Ng 2002]. From early on, ECC recognized the potential of e-business solutions, starting the Customer Enabling Program in October 1999 to enlarge the group of customers. For ECC, the pursuit of several benefits pushed such kinds of initiatives:

- Reduction of transaction costs and order to fulfillment cycle times;
- Simplification and expansion of procurement card transactions;
- Reduction of manual workload;
- Elimination of excess inventory and rogue purchasing;
- Enhancement of e-commerce strategy for future global growth [Lee 2001].

In other words, efficiency, flexibility and speed to the customer result in lower costs, increased differentiation in customer service, satisfied clients, and increased numbers of customers [Challener 2001]. To achieve these goals, ECC continues to attempt the optimizing their supply chain transparency and alleviating traditional market deficiencies through the means of their corporate communication software [Das et al. 2000]. Currently, the branch is still struggling to create working standards that allow systems to be integrated in an industry-wide network [Ng 2002]. Similar to most companies in other markets, ECC views e-marketplaces as one of them most effective methods for cutting costs and optimizing the efficiency and effectiveness of their supply chain [Baaken 2002a, 13; Kontzer 2002].

3 Comparison and extension of collaboration forms

3.1 Organizational responses to current challenges

The aforementioned high complexity of ECC’s interconnections and the variety of employed collaboration models gives only a first insight into what a company can do to respond to increasing market challenges. An increasingly applied alternative consists of the adoption of the most flexible approach possible: buying supporting services from the market rather than producing them. Today, this make-or-buy decision represents a tradeoff between production and coordination costs [Kemerer 1997, 2]. In view of innovative technologies presented in chapter 4, unlike production costs, almost all transaction cost elements are continuously falling

– until at some point in the future, they may be entirely neglected.

Nowadays, virtually no company can refrain from establishing interfirm connections with its peers. In order to face today’s highly dynamic business environments, enterprises and people must allow for direct and easy interconnections with next to no additional integration efforts. As was already indicated in the introduction, such flexibility is all the more valuable given high levels of uncertainty in e-business markets [Dixit & Pindyck 1994]. The requirements for a new collaboration model can therefore be summarized as the flexible assembly of core competences that create virtual workflows between any types of enterprises. In order to understand which form of interconnection or existing business model best supports such goals, this chapter will evaluate different collaboration models. The following graph provides an overview of the subsequently discussed collaboration forms in the B2B context, ranked nominally according to the extent of provided flexibility coupled with their impact on business operations:

Figure 3: Matrix of collaboration forms

illustration not visible in this excerpt

Source: author

3.2 B2B collaboration models

3.2.1 Traditional view of collaboration

The traditional definition of collaboration is provided in Merriam-Webster ’s dictionary: “to work jointly with others or together especially in an intellectual endeavor”. In the context of IT, collaboration has usually referred to the human cooperation beyond corporate boundaries or geographical limits, typically on a project basis. Today, the most prevalent collaboration form in this area is known as Computer-Supported Cooperative Work (CSCW). The traditional term for this cooperation support of self-organized groups is known as workgroup computing [Grebner 1999, 23]. With its combined use of front-office applications, ECC’s Virtual Room is an example of such workgroup computing and its currently very low impact on business operations as depicted in the above matrix [Grebner 1999] and [Reiss 2002].

Notwithstanding early research in this area, classifications have not helped companies to take a clear view on collaboration concepts. Contrary to its classic equivalent given here only as a background, the same research has yielded a precise definition of collaboration in the context of

B2B: the so-called workflow management covers the IT-based modeling and execution of processes. While it is evident that only this latter form can improve interfirm connections on a business level, different frameworks in which these workflows are to be established must be investigated. Among the most prominent forms of such higher-level collaborations are nonequity forms.

3.2.2 Selected non-equity interfirm relations

Along with different types of international consortia and conglomerates, strategic alliances have become the most popular non-equity approach for companies to form a partnership. Based on their wide applicability, an initial definition relates to them as “coalitions of two or more independent companies…that have been made to combine the individual strengths in selected business segments” [Backhaus 1990, 1]. Traditionally, two criteria must in addition be met:

- The independence of both partners must be guaranteed;
- The partners must cooperate in the same business segment.

Because of their difference in activities and markets, the cooperation between supplier and manufacturer can traditionally not be considered an alliance. Thus, many of ECC’s engagements by definition merely constitute improved competitive positions in different business segments [Backhaus 1990, 8]. For the discussion of this paper, only the aggregation of demand and supply with its resulting market power is of relevance, as strategic alliances take on too many forms and variations to be used as one coherent B2B collaboration model. Such agglomeration of businesses is however directly linked to legal issues regarding the use and abuse of this power as will later be discussed in chapter 4.2.2. Historically, international strategic alliances between multinational corporations (MNCs) were indeed synonymous with cartels. Empirical findings demonstrate that a number of associated risks have been known to reappear [Jones 1993, 51- 314], preventing their broad-scale use in B2B. Overall, the potential positive impact of strategic alliances as illustrated in the collaboration form matrix is counterweighted by considerable risk, substantial transaction and set-up costs, as well as a lack of flexibility. Nevertheless, it remains to be seen whether pure equity forms as other extreme provide all the answers.

3.2.3 Selected equity interfirm relations

Mergers and Acquisitions (M&A) arguably represent the most prominent form of equity business models. This business model has re-appeared in every decade and only recently receded in scale and number mostly due to a lack of funds. However, theoretical and empirical research has repeatedly issued cautions as to the use of this model. Indeed, Porter has long proven the much higher efficiency of stock market investors reacting instantly to market changes at much lower costs [Zein 2001, 33-60]. When valuing diversified companies in exchanges, the higher cost of capital is nowadays priced into corporate stocks. In addition, massive problems in postmerger integration, non-realized economies of scope and the reputed strategic fit have not hindered companies in re-attempting this kind of external growth. In the context of B2B, the dominant problems consist of increased costs, higher risks, and especially an increasingly crusted corporate structure. These deficiencies strongly overcompensate the unquestionably profound, but bulky business impact of M&A and prevent its application in quickly-changing ebusiness environments. As the example of ECC indeed shows, inflexibility becomes a mediumto long-term problem if engagements such as venture investments, joint ventures and industry partnerships fail to deliver their value [The Venture Imperative 2002]. In this regard, ECC has been representative of the chemical industry: the branch is renowned for its intensive use of capital investment, ranking second in the world in terms of annual expenditure in this category [Ng 2002, 2].

On a smaller scale, the joint venture represents another popular equity form that is usually employed to access a different market. Its challenges of coordination and control have been discussed in the appropriate literature [Jones 1993, 529-637; Cauley de la Sierra 1995, 5,33- 37,78-95]. Nevertheless, it is known to be a good choice for bringing a new idea to the market more rapidly, as has successfully been the case with WebMethods. Other major forms of industrial collaboration include technical assistance and licensing, Original Equipment Manufacturer (OEM) deals, joint development, equity stakes and joint ventures, consortia, joint marketing, setting international standards, and 100% foreign-controlled however extend beyond the scope of this discussion [Turner 1988, 6-10]. investments, which

3.2.4 Strategic outsourcing of non-core activities

In spite of the prior discussion of non-equity relationships, outsourcing has become essential in e-business environments. As can be seen in the classification matrix, it is among the very rare collaboration forms to combine adequate levels of flexibility and business impact. Today, outsourcing can increasingly be considered an intermediation between the promises of both equity and non-equity business models. In business terms, it is often employed synonymously to denote procurement activities of virtually any goods or service [Gilley 2000]. In comparison, a more advanced view on outsourcing rests upon the strategic rejection of internalizing certain tasks. In this context, outsourcing can be either substitution or abstention-based. This discontinuation of internal production or vertical disintegration is exactly described by the insourcing concept [Gilley 2000]. Österle et al. define insourcing as “a strategy that uses in-house and/or outside resources to perform new activities and services that relate to the existing core competences of a company” [Österle et al. 2001, 341]. Today, inand outsourcing are deemed to be among the most effective ways to control expenses, as they allow risk reduction, optimization of existing investments and the establishment of a sound, yet flexible IT strategy [Goepfert 2002]. Two key strategic issues are relevant in the context of this so-called peripheral outsourcing of supporting (or non-core) business processes:

- It allows the concentration on core competences and resulting benefits [Baaken 2002b,35] as already propagated by [Prahalad & Hamel 1990];
- It can strategically be used to managed uncertainty [Goepfert 2002].

By engaging in outsourcing, previously fixed investments can for example be turned into variable costs. Nevertheless, managing the various partnerships has increasingly become a problem, to the extent where the cost associated with the administration of outsourcing may exceed its underlying benefits. It is therefore crucial to establish common rules and structures to facilitate interfirm business outsourcing. A first facilitation in this direction has come in the form of Business Process Outsourcing (BPO), which represents the integrated transfer of a business process including its responsibility. Recent figures underline this need: BPO has so far generated revenues of $132.5 billion and is expected to grow at 11.8% annually [Hackmann 2002]. To date, such tasks have only been assigned to a first-tier manager as part of a more complex supply chain management (SCM) program. In this context, Kaplan & Sawhney have derived two essential concepts:

- Systematic sourcing: long-term negotiated contracts with qualified suppliers;
- Spot sourcing: one-time purchases to fill an immediate need at the lowest possible cost [Kaplan & Sawhney 2000, 98-99].

Given strengthened demand for outsourcing, the generally bad market acceptance has so far resulted from unsolved issues such as trust, disclosure of information, legal insecurities, finding adequate partners, inflexibility, quality assurance and non-standardized processes and agreements [Goepfert 2002; Doig 2001]. All these factors require management and continued attention, resulting in complex and challenging relationships. In addition, especially the availability of a variety of outsourcing options is required to use the available potential and to clearly distinguish this collaboration form for example from a long-term strategic alliance. Resulting from their wide B2B acceptance, three remaining concepts must last be discussed.

3.2.5 From portals and catalogues to e-marketplaces

Following the urge to go online, companies initially put up their websites. Increasingly, the mere information sites merged to so-called corporate portals that incorporated search and interactive service functions. Finally, the operational integration included back-end connection for partners to log in and to manually establish direct data exchanges. In a subsequent wave, companies have increasingly published their product catalogues on the web. Initially, these catalogs have been maintained manually, separated from the internal production and management systems. Despite growing interconnections with internal ERP systems, the majority of online catalogues still constitute data islands made up of static offers [Bichler et al. 2001, 215-220]. Even though they are conceptionally destined to establish lower market efficiencies than e-marketplaces with their competitive underbidding, catalogues were initially assigned high importance through the widespread use of Electronic Data Interchange (EDI) that is still commonplace today. Even though not having been conceived as such, EDI today acts as a proprietary one-to-one B2B solution that incurs high costs and high entry barriers. Like in ECC’s early days, the application of such methods is labor-intensive and involves integration efforts for moving beyond multiple system interfaces [Weller 2000, 4]. Facing increasingly new challenges, it may appear astounding that many companies only started pondering about interfirm connections from 1999 onwards. A possible explanation especially in the chemical industry comes in the form of management’s adherence to well-known structures and business models, as well as a lack of appropriate technical solutions. Today, the following four basic concepts can be evaluated as follows:

- Internal Network: Mere internal linking has ceased to work and can only physically hold potential for diversified firms whose value must be questioned in any event, necessitating resource-sharing instead;
- Stable Network: This model tends to increasingly neglect its market environment and cannot answer today’s innovative requirements such as the flexible choice of suppliers;
- Dynamic Network: A broker company takes the role of an intermediary to flexibly link the services of completely disintegrated actors. Besides substantial set-up costs, opportunistic behavior must be controlled;
- Spherical firm: Actors and resources are fully exchangeable and have direct market access through a dedicated broker. The management of soft factors such as knowledge is critical to this network’s success [Dierkes 2001].

In a market dominated by short product cycles, rapid change of technologies and a quickly evolving market, dynamic networks combine structure, strategy and management processes to enable more flexible market responses [Renz 1998, 192]. The demand for such flexible networks has shifted the trend towards e-marketplaces as most popular form of doing e-business. Economically, they can even be considered an own organizational form, which by their nature can best be compared with stock markets [Aust 2000, 48-49]. Resulting from their popularity, an abundance of classification schemes is available to distinguish between different types of marketplaces. While more detailed classification and segmentation of e-marketplaces are available [Yu et al. 2002, 474-479; Prenn & van Marcke 2002, 9-10,20-21], the following graph compares the most essential types in relation to their participants:

Figure 4: B2B e-commerce models

illustration not visible in this excerpt

Source: own representation of [Naville 2001, 47]

The success of the above exchanges at least in parts depends on a few factors, among which are: nature of the products (standard, commodity-like), massive trading volumes, spot purchasing, logistics outsourced, and demand and prices volatile and dynamic. Organizationally, the operations of an e-marketplace can be intermediated by a market participant, an independent third party, or a multi-firm consortium. Combined, their initial focus lies on spot transactions and the provisioning of information [Aust 2000, 49]. Morgan Stanley Dean Witter & Co names geography as one of many reasons for the continued use of intermediation services [Phillips 2000, 395]. As many other companies in its industry, ECC prominently engages in most of these areas. The large volumes of typically homogeneous goods in the chemical industry compare to similar situations in the paper, metal, energy and stock market, to name but a few. For trading these mass-market goods with the maximum of economic value based on efficient allocation, neutral exchanges must be used.

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