Elemica Global Expansion Strategy Business Information Technology Essay

Elemica is a global e-commerce company in the chemical industry which provides web-based order management and supply chain applications and services. This report aims at outlining the strategy for Elemica’s e-business trading hub global expansion. First, the environmental analysis of Elemica has been discussed. The SWOT analysis of Elemica’s current business is discussed, followed by evaluation of elemica’s online B2B industry using Porter’s five forces model. The various ICT challenges which will be faced by Elemica during global expansion have been identified. The various risks, opportunities available, associated costs and critical success factors for the global expansion have been discussed. A strategy map has been defined along with a balanced score card which measures the effectiveness of the B2B expansion strategy. After exploring all the opportunities and risks involved and evaluating the effectiveness of the strategy, the following recommendations have been made:

Switch to “cloud computing” in order to easily expand into international market and be updated with the latest technology.

Follow all the regulatory compliances in its e-business initiative and apply business ethics to be followed in different countries.

Ensure that all the cross-border transactions follow security protocols and are safe and secure.

Being sensitive to cultural differences in expanding countries and making the change management process smooth.

These recommendations will thus help Elemica to successfully expand its B2B e-business strategy and establish a dominant position in the world market.

Table of Contents

EXECUTIVE SUMMARY 2

Table of Contents 3

1.INTRODUCTION 4

2. ENVIRONMENTAL ANALYSIS 5

2.1 COMPANY ANALYSIS 5

2.3 CORE COMPETENCIES 8

2.4 MAJOR COMPETITOR 8

2.5 CURRENT BUSINESS MODEL 8

2.6 MARKET ANALYSIS AND TRENDS 9

2.8 INFORMATION AND COMMUNICATION TECHNOLOGY CHALLENGES 11

3. BUSINESS CASE FOR ELEMICA 13

4.PROPOSED PROJECT PLAN 19

4.1 PROJECT PLANNING AND CHANGE MANAGEMENT 19

5.ASSESSING ONLINE B2B INDUSTRY TRADING HUB 21

5.2STRATEGY MAP 24

6.RECOMMENDATIONS 26

6.4 BUSINESS PROCESS REDESIGN AND SYSTEMS INTEGRATION 28

6.7 SUPPORT SERVICES 29

CONCLUSION 30

LIST OF REFERENCES 31

ANNOTATED BIBLIOGRAPHY 33

1.INTRODUCTION

This report aims at understanding the business of Elemica and hence, develops a strategic plan for the global expansion of e-business at Elemica. As the Chief Information Officer (CIO) of Elemica, an in-depth analysis of the company is presented in the report. It includes environmental analysis of Elemica’s online B2B trading industry hub and also identifies the potential for global expansion of e-business.

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The report will assist the company to expand its core activities in the international market. It also highlights the risks associated with expanding the e-business globally. It identifies the target groups, the characterization of target groups, and how to build value into Elemica’s services as desired by its customers, which are essential for the success of e-commerce (Fellenstein & Wood 2000). Many inhibiting factors related to culture, security, language, legal rules, cross-border data flow, ethical regulations etc. which are present in global systems (Laudon & Laudon 2006), have also been discussed. It also evaluates the entire plan by providing a Balanced Score Card to measure its effectiveness and a strategy map that will ensure the integration of strategy with implementation.

The basic purpose of this project is to determine whether Elemica should go ahead with the global expansion of its online B2B trading hub or not.

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2. ENVIRONMENTAL ANALYSIS

Elemica is a global e-commerce company founded by 22 leading corporations in the chemical industry which provides web-based order management and supply chain applications and services. It provides a single hub which provides companies with a one-stop solution through which companies can buy and sell chemicals to one another through their ERP systems or web alternative. It enables companies to link their internal IT systems through a neutral platform. Elemica is the first e-commerce company in the chemical industry which has successfully commercialized its ERP-to-ERP connectivity. It provides a modular, hosted solution that simplifies sales, procurement and financial processes; integrate supply chain partners in order to diminish communication barriers; and reduce overhead and errors.

2.1 COMPANY ANALYSIS

Elemica is a privately held company with 150 employees. It has 2500 partners in its supply chain network and $60 billion in annual transactions. It is headquartered at Pennsylvania with offices in Frankfurt, Amsterdam, Seoul, London, Singapore, Shanghai and Tokyo.

VISION: To be the leading provider of supply chain integration and optimization services to the industries we serve; tire and rubber, chemical, energy and selected manufacturing industries. Clients rely on Elemica solutions and services to deliver Bottom Line Results, Enhanced Supply Chain Reliability, Quick and Easy Implementation, and Deep Industry Expertise.

(Source: www.elemica.com)

SWOT ANALYSIS: It is necessary to conduct a SWOT analysis of Elemica in order to develop a competitive advantage by identifying its strengths, weaknesses, opportunities and threats (Friend, 2009). It will enable Elemica to build on its strengths, overcome its weaknesses, identify the opportunities available and reduce its exposure to threats.

STRENGTHS:

One of the most sophisticated technology platforms in B2B space

A single hub for all transactions

One stop solution to its clients

Addresses e-commerce needs of companies of all sizes

Helps companies automate their businesses

Creates efficiencies and economies of scale

Reduces clients’ overhead and errors

WEAKNESSES:

Does not buy, sell or own a product

Highly fragmented chemical industry with large number of companies

Internet is required for the service

OPPORTUNITIES:

Expansion into international markets

Diversifying its industry such as the rubber and tire industry, etc. where B2B e-business is possible

Including reviews and feedback from long term customers so that new companies get attracted

Facility of online auctions

Providing for private collaborative hubs

THREATS:

Non-acceptance of business model in international markets

Outdated technology in some time

Emergence of new competitors with better technology

2.2 VALUE PROPOSITION OF ELEMICA

Value proposition is the benefit that a company’s products or services provide to its customers. (Turban et al, 2010, p. 591). The value proposition offered by Elemica is as follows:

A single hub for all the companies to do all their transactions.

Only one connection needed for all transactions unlike some other companies offering similar services.

A “super platform” which connects the ERP systems of all participating companies which allows the companies to electronically communicate with each other and to conduct the transactions.

Acts as an intermediary which only links all the companies together and then they can conduct confidential transactions electronically.

Enables a company that signs up for its services to conduct business with all the other buyers as well as suppliers which are linked through Elemica.

It offers four modules: procurement, logistics, and customer replenishment (automate inventory replenishment and ordering), and order management.

Provides support of Elemica’s Professional Services and Implementation Team to its new clients. This ensures that the on-boarding process is successful and increases acceptance of the business value with its major trading partners.

Addresses e-commerce needs of chemical companies which are of all sizes.

Results in improved operational efficiency, reduced costs and a higher percentage of safe and reliable deliveries

2.3 CORE COMPETENCIES

The core competency of Elemica is to provide web based order management and supply chain applications and services. It delivers this by:

Providing four modules: procurement, logistics, and customer replenishment (automate inventory replenishment and ordering), and order management.

Single hub for all transactions.

2.4 MAJOR COMPETITOR

The major competitor of Elemica in this space is ChemConnect, which was founded in 1995. It offers services similar to Elemica, but it does not connect the ERP systems of the participants. It has 9000 customers and is spread out in around 150 countries. (Figures as in 2009).

2.5 CURRENT BUSINESS MODEL

Elemica provides a one-stop solution to all its customers to carry out transactions. It integrates the flow of information among the trading partners by using a Business Process Network (BPN). Once a client is connected to Elemica, it gets access to thousands of buyers and suppliers. The clients are charged for the service on the basis of volume of usage.

The business model works in the following way:

When a client is in need of some material, it puts up a message on its ERP system.

This message goes to Elemica’s platform asking its members for the availability of the material.

Several of Elemica’s members respond to the message by responding with quotations.

At this point, both the purchaser as well as the seller is anonymous.

The client decides from whom to purchase based on the quoted prices.

When the shipping is arranged, the identity of the parties is revealed.

When the order is confirmed, the platform is used to paln and co-ordinate delivery, automate invoice and pay one another.

Elemica’s revenues are generated by charging transaction fees from its clients on a per-transaction basis.

Elemica’s business model is sustainable because it integrates all the supply chain partners, thus reducing the communication and transaction time. The customers are able to connect to a large number of buyers and suppliers on a single platform, without having to purchase any internal system for themselves. Also, since they are charged on a transaction basis, the revenues are continuous and sustainable and are more efficient than older EDI based solutions which charged on the basis of inter-company transactions. Also, it addresses the needs of chemical companies of all sizes. It thus results in increased operational efficiency, lowering of costs, less inventory, and safe and speedy deliveries. These results in customer satisfaction and thus result in attracting more new customers.

2.6 MARKET ANALYSIS AND TRENDS

With the advent of internet, there has been a major shift in the way companies do business. There has been a high visibility of B2C e-commerce, whereas it is the B2B e-commerce which provides a large amount of marketplace spending ( Pierfrancesco Manenti, 2010). The total spending by B2B e-commerce is more than 85% of the total spending of B2X e-commerce all over the world (according to IDC estimate).

Research has shown that B2B e-commerce is more used by the firms in U.S. However, it is growing at a fast pace in Europe as well because the manufactures are becoming more acceptable to this concept.

It has been found that only 4% of the total turnover in manufacturing sector is generated through B2B e-commerce sales (data from Eurostat). Hence, there is a great scope for e-commerce to expand in new countries as well as expand their business domain, which provides Elemica with a great business opportunity.

2.7 EVALUATION OF ELEMICA’S ONLINE B2B INDUSTRY TRADING HUB

The best way to evaluate Elemica’s online B2B industry is by using Porter’s five forces model. According to the model, there are 5 forces which affect the industry and the economic value that gets divided among the industry players (Turban, 2007).

Threat of new entrants: Due to continuous advances in technology, there is always a threat of a new company coming up with a latest technology and dominating the market scenario. This might make Elemica outdated. Hence, there is a high risk of new entrants coming into the market which makes it inevitable for Elemica to continuously improvce it systems and be updated with the latest techniques.

Bargaining Power of Suppliers: The bargaining power of suppliers is limited for Elemica because Elemica just provides a platform for them to make transactions. Also, the suppliers in the chemical industry are also buyers themselves, and hence are dependent on each other. Also, Elemica provides them with a neutral platform where they can easily transact with intermediate costs and time wastage removed.

Threat of substitute products or services: Threat of substitute products/services entering the market is high because e-commerce is a very dynamic business. Any new technology or concept can easily replace it. Also, physical transactions can also easily act as a substitute to online services.

Bargaining Power of Buyers: The bargaining power of buyers is again limited because of the interdependence of buyers and suppliers on each other. But since they have a large number of options available, they can easily choose from among them and get the best deals.

Rivalry among Existing Competitors: There is a large scope for e-commerce online industry to grow as a whole. Also, with limited competitors in this space, there is less of a rivalry and majorly the company providing easy and better services will dominate the market.

2.8 INFORMATION AND COMMUNICATION TECHNOLOGY CHALLENGES

With Elemica planning to expand globally, there are several ICT challenges that will be faced by Elemica:

As the customers will become increasingly global, a major chaleenge for Elemica is to manage the relationship between buyers and suppliers who may belong to different countries and cultures. Hence, Elemica must develop a Customer Relationship Management (CRM) system in order to ensure that the customer relationships are long term, sustainable and add value.

It will also need to be considered as to how Elemica will integrate the legacy systems that the companies currently use. Instead of connecting the ERP systems of the companies to the hub, Elemica can switch to “cloud computing” which will eliminate the need for integration.

In order to keep up with the latest technology, Elemica can switch to “cloud computing” which will provide all the network facilities over the network without any need for connecting the ERP systems of the clients. The companies will then be able to access their account at any computer with internet access. This will reduce the costs incurred as well as attract more number of customers globally.

While handling cross-border transactions, Elemica needs to be extra careful about the security issues and the data transfer protocols and standards to be followed. It needs to be in compliance with the international copyright laws and security standards.

3. BUSINESS CASE FOR ELEMICA

3.1 OPPORTUNITIES AND OBJECTIVES

The opportunities available with Elemica are as follows:

Expand its business to other countries and thus provide online supply chain integration by acting as a neutral platform for all the transactions. The challenge is to expand the system into other countries and also take care of the logistics for distribution.

Adopting latest technologies so that the existing technology does not become obsolete. This will add more customers to the e-business and also make the business model more sustainable.

For global expansion, Elemica can shift to “cloud computing”. This will save the companies from connecting their ERP systems to central software. The applications needed to run the business could be stored on servers. This will save the company costs and companies across the globe can easily do business just by logging into the internet. It will help them connect to anybody and anywhere in the world. Also, the customers can easily collaborate and work on big projects in real time.

Another opportunity in the area of expansion for Elemica is that it can allow buyers to compare products from different vendors and customize their product requirements from a variety of vendors.

Elemica must also start interaction among the vendors wherein they can post their comments and reviews about its services. This will help attract new customers and also enhance the credibility of the company.

3.2 CRITICAL SUCCESS FACTORS

Critical success factors (CSFs) are a few key activities that can determine the success or failure for any type of organization (McLeod & Schell, 2001). By identifying the critical success factors, companies can develop strategies and also prioritize their activities for future business (Ward & Peppard, 2002). The critical success factors for Elemica to go in for a global expansion are:

Need to be more customer oriented in order to be sensitive to cultural differences and be responsive to their varying needs.

The web interface must also be in the local language of the countries where Elemica plans to expand.

Deliver secure and reliable connection to its users. Ensure that all the transactions and data transfers remain confidential and privacy policy is adequate.

Compliancy with international standards must be maintained before entering into expansion into international markets.

The tax implications must be kept in mind for the success of a business in other countries. It needs to be ensured that the company is in compliance with the local tax rules.

Need to be up-to-date with the latest technology so that the business model does not become obsolete and also to prevent competition.

3.3 COSTS AND BENEFITS (ROI)

It is essential to calculate the return on investment before taking any business decision to ensure that the returns will be favorable for the business. It is a tool which helps in evaluating information technology and electronic commerce investments (Turban, 2008). The ROI formula divides the total net benefits (revenues less costs, for each

Year) by the initial cost, resulting in a ratio that measures the ROI for each year or an entire period (Turban 2010).

The various costs involved in the expansion of Elemica globally will be:

Marketing costs: A marketing strategy needs to be developed in order to attract customers all across the globe. Also, advertising costs will be incurred to establish the brand image of Elemica in new countries. This will be a significant cost because the marketing campaigns need to be customized according to different locations and local markets.

Operating costs: Operating costs will differ for each country. This will include the training assistance program costs and other support costs to its customers. These costs will vary because the currency values in each country will vary and the exchange rates also need to be taken into account. Also, operating costs will increase because now the hub needs to be customized for local markets and more number of customers means higher maintenance costs.

Employee costs: More number of employees will be needed to handle the expanding business. Local people will have to be recruited in order to understand the local needs and be responsive to them accordingly.

Administrative costs: Administrative costs will go up with an increasing number of customers.

Opportunity costs: It is the cost associated with not taking an electronic commerce initiative (Schneider, 2007). If Elemica does not go ahead with the expansion, some costs will be incurred for not going with this plan, called as opportunity costs.

The revenue will be generated through:

Transaction fees: The clients are charged on a per transaction basis. With increased number of customers, the number of transactions will increase and hence the revenue.

Training fees: The training fees charged for increasing acceptance and making the on-boarding smooth will also increase with increasing number of members.

3.4 BENEFITS OF EXPANDING GLOBALLY

The benefits associated with expanding globally are:

It will offset sales decline in the domestic market, if any. Even if there is not much decline in revenues in the domestic market, having a global network will act as a safeguard for future.

It will increase the life cycle of our services because it may be possible that this technology gets outdated in the domestic market, but in new markets this might still be new.

If Elemica goes into cloud computing, it will attract a large set of new clients, both in the domestic as well as international market, thus leading to increased revenues and higher market share.

It will improve its competitive position and help in establishing itself as a global brand.

3.5 RISKS ASSOCIATED

Having a web based platform makes the system susceptible to risks associated with the internet. Hence, it is important that the problems which will most likely cause damage is addressed (Van der Walt, 2002). Hence, the risks associated with global expansion of Elemica’s e-business are as follows:

Security issues: With data and transactions scanning across the globe, there might be security concerns and different protocols to be followed in different countries. Also, there might be concerns regarding the misuse of information that is transferred over the internet.

Payment issues: With difference in currencies and exchange rates, it might become difficult to make payments among the collaborating parties, which might result in loss of cross border transactions.

Threat of Frauds: Proper mechanism would have to be in place to prevent any fraudulent customers to join the network and take undue advantage.

Server crashes: There might be server crashes due to expansion into remote areas which might cause the entire system to fail and thus result in huge losses.

Improper integration: Risk of improper integration of the hub with ERP systems in remote locations.

Violation of laws: There might be systems which may violate the home country laws, thus creating troubles for Elemica in future.

Cultural differences: The local people in target countries might not be comfortable with the concept of online buying and selling of stock. This may lead to a failure of the entire business model in that country. Hence, a proper understanding of the local culture needs to be developed before entering into expansion.

Changing technology: Elemica needs to be up to date with the latest technology so that their services do not become obsolete.

Lack of IT infrastructure: It might be possible that some countries might not have appropriate internet infrastructure. This will hamper the expansion of e-business in that country.

4.PROPOSED PROJECT PLAN

4.1 PROJECT PLANNING AND CHANGE MANAGEMENT

Elemica needs to develop a detailed project plan to carry out all the planned projects, evaluate the various options available, identify specific milestones, allocate requisite resources, and manage the projects (Turban et al. 2010).

There are five basic stages in developing a project (Haughey, 2010):

Initiation

Planning and project design

Execution

Monitoring and controlling systems

Completion

Elemica will first need to identify a project champion who will ensure that proper time, resources, and attention is given to the project throughout its initiation to implementation (Turban, 2008). Then a project team needs to be established who will develop a detailed project implementation plan. For expansion strategy, Elemica can pilot test it in some other country, which will help identify the problems and successes, thus helping in modifying the strategy accordingly (Turban, 2008). Accordingly, staff requirements are identified and fulfilled; and training given to them for the latest technology. After the completion of the proposed plan, it should be reviewed at each stage in order to overcome the inefficiencies and loopholes which were identified and then constant monitoring of the project needs to be done.

Change management is a major issue which needs to be handled by Elemica during its global expansion because people will resist change. An appropriate communication strategy needs to be developed which will aim at keeping all the employees as well as Elemica’s clients up-to-date with the company’s strategy and latest happenings. This will help them cope with the changes (Schneider, 2007) and also help them adopt the new changing culture easily. Confidence and buy-in needs to be inculcated within the employees so that their support can be garnered for the project, which will be essential for the success of the business.

4.2 RESOURCE ALLOCATION

The various resources which need to be allocated during Elemica’s expansion will be human resources and IT resources.

Human resources will include business managers, project managers, web designers, graohic designers, system operators and administrators (Schneider, 2007).

IT resources which will be needed are the hardware and software development and its maintenance.

5.ASSESSING ONLINE B2B INDUSTRY TRADING HUB

5.1BALANCED SCORE CARD

The most popular system for performance management is the use of a balanced scorecard (Turban, 2007). It was designed by Kaplan and Norton in 1996 and it describes a holistic measurement system which flows from the overall strategy of the organization and crystallizes into measureable indicators (Kaplan & Norton, 1996).

A balanced score card evaluates the effectiveness from the following 4 perspectives:

Financial

Customer

Internal Business Processes

Learning and Growth

PERSPECTIVE

OBJECTIVE

METRIC

RATIONALE

1) Financial

Increased market share

1) Increase in the number of clients

2) Increase in the revenues

3) Increase in the number of locations where Elemica provides services

Increase in market share is an important metric in determining whether the global expansion of the business has been successful or not. Only if there is an increase in the market share, it will indicate that the business is successful and is gaining more customers.

Increased ROI

1) Increase in the number of transactions between clients, hence resulting in increased revenues.

2) Increase in the number of customers.

It is important to measure the revenues earned in order to ensure that even if market share might have increased, the revenues have also increased along with it. Also, it is important to know that the returns are increasing on the money invested.

2) Customer

Increased customer satisfaction

1) Increase in the number of repeat transactions

2) Decrease in the number of customer complaints

3) Increase in the number of positive customer reviews

4) Reduction in the response time for resolving customer complaints.

Customer satisfaction is a top priority for the success of any business. Customer satisfaction ratings will indicate whether the existing customers are satisfied with the services and this in turn will determine the new customers getting added to the network.

Increased visibility of Elemica

1) Increase in the number of transactions on Elemica.

2) Increase in the number of new subscribers.

3) Increased visibility among other chemical companies.

This will determine whether the new marketing campaigns and expansion strategy has worked or not. Whether it will be able to generate more revenues or not.

3)Internal business processes

Increase in efficiency

1) Increase in the quality of service

2) Decrease in the lag time between a complaint and resolving that complaint.

3) Increase in the number of transactions that can be handled at a particular time.

4) Increase in the speed of transactions

This will help in delivering best service to the customers and will help in continuously improving upon the existing services.

Better technology and transaction security

1) Increase in the transaction security even while cross-border transactions take place.

2) Adopting the latest technology and making the hub more user friendly and easy to implement.

This will take of the security concerns which may arise during the expansion process in different countries. Also, the latest technology will keep Elemica inline with the competitors and help in dominating the market share.

4) Learning & Growth

Better skilled staff competent to handle latest techniques and varying cultures

1) Increase in % of employees who are highly skilled.

2) Develop the competencies in the staff to work in a dynamic and competitive environment.

A highly skilled and competent staff will ensure that the company progresses and delivers the best to its customers all across the globe.

This will also help in identifying the gaps in the skills of employees and work upon them.

Increased organizational learning

1) Increase spending on R&D to improve the technology used, hence delivering better services.

This ensures that the latest and the best technology is used and the organization is ready to respond to the changing environment all across the globe.

5.2STRATEGY MAP

The strategy map below shows the linkages between the four perspectives of Balanced Score Card and how they result in achieving the overall business strategy.

INCREASED SHAREHOLDER VALUE

HIGH ROI

MORE MARKET SHARE

FINANCIAL PERSPECTIVE

LEARNING & GROWTH PERSPECTIVE

HIGH EFFICIENCY

CUSTOMER SATISFCATION

INCREASED VISIBILITY

SECURITY COMPLIANCE

LATEST TEHCNOLOGY

MORE CUSTOMERS

MORE CITIES

MORE TRANSACTIONS

SKILL DEVELOPMENT

INCREASE IN R&D

COMPETENCIES

HIGHLY SKILLED AND COMPETENT WORKFORCE

INTERNAL PROCESS PERSPECTIVE

CUSTOMER PERSPECTIVE

6.RECOMMENDATIONS

The following recommendations are in order of their priority. Each one will be needing 5-6 months to implement and can be started concurrently.

6.1 OUTSOURCING OF ICT INFRASTRUCTURE

In order to strengthen the ICT infrastructure of Elemica, it should adopt cloud computing. It will hence result in business process automation. All the facilities will then be available over the network without any need for connecting the ERP systems of the clients. This will help in reducing the costs of setting up hardware or software and its maintenance. Clouds are a pool of easily usable as well as accessible virtualized resources such as hardware, development, platforms and/or services’ (Vaquero et al. 2009, p. 51).

Shown below is how cloud c