Kurt Cavano, chairman and CEO of TradeCard, looks tired û and for good reason. He's just come from a gruelling early-morning meeting to put in motion the formation of another alliance. "I've just had a Chinese breakfast at the meeting," he announces. "Not what I usually start my day with, but when in Asia, do what the Asians do."
And that is why Cavano is here in Hong Kong. He's attempting to revamp what Asia does a lot of: trade. The TradeCard value proposition is to provide the infrastructure to complete an international e-commerce transaction online, effectively doing away with costly letters of credit and other paper documentation.
Q: There seems to be a concentration of activity by TradeCard in Asia, particularly Hong Kong. Why not start with your home base, the United States?
A: Less than 20% of the US market is driven by exports, and 80% is driven by domestic consumption, but Asia is primarily driven by exports. So we realizedáearly on that the place to focus on is here in Asia. Hong Kong, in particular, is the hub for exports and imports. If we can get businesses to work with us here, we can then carry this into the rest of the world. There is no mind share in the US, but over here, there is a 100% mind share. In Hong Kong, everyone understands international trade. That's why I like to come here, because I don't have to explain what a letter of credit is.
In the US, the e-commerce market is dominated with sites selling maintenance, repair and operating [MRO] products. And very few of these sites would use TradeCard because the transactions are not as complicated as cross-border transactions. But the majority of Asian business to business [B2B] transactions are cross-border. So we wanted to start here, follow the market, follow the money.
Q: ButáAsia is said to poseásomeáof the greatest challenges: diverse markets, regulatory systems, and companies with differing levels of technological sophistication, to name a few. What is TradeCard doing to leap over some of these hurdles?
A: People have always found ways around different barriers, regulations and different standards of technology. Governments have it on their agenda to make sure the country's trade situation is doing well. As a result, we have had cooperation from government agencies in many Asian countries.
To overcome the localization challenge, we team up with local partners.áWe have alliances witháTradelink in Hong Kong; Information Technology Pioneer International [ITPII] in Taiwan; and Mitsui & Co, Mitsubishi and Softbank in Japan.áIn China, we are in meetings with the Ministry of Foreign Trade and Economic Cooperation andáthe Ministry of Information Industry to make sure we are not running foul of regulations.
Q: TradeCard's proposition is to reduce the expense involved with international trade. Notably to offer a cheaper alternative to the letter of credit and other costly paper documents needed for trade. This is where banks have a slice of the action and make their money. Is that why you haven't secured the partnership of a global bank yet?
A: In the beginning, when I first joined TradeCard [January 1999], I went around to the banks and pitched. They said; 'No way are we going to join to help TradeCard, and you can't doáthis without us.' They realized that if TradeCard was successful, it will cannibalize their existing business. But cannibalization is OK, becauseáit is better to cannibalize your own business than to have someone else do it. The banks told me flat out: 'No. No way!' So we went away, and built the product much to the banks' surprise. The interesting thing now is that the banks have come back.
Now there is a huge queue of banks that we are working with that we are going to offer TradeCard as an alternative to a letter of credit. They are going to sell it directly to their customers. We signed on Comerica recently, and othersáwill be announced in the next couple of months, including a top 10 US bank. Dah Sing in Hong Kong has signed on toáprovide pre- and post-export finance, and they are arranging a meeting later this week with Comerica to see how they will work together to facilitate trade between Hong Kong and the US. Bank SinoPac in Taiwan has also signed on to offer online payment and fulfillment solutions. But you will notice that these banks aren't the biggest names.
Q: So the global banks are still avoiding TradeCard?
A: The global banks are still avoiding us. The big realizationáfor us was that the big banks aren't going to come to us, they have too much to lose by cannibalizing their own business. So weáapproached second-tier banks that had nothing to lose andáeverything to gain. We predict that as these second-tier banks, by using TradeCard, take a larger share of the market, the big banks will come. And we are patient.
Q: But many of those banks are looking to streamline the trade process and cut down the amount the paper, and they have chosen to do it themselves.
A: As far as banks doing their own proprietary systems, there will always be banks that think they can do it themselves. But what we are doing with TradeCard is an open network. To use an analogy, we are like Mastercard; if banks create their own proprietary system, they will be creating something like a Sears card, where traders have to tie up their systems and bank with the one bank. But businesses want choice.
The interesting thing is that with the second-tier banks, once we had Comerica, we suddenly had half a dozen banks interested, just like that. Once one of the bigger banks comes û and we are having conversations with some of the top 10 US banks û and signs up, others will want to participate to protect their position. Two things motivate companies and people: fear and greed. Fear of losing business to someone else, greed to expand business. We are not the enemy.
Q: What are TradeCard's weak links?
A: TradeCard is constantly challenged. We are supporting Canada, the US, Hong Kong, Taiwan,áSingapore, Korea and Japan. The next step is China. In the fourth quarter, we will expand into Europe. We need new alliances, new partners, new operational centres.áWe have to constantly keep moving. The environment is also constantly changing, these B2B communities are springing up everyday, so we are constantly sorting out the good from the bad.
Are there any specific areas we have to work on? We would love to sign on 10 more banks in Hong Kong; HSBC and Standard Chartered would be great. That is where I'm focusing a lot of my personal energy and time on, that is, getting more banks on board. That is where a lot of personal energy is focused. We have two models for distribution: selling TradeCard to the corporates themselves, or distributing it through banks to their established customer base. We would prefer that the banks do it for us.
Our other focus is getting integrated with the rightáB2B community. We want to integrate on the right platforms û the Commerce Ones, the Aribas, for example û so that as thoseátechnologies are being used to create communities, we will already be there.
Q: And have you signed on any of these platform providers yet?
A: We are not on any generic platforms yet, but what we are on is a select few communities here in Asia,áfor example Global Sources, Tradeeasy, Sesami. We are workingáwith a few of the different ERP [enterprise resource planning] providers as well.
Q: TradeCard recently announced that Radioshack was the first company in North America to complete international trade transactions using TradeCard. The supplier to Radioshack was a well-known and trusted supplier that Radioshack had been using for a while. What if Radioshack was to trade with an unknown who wasn't a TradeCard member?
I don't think that that is an issue for Radioshack. When a company signs up, they will tell us who their suppliers are, who tell us who their buyers are. Then we begin the process of signing them up. If you are a buyer, they go through a vigorous credit check with Coface. If you are a seller, we validate that you are a real company. So we would use, for example, Tradelink in Hong Kong, or go visit them ourselves. What is important to us at TradeCard is not to just make transactions faster, cheaper and easier but we also have to make it safe. So we have to make sure that everyone that joins TradeCard is a trusted partner, so that when you go to a B2B community and see thatáa company is a TradeCard member, you could say, 'That is someone I can do business with'. That is our goal, to get to that level of acceptance.
Q: But what if, in that trade chain, someone is not or does not want to be a member of TradeCard?
A: Why wouldn't someone want to be a member? It is estimated thatájust a purchase orderácosts about $70 to generate. Once they understand how TradeCard works they will want to be a member. At the end of the day, we have to talk to the CEO. If it is a new supplier, someone will have to go and look at the goods, to see if it meets the criteria and so on. Nothing happens overnight. Right now it is hard work. It is always going to be hard to get people to change the way they do business.
Q: Who are your competitors?
The competitor we have is the old way of doing business, not the banks, because at the end of the day we will be the best partner that the banks will ever have.áWill there be competition? Absolutely, as soon as there is a pioneer, there will be settlers following quickly. Who? Companies that are not currently in the traditional space but are creating new services, such as us.
Q: What will TradeCard be like in two years?
No idea.áThere is no way of predicting what the future will hold. But right now there are over 1,000 B2B marketplaces, but analysts say that less than 10% of the market places will survive. There will be rapid consolidation of these sites. We see that there will be a very manageable set of B2B players that we plan to focus on.áSo what we are doing at TradeCard, is to be part of these B2B communities, hoping that we are picking the right ones. We are looking atáB2B communities the way that investment bankers are looking at it.
Q: What is the best case and worst-case outlook for TradeCard within the next six months?
A: áBest-case scenario û we have more banks and more corporates signed up.áCorporates like Radioshack that have used us for end-to-end trades with Asia have said thatáTradeCard is good.áWorst case: we have less banks and less corporates. But we are not worried about going out of business. We have plenty of cash and venture capitalists behind us, but we do need more money to keep going.
Q: Are you making any money?
We are still very much venture-capital funded, we are not making money yet. We are making dollars of revenue but dollars of profit are in the future.