Candida Moraes

metaljunction services, the largest B2B e-commerce platform in India, is moving full steam ahead. Managing director Viresh Oberoi elaborates on the activities of the company and shares its plans for taking this
e-commerce platform to greater heights

An alliance between Tata Steel and SAIL is unusual, to say the least. So how did metaljunction services come into being?
At the height of the dot-com boom, there were many international and domestic e-commerce ventures that approached Steel Authority of India (SAIL) and Tata Steel individually and separately to join their respective e-commerce platforms. These companies had set up e-commerce platforms because it was almost fashionable to be in that space. Some of these were set up as exchanges, others as bulletin boards.

It was then that SAIL and Tata Steel set up internal teams to evaluate how their respective companies could take advantage of the internet and e-commerce. Surprisingly both these internal e-commerce teams recommended that two or more large companies that reside in the same geographical space should come together to set up an e-commerce venture together. This would bring about greater liquidity on the e-commerce platform and enable technological costs (which were extremely high at the height of the dot-com boom) to be shared. Thus, metaljunction services was born.

Metaljunction was perhaps among the last to be incorporated as a dot-com company, a considerable time after the bubble had burst globally and in India. What did metaljunction get right? What lessons did it learn from others' failures?
The first thing we got right was the intention behind incorporating the company. Most companies had entered this space because of the high valuations that the market then offered. It was almost fashionable to float a dot-com company with the intention of selling it off to the public. This was not the case with either SAIL or Tata Steel who, after careful study, believed that IT and internet-enabled commerce would unlock value in their respective enterprises.

The joint venture came together to focus on imbibing best practices and to utilise the latest available technology. This would help in sharing technology costs and enable them to aggregate their requirements. From the dot-com meltdown, we realised that succeeding in this space was neither about chasing eyeballs with free services nor about burn rates. In fact, it was quite the opposite. Costs, as in any other business, needed to be on a tight leash and every service or solution conceived was to be sold at a fee. The underlying principle was that if our services are unlocking value, the client would have no hesitation in sharing a part of the value so unlocked.

Has metaljunction been a profitable venture? What were its revenues for 2004-05?
Metaljunction has been growing very rapidly and profitably. It began operations in FY 2001 and clocked transaction values of Rs 94 crore. Transaction volumes on metaljunction have grown at a CAGR of 156 per cent to Rs 4054 crore in FY 2005. That the growth has been profitable can be seen from the EVA numbers which have grown at a CAGR of 227 per cent from Rs -62 lakhs in FY 2001 to Rs 618.42 lakhs in FY 2005.

What distinguishes metaljunction from its competitors?
metaljunction operates in a space which has very low barriers of entry and where there are a number of competitors — multinational corporations and niche domestic players. The company has been flexible in its approach. Our strength is that we listen to our customers, identify pain points and redesign processes to allay these pain points.

We are also the only company which operates on both the buy and sell side of the supply chain. All our services are built on a common platform, thereby allowing us to take advantage of common technology and technology infrastructure. This makes us very competitive and is the bedrock of our profitability.

How does your e-selling division function? How important are your offline operations to the division? Do you have online auctions the way Freemarkets does?
Freemarkets does conduct auctions but these are for sourcing and are called reverse auctions. Our e-selling division performs a lot of activities, one of which is a very powerful tool called the 'forward auction'. From the very outset we realised that sellers of material are not likely to come online on their own to sell material. Providing them with a mere platform to sell their material would not make the e-selling operation a success. In every instance of engagement with our client (the seller of material), we studied the 'as-is' process of selling to identify pain points in the process and re-engineer the process with the use of technology and the internet.

Today we have full-fledged market-making operations which bring about discovery and adoption of new steel buyers onto our platform. Our use of technology has allowed our clients to transact with a wider buyer base, thus allowing them to sell smaller transaction quantities at higher per unit prices. E-selling has thus facilitated dis-intermediation and removed non-value-adding intermediaries from the supply chain. We have also taken ownership of collecting statutory sales tax documents and money from buyers, thus completing all activities relating to sales. In the process, we have evolved as a full-fledged KPO outfit, providing complete order generation and fulfilment services for the sales chain.

metaljunction's e-sourcing division has a distinct online presence. What was the logic behind separating the selling from the sourcing functions?
An e-business operation like metaljunction is based on the foundation of people, processes and technology. We were of the school of thought that while e-sourcing and e-selling are different processes and need distinct people and identities, they could operate on the same technological platform. Although there were many global steel companies that separated their sourcing and selling operations completely by forming two distinct entities, we actually brought them together to work on a common technological platform. However we recognised that the processes, domains and mindsets are different and hence the people should be different. Thus a distinct, internal focused SBU with a unique identity was created. It was called commercejunction.

How do the revenues from the e-selling and e-sourcing divisions compare? Which of these divisions holds the greater promise of profitability in the long run?
Our e-selling services have shown results very quickly. We were able to deliver results in terms of transparency and efficiency, lower costs and higher realisations from the very outset. Our clients appreciated our services and with maturity entrusted us with larger volumes. Our e-selling transaction volumes grew at a CAGR of 258 per cent from Rs 12 crore in FY 2002 to Rs 1973 crore in FY 2005. We sold 50,000 tonnes of steel in FY 2002 and 1.3 million tonnes in FY 2005.

Our services too have matured. We started with Forward Auction; today we offer full-fledged KPO selling operations. Our e-sourcing services have also grown rapidly but not at the same pace as e-selling. E-sourcing transaction volumes grew at CAGR of 80 per cent, from Rs 79 crore in FY 2002 to Rs 820 crore in FY 2005. Services have matured from offering simple reverse auction services to devising procurement strategy, providing spend management services, automation of sourcing processes using our electronic enterprise procurement system and providing services of aggregation in buying across divisions and companies. Aggregated buying is the most powerful lever of negotiation and provides infinite potential in terms of opportunity in growth across companies and geographies.

Do you provide services beyond price discovery? What are the value added services that you have provided and are developing going forward?
When we launched our services, we focused on order generation. We looked for new buyers or vendors, discovered prices and generated an order. Along the way, we identified a number of pain points in the supply chain and launched a number of services to address them.

The additional services are channel finance, receivable purchase, asset sales, KPO and e-selling. In FY 2006, our plans include offering fulfilment services such as inspection services, logistical services and cash collection and management services.

Some of the other services that we will launch are online retail store to sell branded products, coaljunction to sell coal online and member finance to arrange finance for the buyers of coal and steel on our platform. On the procurement side, we intend to launch the spend management system, enterprise procurement solution, vendor discovery and validation services, supplier finance and aggregated rate contracts. Capability will be built to encourage enterprises to outsource the entire procurement function to us.

Tell us something about the financial services part of your business. How is it different from what banks offer?
The financial services that we offer are in partnership with the banks. Banks too offer the same services. However, we have a value proposition to offer to all parties, including banks, the client that sells or buys and the bidder who buys or supplies goods to our client.

The first value proposition is our technology platform which provides for a one-time integration with the bank's IT system and the client's IT system. This means that metaljunction can have infinite clients interested in channel finance or supplier finance and the banks do not have to integrate their IT systems with theirs.

Second, the client can transact with a number of banks once it has integrated with metaljunction.

Third, we have the domain knowledge of this supply chain and we aggregate the financial needs of all bidders (buyers and suppliers) to negotiate the best rates from banks. The banks themselves are happy as the costs incurred by them in getting large chunks of business are minimal.

Our financial services business has seen growth at a CAGR of 321 per cent from Rs 4 crore of finance arranged in FY 2002 to Rs 1261 crore of finance arranged in FY 2005.

You claim to have been successful in selling steel. Is this model scalable? What are your plans to sell other commodities?
The underlying principle is aggregation, namely, the aggregation of buyers and suppliers, demand and supply on a common platform. This brings about liquidity and price discovery. We have managed to do this for steel. The other commodity that we have identified is coal. Internally we have formed a new vertical, called coaljunction, to focus on this commodity. Since its launch in May 2005, we have already sold 1.82 million tonnes for our clients.

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Uploaded on November 4, 2005