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Putting the 'e' into Brazilian business
It's all systems go in Brazil as far as internet initiatives are concerned. Judging by the strong competition, the race to win the e-business prize should be an interesting one in this part of the world.
by Rhiannon James
Brazil's pulp and paper industry continues to attract a fair share of media attention - and justifiably. With major new investments and nail-biting consolidation moves, Brazil is certainly putting a touch of carnival back into the pulp and paper sector. But while most eyes are fixed on the capacity increases and takeover moves, Brazilian companies are also busy cooking up other plans to revolutionize the sector. Behind the scenes, a significant amount of time and money is being invested into e-business initiatives in Brazil, from both inside and outside the industry. US-based companies such as Paperloop, PaperExchange and Forest Express may have been hogging the internet limelight so far, but over the next few months, the spotlight may move further south to shine on some ambitious plans being made for Brazil.
Two independent companies, Interforb and Webb Papel, and a portal backed by several major producers, are spearheading the internet crusade in the south of the continent. Although many other sites may have a head start, the Brazilians may well benefit by learning from other companies' mistakes. Various industry web sites are quickly backtracking on business models and reshaping themselves into e-business solution providers, rather than paper auctioneers. But with a "second mover" advantage, the Brazilians have been able to focus on supply chain solutions and winning over their audience from the start.
It is little wonder the Brazilians want to get it right first time, either, as there is such a large audience to convince and win over to the e-business cause. According to Forrester Research, Brazil has one of the world's highest growth rates in internet use. In 2000, the country counted 4.99 million users, but by 2004 some 10.47 million people are forecast to be logging on.
Despite such encouraging forecasts, internet companies across the globe have been having a stormy ride over the last few months. News of layoffs, funding crises and slowing economic growth have led the media and investors to take a cautious view on the sector. As the internet euphoria calms down, companies are thinking more carefully about their long term prospects, rather than the short term gains.
This slowdown in the internet rush has led many industry experts to predict a corresponding shake-out in the number of internet players in the forest products industry. Many experts believe that the pulp and paper industry will not have room for a large number of internet players for much longer.
According to Luiz Ciocchi, a principal at AT Kearney consultants, "Each large company will have their own web site and there will be a maximum of one or two large common industry portals in each region. There is no space for more than two. The #1 player will have around 70% of the market, leaving just 30% for the #2 spot."
Webb enabled
One of the main, independent web sites for the pulp and paper industry is Webb Papel. The site is part of a larger hub for Brazilian industries, which is simply called Webb and started up in December 1999. The hub went live at the end of April 2000 with vertical portals serving the automotive, health, insurance and chemicals sectors. The dedicated paper section followed on July 4 last year.
Finding space for the individual
Although many of the Brazilian paper producers are involved with the industry portal, this is not the only action that the companies are taking with regard to e-business. Many of the companies are taking the issue seriously and developing web sites for a whole host of their business areas.
For example, Klabin is involved in the paper industry portal. But as the CEO, Josmar Verillo, explains, the company has other plans up its sleeves as well. As he points out, "We are developing our e-business by area. For corrugated boxes, our customers can enter our system to place and track orders. We are expanding this offering to other areas of our business."
Similarly, VCP has worked with AT Kearney to develop a strategic e-business plan for the entire company. VCP has already launched its own business-to-business (B2B) portal for its customers and as CEO, Raul Calfat, points out, "The VCP site will eventually be integrated with the portal. Basically it is a shopping mall idea where each of the partners has its own shop within the mall. This is why VCP is developing its own portal first."
On top of the industry's own portal, VCP is developing an e-commerce solution for its merchanting wing, KSR, which is the largest in Brazil, according to Calfat. The site is designed to serve the company's smaller print customers. "It is not B2B, but rather B to small B," Calfat jokes. "It could even become B2C in the future," he adds.
Suzano has been working with Andersen Consulting, now known as Accenture, on its plan of attack for e-business. Paulo Nascimento, chief information officer at the company, explains that Suzano has other e-business strategies up its sleeve apart from the portal. "We are looking at developing our own web site and intranet, as well as examining how we can find synergies with the portal. The portal is just one tool for us. We also have an extranet pilot project running with 10 VIP clients and we were the first to do this online in Brazil," he explains.
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Webb boasts the backing of the computer giant, IBM, as a technology partner in its venture. Raul Trejos is responsible for the paper divsion at Webb Papel and as he explains, "We were selected by IBM to be one of the company's nine alliance partners in the world. IBM has a very strong position in Brazil, which was an essential factor in our choice of service provider." On top of that, the company offers a "complete atmosphere for trading", according to Trejos. This includes product catalogs, credit cards (including a webbcard), logistics, payment, order tracking and auctions online, he explains.
Webb decided to add paper to its portfolio due to the fragmented nature of the industry in Brazil. As Trejos says, "The small and medium purchasers are very fragmented and this means that there is a good opportunity for e-business to develop in the sector."
Webb focuses solely on these players in the paper sector, leaving the large players to get on with their own projects. In fact, Trejos does not seem overly concerned that the major Brazilian pulp and paper producers are getting together to form their own portal. As he puts it, "Our focus is not on the large players, so we are not in direct competition with them. On top of that, it is not going to be that easy for the paper companies to cooperate on a portal. Running a portal is a business in itself, they will need to use somebody from outside to run the site so that they can focus on their core business."
In recent months, the independent dot.com companies that have set up in the paper industry have received something of an ear-bashing from the pulp and paper industry and they are finding that the sector is often far from receptive to their auction and exchange models. As a result, many of the companies have changed tack and moved away from paper trading to offering technical solutions and business tools.
Ciocchi at AT Kearney comments, "In pulp and paper and other industries such as steel and cement, the independent marketplaces have not been as successful as people originally thought. Lots of them have changed their business models away from auctions to become service providers."
Trejos makes a similar point. "Outside exchanges have been seen as a threat by the producers - as somebody who will take away their profit margins. Webb is not an exchange, though," he explains. "A company can choose to put its products on the site and keep its independence. We do have an auction facility, but it is for spot lots and off-grade papers, so it is not a threat to normal contracts."
Although the company is an outsider to the pulp and paper industry, Trejos and his team have a fair amount of experience in the sector. His own experience has been gained through trading as the founding partner of Technopaper, an importer and exporter of paper products to Brazil.
Informed about Interforb
Another internet startup which is backed by managers with a large amount of pulp and paper industry experience is Interforb. The company's business director is Sergio Kilpp, a well-known figure in Brazil who has worked for over 25 years in the sector. Most recently, Kilpp was commercial director at Riocell, but he decided to take up the internet challenge at the end of 1999, joining up with Aldo Sani Junior, son of the managing director of Riocell. Sani Junior also brought considerable technical knowledge to the partnership through his experience at SAP and Jaakko Pöyry. The pulp and paper connection does not stop there, though. Interforb's main backer is a certain Ivoncy Ioschpe - a former shareholder in the pulp industry.
This background has helped Interforb to develop a site that "reflects exactly how the industry sells its products", according to Kilpp. This means that the transaction model respects the contracts that are commonly used in the industry, Kilpp adds.
Interforb hooked up with Industrial & Financial Systems (IFS) to develop its tailor-made model and tried it out on the main players in the Latin American, US and Canadian industries. The main element of the Interforb site is the "shopping mall" design, where companies can run their own store for their products.
Like Trejos at Webb Papel, Kilpp does not see the industry-backed portal as a threat. Kilpp's company will be focusing on the small and medium players in Latin America, but Interforb will also be used by the larger players to reach their customers, he explains.
The site was launched at the end of June 2000 and was getting ready for its first major trade in November. Since the site was unveiled, the company has spent considerable time training users to familiarize them with Interforb's technology. "We have spent the last few months bringing down the resistance of the pulp and paper industry to the internet. The next step will be to connect our users' systems to Interforb," Kilpp says.
One advantage of the IFS technology is that it can interface with existing systems at companies, so Interforb users will not need to invest in new technology to use the site, according to the internet group.
Apart from the technical learning curve, Kilpp sees one of the company's main challenges as breaking down the resistance to the internet. He is even trying to set up an organization of Latin American portals so that each dot.com company can deliver a uniform message to the pulp and paper industry. Alliances with dot.com players outside Latin America are also on the company's agenda, especially in terms of setting up news and information on the site.
Support from within
While the independent sites in Brazil have confidence in their ability to compete with the industry-backed initiatives, other outside players have already suffered from the insider advantage. According to Michael Palm, the former head of AccessPaper.com, one of the reasons that his company decided to quit the paper internet race was the creation of Forest Express and other insider projects.
A similar venture is getting off the ground in Brazil, with Suzano, VCP and Klabin leading the charge. Yet to be named, the industry-backed portal holds the support of Ripasa, Cenibra and Bahia Sul among others. The idea is to fully integrate the industry's suppliers, distributors and customers, offering services within a single, shared infrastructure. The portal's backers believe that this will ensure security and speed of access in the information exchange, while preserving the confidentiality of individual transactions. The portal's launch is set for July, according to the latest timetable.
VCP's CEO, Raul Calfat, comments, "The portal has all the conditions to succeed. It should reduce costs across the supply chain. For our customers, it will be easier as they will only have to use one technology to access a host of suppliers."
Paulo Nascimento, chief information officer at Suzano, expands on the idea behind the industry-backed portal. He explains that his company initially looked into setting up an internet community with revenues coming from advertising or based on sales commission, but Suzano realized quickly that this option did not always work in practice. "Now we are planning to make our money from a common technology base and work as an ASP provider to companies. We are offering a standard language to suppliers and customers from one interface. Some customers are ready for e-business, most are not, but the portal will help them."
The portal will be an independent company with its own structure and will be open to all participants in the sector, whether local or international. According to Nascimento at Suzano, the portal may even go one step further and offer market-to-market integration, involving similar initiatives. "We are going to be a global site and we are looking at market-to-market integration. We are talking to PapiNet and Forest Express about this," he says.
Like Interforb, the portal players are also looking at different offers in terms of content for their site, whereby existing news sites may provide information to the industry-backed portal.
Although cooperation between companies sounds like a good idea in theory, some concern has been raised over the players' ability to work together in reality. But as Nascimento comments, "Six months ago it was impossible to think about collaboration with our competitors as each company had a different strategy. It is difficult to run a portal on your own, though."
So far, the parties involved report that the cooperation has been successful and the independent nature of the e-business venture has helped this progress. But as one member commented, when a new CEO is appointed for the portal, his or her task might be a rather more difficult as the person tries to please all the companies involved.
Another hurdle that both the independent and industry-backed portals must face is the issue of whether their customers are ready for e-business or not.
But Ciocchi is optimistic that the customers will be prepared in the next few years, though. This year, he believes that 10-20% of pulp and paper companies will be conducting transactions over the web. This will rise to 50-70% next year and a staggering 100% in 2003.
The reason behind Ciocchi's confidence is that the industry portals will also be working as application service providers and they will be able to provide the necessary solution to link up with their customers. "Even if there are many different sized companies in the pulp and paper industry, I believe that everyone will be ready for the web by 2003," Ciocchi claims.
No matter which company manages to secure the much sought after #1 position in e-business, the Brazilians are certainly making a concerted effort to embrace the new medium. In the meantime, it will be interesting to sit back and watch the e-battle unfold over the coming months.
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