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GlobalGlobal CommerceZoneCommerceZone
Case StudyEntrepreneurship Course 2001
Shani Shalgi
Pini Reisman
Ziv Yirmeyahu
Itai Ra’anan
Nocham Ohana
Ze’ev Getner
TeaserTeaser
Keep existing without a major customer...
75 Employees
7 Branches Around the World
$10M~ Investment
• 14 employees• 2 Branches: Israel, US. • $150K Burn Rate
AgendaAgenda
• The Problem
• Company History
• The Solution
• The Shift
• The Target Market
• Business Model
• Competition
• Our Input
• Thanks
The ProblemThe Problem
• Clearing international deliveries through customs
– Customs classification is complex.
– Regulations are updated frequently.
– The chain of pain.
Chain of Pain - Chain of Pain - BuyerBuyer
• Unknown import charges
• Two payment points
Buyer
Chain of Pain - Chain of Pain - RetailerRetailer
• Dissatisfied customers
• Customer service costs
• Lost revenues
• Cost of exceptions
Buyer
Retailer
Chain of Pain - Chain of Pain - CarrierCarrier
• Merchant complaints
• Customs collection
Buyer
Retailer
Carrier
Company HistoryCompany History
• Foundation: 1999
• Founders: Haim Chasman, Richard Demb
• Investors: BRM, Yazam.
• Original name: vShip inc.
• Investment: ~$10M.
The SolutionThe Solution
Technical infrastructure to:• Provide automated, guaranteed landed cost quotes
and documentation for international parcel shipments.
• Enable single payment point for all charges.• Seamless transfer of customs funds from the
merchant to the carrier clearing the shipment through customs.
How Does It Works?How Does It Works?• GCZ classifies each product on the client’s
catalog for every destination country.• When a consumer makes an order, an XML query is sent to
GCZ’s server.• GCZ returns a quote of the full product price including
customs duties and NTBs for the product, plus commission.• GCZ guarantees the given quote.• The consumer pre-pays whole landed cost.• GCZ receives the custom costs plus commission from the
retailer.• GCZ transfers the customs to the carrier after he fronts the
customs for the consumer.
Flow of Funds - Flow of Funds - TodayToday
$70 Customs and Duties
Collected by Carrier
Buyer
$260 Cost of Merchandise
$40 Shipping Costs
Paid at time of purchase
Retailer$40 Shipping Costs
Charged to Seller
Carrier
$70 Customs and Duties
Paid by Carrier
Customs
Flow of Funds - Flow of Funds - with with GCZGCZ
Buyer
$260 Cost of Merchandise
$40 Shipping Costs
$75 Customs and Duties + commission
Paid at time of purchase
Retailer
$70 Customs and Duties
Paid by Carrier
Customs
$40 Shipping Costs
Charged to Seller
Carrier
GCZ
$75 Customs, Duties + commission
$70 Customs, Duties
The ShiftThe Shift
• Bubble expectations: there will be several “Amazons”, they were the target clients.
• The bubble popped, no new “Amazons”:– New focus:
• B2B and B2C market, not necessarily e-commerce.
• Go to where the money is.
– Structural reorganization.
– The solution was not changed.
U.S. Outbound Market & U.S. Outbound Market & RevenueRevenue
$605 Million60.5 Million238,097Total
$355 Million35.5 Million139,763B2B
$250 Million25 Million98,334B2C
Revenue Opportunity ($10)
Annual Package Volume (254 days)
Daily Package Volume
Sources: Maxwell Sroge, Forrester Research, FedEx, UPS, DHL, excluding USPS and smaller couriers. Average Courier Revnue $44 per parcel
Business ModelBusiness Model
• Catalog classification outsourced and charged at costs.
• Commission on each transaction for the quote, insurance and money handling.
• Buying insurance for guaranteeing the landed cost.
• Making profits on the money during the time gap between collection from the retailer and payment of carrier.
• Marketing model (big clients only):
– Using the carriers as a channel to the market.
– Direct approach to other big clients.
CompetitionCompetition
• Direct: Landed cost Calculations– Vastera, Nextlinx, OpenHarbor, Xporta, ClearCross
• Indirect: Portal and B2C – Borderfree, Douwantit
• Inhouse Solutions – Branching (Amazon)
• Financial Transaction Focus – Global CommerceZone
,,,, Risks Risks
– (GCZ buys insurance and updates its classification database frequently)
• Carriers can become hard competitors by providing the solution themselves.
• Globalization: free trade agreements, moving towards making the world a global village.
• Changes in custom taxes rates• Changes in exchange rates
The VisionThe Vision
• Like the American payroll market model.• Clients will avoid distraction from core business.• Developing and maintaining a system takes customs
experts and a lot of energy.• Advantages to scale:
– The system learns and corrects mistakes– One classification can serve several clients
• High loyalty expected with big clients.
Conclusion: the market has place for only one or two ‘gorillas’.
First DoubtFirst Doubt The Question of NeedThe Question of Need
• Is the financial feature really
necessary to the clients?• GCZ’s clients are expected to pay for the classifications,
the updates and the quoting system as they would any competitor.
• In addition, GCZ’s clients need to pay commission per transaction that covers the insurance.
• Our opinion: prepayment and guarantee of landed cost is necessary and valuable.
Second Doubt Second Doubt The Question of DifferentiationThe Question of Differentiation
• What does it take for competitors
to develop the financial and insurance services?
– GCZ insures itself externally, by signing a contract with an insurance company.
• Our opinion: – This can be done by the competitors as well. – Transaction handling is more complicated and
will require a strategic change.
Third DoubtThird DoubtThe Question of CompetitionThe Question of Competition
• What about outside competition?• GCZ’s technology is not an entry barrier • GCZ outsource the classifications.• Only 1 in-house customs expert !! No significant entry barriers.• The competitive advantage is the connections with the
carriers• Our Opinion:
– The market will be a ‘gorilla market’. Possible ‘Gorillas’ are either existing competitors or the carriers themselves.
Doubts - SummeryDoubts - Summery
Is BRM’s support in the past (and future?) justified?
1. Is the unique service needed?2. Can the competitor develop the same
service quickly?3. Are there significant entry barriers?
YESYES
NONO
YESYES
Gorillas market, but under carriers control
Survival SecretsSurvival Secrets
A lot of faith A little help from personal connections One big client at advanced stage of
negotiations
Once the Client Signs…Once the Client Signs…
• Radical cash flow improvement.
• Validating the vision & business model:– Further funding rounds possible
• A reference to other big clients.
ThanksThanks
• GCZ– Herb Zlotogorski - CEO– Ze’ev Frimer - CIT expert– Arie Kadosh - CTO
• BRM– Nir Barkat– Johnny Klair