Global B-to-B Venture to Launch in Japan

TOKYO (05/31/2000) - Japan's two major commercial traders, Itochu and Marubeni, and three big banks unveiled their plan to create a company by August that would handle all paperwork for international trade on the Internet.

Itochu and Marubeni would each own 25 percent of the new company, and a group of three banks, Dai-Ichi Kangyou Bank, Fuji Bank and Industrial Bank of Japan, that are set to merge in October as Mizuho Financial Group, would own another 25 percent.

Tokio Marine and Fire Insurance, Yasuda Fire and Marine Insurance and several shipping companies would own the remainder. The venture will be capitalized at $2.8 million. Itochu and Marubeni would jointly develop a computer system to handle customs procedures, cargo vessel hiring and insurance. These services would enable clients to settle their accounts on the Net. The new company would also serve as an application service provider for small and medium-sized companies.

The new company would connect to an international Web-based data exchange system called Bolero.net, which is owned by TT Club, an insurance company for logistics businesses, and the Society for Worldwide Interbank Financial Telecommunication (SWIFT), a bank-owned cooperative that provides secure messaging services and interface software globally. The spokesman for Itochu said the new company would help cut 20 to 30 percent of the costs of such paperwork and slash the time required for inter-company communications from one to two weeks to just one day.

Most Japanese companies, when they deal with companies overseas, still exchange documents by regular mail or overseas courier services. The new company also plans to reach out small to medium-sized clients that have not been the focus of big trading houses before. Fees will depend on the type of paperwork and the size of the transaction. Itochu and Marubeni said they expect annual revenues of $18 million in two years.

"It is crucial for us to increase our presence in the growing b-to-b market," said Kazunori Fukuda of Marubeni. "We need to replace our old business model and provide our expertise on the Internet." Kota Nakako, a senior analyst at UBS Warburg in Tokyo, said many Japanese trading houses are restructuring and strengthening their corporate focus, because the Internet has given a variety of options to their customers. "The Internet has just started in Japan; transformation has been very painful for many of these trading houses," Nakako said. "They have been dependent on commissions from clients for years.

But as their clients have started to deal with their business counterparts directly, they had to become solution providers." Nakako said that the revenue structure for large trading houses will radically change in the coming years and that these traders will seek revenues on fees from new services like this one.

Nakako added that these trading firms face fierce competition in the global services market with Internet start-ups that attract talent with their performance-based salary and compensation schemes. "Their new business models will be challenged," Nakako said. Consolidation among Japan's big trading firms has accelerated in recent months. Sumitomo, Mitsui and Mitsubishi, other top trading firms, have agreed to join to provide online services for cargo businesses.

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