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Branding Laws · Internet Marketing · eMarketing · Internet Advertising · Online Branding |
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Branding Laws · Internet Marketing · eMarketing · Internet Advertising · Online Branding |
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An Asian Perspective on Airline Industry eMarkets
Mark Neill & Sharon Purchase
An Asian Perspective on Airline Industry eMarkets
Australasian Marketing Journal 12 (1), 2004 37
1. Introduction
Business-to-Business (B2B) eMarkets provide value by
connecting buyers and suppliers within a virtual
environment. The basic concept is similar to that of
traditional (off-line) markets which bring buyers and
sellers together in a central place such as a shopping
mall, village fete or garage sale to trade goods and
services, but with the use of Internet protocols within an
electronic environment (Lennstrand, Frey and Johansen,
2001; Eng 2004). In addition, eMarkets utilise the power
of the Internet by allowing companies to connect and
transact on a ‘global’ basis without having to change
their geographic location (Kandampully 2003).
In January 2000, GartnerGroup predicted that worldwide
electronic B2B trade would grow from $145 billion in
1999 to $7.29 trillion in 2004 (GartnerGroup, 2000a).
Many other analysts at that time presented similar
forecasts for rapid growth in B2B e-commerce. However,
a few months later, the B2B hype started to diminish.
The news articles changed focus from success stories to
reports on lay-offs and restructuring were expected to
survive. AMR Research predicted in April 2000 that only
50-100 of the 600 venture capital-backed eMarkets
would survive through year 2001. Only one or two huge
eMarkets per industry were supposed to survive in the
long run (Latham, 2000). During 2001/2002, the
problems met by eMarkets became more obvious.
Accenture (2001) reported that only 10 per cent of
surveyed eMarkets had converted registered customers to
actual, repeat traders. McKinsey (2002a) estimated that
over 70 percent of launched public eMarkets had either
ceased to exist or had modified their business model.
Although there was a dramatic decline in the number of
eMarkets, organisations have continued to remain
optimistic that B2B electronic commerce initiatives will
continue to grow. One of the reasons for continued
growth is the value that organisations obtain through
participating in eMarkets. Such optimism is confirmed
with the rapid rise of consortia and private eMarkets.
McKinsey (2002b) found that 15% of Fortune 2000
companies have set up private eMarkets, with this
number rising over the next few years.
This paper looks at the development of eMarkets in the
Asia Pacific Region, which is seen as an area for rapid
future growth (IDC, 2001a). B2B technology is also
viewed as a new competitive weapon for Asian firms,
helping them to overcome issues caused by their
geographic distance, time zone and language differences
from key economies such as US and Europe (Michael
and Sutherland, 2001).
An Asian Perspective on Airline Industry eMarkets
Mark Neill & Sharon Purchase
Abstract
eMarkets allow buyers and sellers to conduct their business relationships within an electronic environment, yet
companies are not participating in them as expected. This research investigates the buyer’s perception of key success
factors for eMarkets. The results indicated that both basic enablers and differentiators were perceived as a given. The
implication for marketing strategy is that new differentiators need to be developed to position eMarkets relative to their
competition. eMarket-makers also need to consider the impact of external environmental factors on the marketing
strategies they develop.
Keywords: eMarketing, Asia, eCommerce
Nonetheless, the uptake of B2B technology by Asian
organisations has been rather slow, especially in
comparison with companies from more developed
countries (Michael and Sutherland, 2001). The key
objective of this paper is to evaluate the Key Success
Factors (KSF’s), which should be focused upon by
eMarket-makers for the effective development of
services in the Asia Pacific region.
The paper uses results from field interviews with senior
management from airlines and aviation service providers
in Asia, to highlight major success factors for the
effective development of eMarkets in Asia.
2. The eMarket Concept
An eMarket can be defined as an inter-organisational
information system (Choudhury, Hartzel and Konsynski,
1998) through which multiple buyers and sellers interact
to accomplish one or more of the following marketmaking
activities:
1) Identification – of potential trading partners, i.e. to
buy from and/or sell to.
2) Selection – of a specific partner, based upon the
individual company’s trading criteria (price, delivery,
service levels, etc).
3) Execution – of a transaction, i.e. the completion of
an on-line trade.
4) Monitoring/Management – of post-sales processes,
such as delivery status tracking, goods receipt,
payment and warranty.
This basic Commerce platform acts as the foundation for
an eMarket to offer an additional range of value added
services (Sculley and Woods, 2001). B2B eMarkets
commonly share the following key features for on-line
commerce: centralized and neutral market space;
standardized contracts, documents and product/service
information; pre-qualification and regulation of users
(members); provision of pricing, price history and
market average information; transparency and
confidentiality; clearing and settlement; logistics
management; and integrated supply chain management.
The value added services include: payment, security,
logistics, sourcing, data mining, community, financing
and various personalization services. These services
allow eMarkets to differentiate themselves relative to
their competitors (Raisch, 2001; Eng 2004).
2.1 Business Models
As B2B eMarkets proliferated at an astounding rate, they
tried to position themselves to present a strong value
proposition and differentiate their services in the crowded
marketplace (McKinsey, 2002a). Consequently, a variety
of business models developed to cater to the varying
needs of participants. It is difficult to provide a concise
classification for the variety of eMarket business models
that have been developed, however for this research they
are classified into three basic types, as follows:
2.2 Public eMarkets (many-to-many):
These are independently owned and developed on-line
marketplaces generally funded by venture capitalists or
owned by a private, independent party. They are usually
positioned as providing a neutral platform for electronic
trading and provide a forum for listing products and
services (along with their related features and pricing)
within a transparent market. Public eMarkets help reduce
the costs of gathering information by quickly identifying
potential trading partners and market pricing. Examples
include partbase.com (airline industry) theoilsite.com
(energy industry) and marketboomer.com (hospitality).
2.3 Consortia eMarkets (few-to-many):
Consortia eMarkets are owned and jointly developed by
two or more large industry players, or sometimes a
grouping of major buyers or suppliers, or a hybrid of
both. Functionality focuses more on supply chain
processes, forecasting and inventory planning. Industrysponsored
marketplaces often address industry standards
and build community-related services. Examples include
aeroxchange (www.aeroschange.com: airline industry),
covisint (www.covisint.com: car industry) and quadrem
(www.quadrem.com: mining and construction industry).
2.4 Private eMarkets (one-to-many):
Privately owned eMarkets are used to manage and
optimize a company’s own supply chain process with key
trading partners. As with consortia, the functionality can
address any value chain process and is ultimately tailored
to the needs of the individual company. Private exchanges
often require business partners to adapt or integrate with
the owner’s technical platform and/or data management
standards in order to participate. Examples include Boeing
(myboeingfleet.com) and Cisco (cisco.com).
This paper focuses on Public and Consortia eMarkets, as
these are operated as commercial businesses in the open
market environment and are affected by market
dynamics and business strategy issues. Private eMarkets
are a growth area (McKinsey, 2002b), however they
operate as private and closed ventures and not
An Asian Perspective on Airline Industry eMarkets
38 Australasian Marketing Journal 12 (1), 2004
necessarily measured in terms of commercial success
such as profit. Participants in private eMarkets may be
made to participate by the operator of the marketplace.
Therefore, key success factors in private eMarkets would
be different to those in public and consortia eMarkets.
2.5 Benefits of eMarkets
eMarkets can potentially benefit individual participants
and industries through adding value by increasing market
efficiency, increasing supply chain efficiency and new
value creation (Brunn, Jensen and Skovgaard, 2002).
Figure 1 shows business benefits of participating in
eMarkets.
Buyer-side benefits: buyers can use eMarkets to reduce
their direct and indirect supply chain costs by leveraging
their global scale and focusing spend on preferred
suppliers whilst also utilizing advanced search facilities
to find and qualify new suppliers. Additionally, buyers
can take advantage of dynamic eMarket tools such as
auctions and bid-quotes for more efficient sourcing and
spot purchasing (Brunn, et al., 2002; Raisch, 2001).
Seller-side benefits: sellers can significantly lower their
sales channel costs and gain access to new customers on
a global basis without the need to set up an international
office infrastructure. B2B eMarkets can extend this
reach even further by creating close collaboration
between trading partners in a secure environment (Brunn
et al., 2002; Raisch, 2001).
3. B2B in Asia
The Asian region has seen strong Internet growth, from
a base of 64 million in 2000, Asia Pacific web users (ex
Japan) will exceed 240 million by 2005 (IDC, 2001b).
About half of the region’s Internet population will be in
today’s nascent online markets (China, India, Malaysia,
Thailand, Indonesia and the Philippines). The more
mature markets such as Hong Kong, Taiwan and
Singapore are already well developed. Therefore the
region’s Internet growth will largely be driven by the
future development of emerging markets (Michael and
Sutherland, 2002).
Intra-regional Internet differences are significant and
An Asian Perspective on Airline Industry eMarkets
Australasian Marketing Journal 12 (1), 2004 39
Buyer
Value
Lower
Purchase
Price
• Access global
suppliers
• Competition
• Volume aggregation
• Reduced tasks
• Less maverick
purchases
• Less paperwork
• Integration
• Accuracy
• Reliability
• Time savings
• Supply chain
management
• Lower stock
holdings
Buyers Realize Lower Costs
and Improved Efficiency...
...While Suppliers Exploit Revenue
Enhancement and Cost Savings Opportunities
Lower
Purchase
Price
Operational
Efficiencies
Inventory and
Supply
Efficiencies
Supplier
Value
Lower
Sales
Costs
• Sales force
• Sales support
• Sales materials
• PO processing
• Billing
• Customer
• Support
• New channels
• New markets
• New customers
• Cross selling
• WIP
• Surplus
• Improved
forecasting
Lower
Transaction
Costs
Improved
Market
Penetration
and Sales
Lower
Production
Costs
Figure 1: A ‘win-win’ solution for buyers and sellers
based on variations in government policy, online
payment systems and fulfillment infrastructure (Trappey
and Trappey, 2001). These obstacles need to be overcome
by governments, businesses and service providers in
their respective countries for the expected e-business
growth and the resulting economic benefits to be fully
realized. B2B eMarket usage in Asia is forecast to grow
from US$9.2 billion in 1999 to US$995.8 billion in 2004
(GartnerGroup, 2000b). This tremendous growth rate
highlights the future importance of B2B for Asian
corporations.
Asian companies are being driven by the promises of ebusiness
derived costs savings and efficiency
improvements, and also by the new market threats
provided by an e-business environment allowing for
more open trading and dynamic competition (Eid et al.,
2002). However, the business process changes required
are presenting a challenge to many Asian corporations
due to their rather old-fashioned organisational
structures and management styles (Michael and
Sutherland, 2002).
4. Key Success Factors
Literature on eMarkets identified the following seven
factors as critical to the development of e-Markets
(Raisch, 2001; Brunn et al., 2002; Standing and
Stockdale, 2001; Scully and Woods, 2001; Kandampully
2003): critical mass; liquidity; independence/neutrality;
security/credibility/trust; ease of use/reliability; value
added services and relationships.
4.1 Critical mass
Critical mass primarily relates to the number of
customers and/or the number of transactions required to
ensure it is effective in both operational and financial
terms (Standing and Stockdale, 2001; Raisch, 2001). An
eMarket requires a certain number of users and usage to
make it an effective forum for trading, i.e. too few sellers
will not be a viable proposition for buyers and vice versa.
Therefore, an eMarket needs to simultaneously attract a
large number of both buyers and sellers (Lennstrand,
Frey and Johansen, 2001). The eMarket requires
sufficient customer numbers to drive transaction
volumes for the business to cover costs and make a
profit. An additional advantage of achieving critical
mass is that this can provide very high barriers to entry
for other potential exchange competitors, since inertia
prevents members from shifting for one exchange to
another (Sculley and Woods, 2001).
4.2 Liquidity
Liquidity is defined as “the ability of a business to meet
its obligations as they come due; the more liquid a
business is, the better able it is to meet short-term
financial obligations” (The Lectric Law Library, 2002).
Liquidity is a vitally important issue for the majority of
eMarkets as they are in the start-up phase of their market
development (Sculley and Woods, 2001). Liquidity is
primarily a function of costs and income. Costs include
establishment and communication expenses to ensure the
eMarket is ‘heard’ above the competition (Sulley and
Woods, 2001). It has been estimated that a typical B2B
exchange will cost US$25-30 million in this set-up and
start-up phase (Sculley and Woods, 2001). Income for
eMarkets can be derived from: transaction related fees;
membership/licensing fees; sales of industry
information; value-add service fees; advertising and
marketing; and sales of accumulated marketing data
(Standing and Stockdale, 2001). As eMarkets are
primarily trading environments their income is usually
linked directly to the volume of usage of the
marketplace. Therefore, the critical mass of users and
their usage is of key importance to liquidity.
4.3 Independence/Neutrality
Independence /neutrality means that the eMarket-maker
operates a central, unbiased platform not allowing any
unfair opportunities or benefits to certain users or user
groups (Standing and Stockdale, 2001; Sculley and
Woods, 2001). A neutral eMarket is not owned or
managed by any major industry players and attracts
companies not comfortable in joining a consortia
eMarket operated by competitors. The eMarket is also
governed by a set of rules and regulations ensuring the
maintenance of fairness and equality, especially
regulations pertaining to confidential information such
as pricing and inventory levels (Raisch, 2001). The
requirement for neutrality has now become more blurred
with consortiums claiming to be neutral based upon
using independent management teams.
4.4 Security/Credibility/Trust
In this new e-business environment many organizations
face ‘dual uncertainty’ by having difficulty in deciding
who they can now trust and having confidence in the
electronic systems in which the transaction will take place
(Ranasignam, 2003). A lack of trust increases uncertainty
and reduces the confidence of participants in trading
within the eMarket (Pavlou, 2002; Ranasigam, 2003).
An Asian Perspective on Airline Industry eMarkets
40 Australasian Marketing Journal 12 (1), 2004
The area of trust is both a threat and an opportunity for
B2B marketplaces as it could negatively affect user
participation, but it can also provide a way for emarkets
to add further value to the process. B2B eMarkets need
to assure participants that proper mechanisms are in
place to ensure transactions are trustworthy, eventually
developing into global trust networks (Raisch, 2001). To
increase trust eMarkets can police and set up codes of
conduct and offer certain “vetting” services e.g., to help
organizations find out more about the financial standing
of potential trading partners (Raisch, 2001).
4.5 Ease of use and service reliability
eMarkets must be easy to use, reliable, and convenient in
order to attract and retain participants but also must be
robust and sophisticated to handle highly complex
functionality at the back-end (Standing and Stockdale,
2001). The eMarket model relies upon light client-side
technology i.e. the buyers and sellers must be able to do
business over the site through a standard browser.
However, the eMarket must be able to manage the
commerce process from negotiation and requisition right
through to order fulfillment and payment. This end-toend
support must take place over network application
architecture capable of supporting thousands of users in
a highly distributed, fully scaleable Internet environment
(Raisch, 2001).
4.6 Value added services
B2B eMarkets need to offer a certain level of “basic
functionality” and a certain level of service to be credible
with potential customers including search capabilities,
bidding/negotiating, and transactions. However, a
successful eMarket needs to add further value above and
beyond the basic needs of commerce (Raisch, 2001).
Value added functionality allows market-makers to
differentiate from their competition and develop new
revenue streams. Some key areas of value-add are:
domain expertise; life cycle support; logistics support;
electronic payment and escrow services; community
building; integration capabilities; and data mining
services (Raisch, 2001).
4.7 Relationships
Organisations operate through their business
relationships and networks in which they are embedded.
eMarkets are no different and need to develop
relationships between buyers, sellers, marketmakers and
An Asian Perspective on Airline Industry eMarkets
Australasian Marketing Journal 12 (1), 2004 41
Basic Enablers:
• Core e-Commerce functions
• Ease of use / reliability
• Trust / security
• Independence / neutrality
• Technical infrastructure
Basic Enablers:
• Core e-Commerce functions
• Ease of use / reliability
• Trust / security
• Independence / neutrality
• Technical infrastructure
A reciprocal relationship
- Buyers and sellers
affect each other
Differentiators:
• Business model / niche
• Value added services
• Domain expertise
• Community service
• Integration
Number of Suppliers:
• Drives usage / revenues
• Attracts buyers
• Credibility / references
Liquidity /
Critical Mass
Transactions/Usage
Figure 2: The virtuous Cycle of eMarket Key Success Factors
technology providers in order to be competitive
(Kandampully 2003). Examples such as Covisint
partnering with Commerce One and Oracle highlight
how eMarkets need strong technology partners if they
are to have a competitive advantage (Kandampully
2003).
5. Conceptual Model of the relationship between
eMarket Key Success Factors
Figure 2 provides a conceptual framework on how the
identified KSF’s operate. The model shows KSF’s in a
“virtuous cycle” relationship, whereby volumes of
buyers and sellers drive transactions and revenue and
attract each other accordingly. The cycle in turn allows
the eMarket to achieve critical mass and then focus on
delivering new value-added services to users attracting
more users and usage completing the cycle.
The functions of the eMarket are classified into two types:
1) Basic enablers: required core commerce functions
needed to perform basic trading and are viewed as the
“must haves”. It is also “a given” that eMarkets are easy
to use and reliable. They must also operate with fairness,
security and be trustworthy in their dealings such that all
information is deemed confidential by participants.
2) Differentiators: in addition to the basic enablers, an
evolving set of KSF’s act as “differentiators” providing
additional revenue streams and are the “nice to haves”.
Differentiators position the eMarket within the
competitive landscape and are the basis for buyer and
seller decision making.
6. Research Methodology
eMarkets are going through many changes as marketmakers
and participants determine how they can develop
the eMarket concept into a viable business function.
Research into eMarket development within the Asian
region is particularly limited creating a current lack of
understanding regarding Asian customer needs,
experiences and perceptions of eMarkets. Therefore, this
research is taking initial steps towards developing an
understanding of customer perceptions within the Asian
Region. The following research question was developed
to help guide the research:
How do Asian users (or potential users) perceive Key
Success Factors for eMarkets?
As many emarkets are industry focused it was decided to
focus on a particular industry: the airline industry. This
industry was chosen for a variety of reasons. Firstly, it is
An Asian Perspective on Airline Industry eMarkets
42 Australasian Marketing Journal 12 (1), 2004
Table 1: Aircraft Industry eMarkets
Name of eMarket Type Status
Aerospace Hardware Exchange Independent Closed
Aerospan.com Independent Closed
Aerochina.com Independent Closed
AeroV Independent Closed
Aeroxchange www.aeroxchange.com Airline Consortia Operating
Airnewco Hybrid Consortia Closed
AviationX.com Independent Closed
Avolo Independent Closed
Cordiem Consortia Closed
Exostar www.exostar.com Supplier Consortia Operating
ILS www.ilsmart.com Independent Operating
iShopAero Supplier-led Bought out by
Singapore Technology Aerospace
Myaircraft.com Independent Closed
Partsbase www.PartsBase.com Independent Operating
Skyfish Independent Closed
Tradeair www.tradeair.com Independent Operating (10 staff)
a competitive industry where procurement plays an
important strategic role. The airline industry purchases
goods and services for a broad range of areas, including
engineering parts and services, fuel, uniforms and
accessories, food and beverages and computer and
entertainment equipment. This paper concentrates on the
aircraft parts supply chain, which is highly fragmented and
has significant annual sales value in excess of US$5 billion
worldwide (Choudhury, Hartzel and Konsynski, 1998).
Secondly, the airline industry was also chosen because
they have been using electronic communications and
EDI standards to support the procurement of goods and
services for over 40 years. A collaboration of major
industry groups developed the airline industry’s own EDI
protocol called SPEC2000, which is used predominantly
for procurement transactions between airlines and major
suppliers. Today, the overwhelming majority of spares
parts orders are placed using SPEC2000 e-commerce
standards, with most major airlines and suppliers
handling 60 to 90 percent of their orders electronically.
SPEC2000 standards are broadly accepted and deeply
embedded in the industry’s e-procurement systems
(SPEC2000, 2001).
In addition to EDI, the industry has also been using
electronics markets for many years with Inventory
Locator Service (ILS) started in 1979 to allow sellers to
list their parts inventory and repair shops to list their
capabilities. Another airline industry eMarket called
Partsbase was formed in 1996, and from 1998 onwards a
large number of emarkets emerged to service this space
and are summarized in Table 1.
The airline industry is different from other industries in
that there are still government regulations controlling
many aspects of their operations. Such regulations,
especially in the area of safety and quality, ensure that
procurement of aircraft parts is a task which is critical to
the success of the organisation and documented to follow
government guidelines.
Overall, this industry has experienced a number of
different electronic business models for procurement. As
the industry is experienced in evaluating many different
electronic business models it would understand which
success factors would suit their current business
requirements. This industry is also extremely
competitive with procurement practices an important
aspect of overall business performance. Therefore, this
industry offers aspects which make it an interesting case
on which to conduct the research.
Respondents operate within complex, technical
environments suiting a qualitative research approach in
gaining rich and in-depth data on user’ needs,
experiences and perceptions. A qualitative approach was
suited for this research as data collection was focused on
how decisions on e-marketplaces where made and what
were the critical factors used in the decision making
process. Telephone interviews where conducted with key
informants (users and/or potential users of eMarkets)
across various Asian markets. Normally there are only 1
or 2 airlines per country; therefore the population of
potential respondents was limited. Telephone interviews
were chosen for 2 main reasons:
They provide a one-to-one and real-time discussion
environment, allowing for flexible and detailed data
gathering on areas of specific interest.
They allow broad geographical coverage in a cost
effective manner.
Given the small population size of the airline industry it
was particularly important that key informants were able
to provide meaningful data. Key informants where
chosen based on the following criteria:
Experience: They needed to have used or evaluated
different industry eMarkets. Therefore, respondents
would have an understanding of the services offered
in e-marketplaces.
Organisational position: All respondents needed to be
involved in the decision making process of accepting
or rejecting the use of eMarkets. The criteria ensures
that the respondent would understand why eMarkets
were rejected or accepted and understand the
strategic and decision-making issues relating to
eMarkets, as opposed to more operational issues such
as web-site design, navigation and ease of use. Also
respondents would know which factors offered would
improve their current procurement practices.
Therefore, senior managers in charge of airline
purchasing were targeted as respondents.
Organisational type: The airline industry is made up
of organisations that range in size and focus. By
gathering data from a number of international and
regional airlines and service providers in the Asian
region it ensured that the results reflected the wider
scope of the airline industry and not just the large
international airlines.
Geographic location: Asia consists of a diverse range
of countries for conducting the research. To ensure
An Asian Perspective on Airline Industry eMarkets
Australasian Marketing Journal 12 (1), 2004 43
that this diversity was captured during the data
collection a range of countries was chosen. Countries
ranged in size, economic development, Internet
infrastructure, politics and culture.
Table 2 provides profile information for each of the key
informants. This table highlights that data was collected
from a range of countries and with respondents that were
managers within their purchasing departments.
A structured protocol was developed to provide
consistency during the interviews. Open questions where
used to facilitate the free flow of ideas, views and
experiences from respondents. Gathering their views and
experiences of working within eMarkets is vital in
understanding what advantages these eMarkets offer
over current practices.
One researcher conducted all interviews based on the
interview protocol. To help overcome some language
comprehension issues, due to English not being the first
language of all respondents, the protocol and
background information was provided prior to the
telephone interview. Reading the information helped the
respondent to prepare their thoughts on the topic area.
Each interview lasted for approximately 1.5 hours and
was taped. All interviews where then transcribed. To
improve the internal consistency of the data analysis, two
researchers were involved in developing the initial codes.
Themes were originally based on the conceptual
development outlined in Figure 2, but others emerged
during the data analysis. Once agreement was reached on
the codes, one researcher was involved in coding the
interview data.
7. Research Findings – overall trends
7.1 Overall Trends
Seven themes were developed during the data analysis
stage. These themes, although related to the KSF’s, did
not always align exactly to the factors previously given.
Usage and buy-in: Results showed a high degree of
interest in eMarkets and a high level of trial in the Asian
aviation industry with all interviewees using or had used
an eMarket. Several companies had also invested as cofounders
of consortium eMarkets. One of the main
drivers for joining an eMarket or consortium was a high
level of confidence and optimism that this was the
direction in which the industry was moving. One
consortium investor indicated that “We thought they had
the ability to create standards and shape the future. The
best way for us to be a player was to be an investor, a
thought leader and be able to influence change” (Hong
Kong A). Much of this early buy-in can be related to the
fact that aviation companies had been using EDI for
several decades and are well versed on the benefits of
electronic trading.
2. Perception of services delivered: However, from this
initial positive reception, the overall market perception on
eMarkets is now mixed. Whilst some interviewees still
maintain confidence, others have been disappointed with
the actual services and value delivered. Few interviewees
An Asian Perspective on Airline Industry eMarkets
44 Australasian Marketing Journal 12 (1), 2004
Table 2: Key Informant Profile
Interview Company Profile Company HQ Location Position
A Large International airline Hong Kong A GM, Strategic Purchasing
B Large International airline Japan A Director, Purchasing
C Large International airline Australia GM, Purchasing
D Regional airline Japan B Manager, Purchasing
E MRO service provider Singapore A VP, Purchasing
F Medium International airline Taiwan Senior Manager, E-business
Projects
G Medium International airline China Manager, Purchasing
H MRO service provider Hong Kong B GM, Purchasing
I eMarket (Asia Pacific) Singapore B Managing Director
J eMarket (now closed) US (with Asia operations) ex-President
completed substantial real transactions within eMarkets
and were disappointed with the functionality delivered.
One interviewee indicated that “eMarkets are still having
their functions based upon very traditional models but
this really does not fit for our organisation and our way
of doing business” (Hong Kong B).
3. Inventory and data credibility
Whilst Asian airlines (i.e. buyers) showed a good degree
of buy-in to the eMarket concept, it appears that the
majority of suppliers did not entirely share this
enthusiasm. Many eMarket-makers had a significant
challenge developing adequate volumes of trading
inventory thus, having a negative impact upon the value
proposition for buyers. Coupled with this was a major
issue with the credibility of data provided by suppliers
who did join. One interviewee indicated “All sorts of data
is dumped without verification or auditing and there is all
sorts of duplication of inventory … there is a lot of
spurious data out there” (Hong Kong B). Credibility of
data pertaining to the quality standards of airline parts is
extremely important to airline maintenance.
There also appears to be a problem with “ghost inventory”
which occurs when listed inventory is not actually held by
the listing supplier and the eMarket is being used as a
purely speculative sales device for brokers and
middlemen. “They have serious problems with “phantom
inventory” or lack of documentation or the supplier is
purely acting as a broker. It’s an industry problem” (US).
4. Comparison to the existing EDI systems
The existing EDI (SPEC2000) platform has set high
standards for users within the industry. SPEC2000 is a
long standing and proven standard that has many
supporters. SPEC 2000 also sets some significant
barriers to entry for emarkets, due to the costs and
complexity of integration with legacy systems. One
quote highlighted they “do not believe SPEC 2000 will
be replaced anytime soon … there are just too many
funny old legacy systems out there” (Hong Kong A) Or
“Even if SPEC 2000 is a high cost due to SITA, it can
exist for a while because it is an exclusive
communication protocol, therefore its security is much
higher than using the public internet” (Japan A).
An Asian Perspective on Airline Industry eMarkets
Australasian Marketing Journal 12 (1), 2004 45
Greater than 40% 1% Average
2002 = 7.5%
2001 = 12.2%
2000 = 12.8%
30-40% 1%
20%-30% 3%
10%-20% 11%
5%-10% 19%
less than 5% 43%
Don’t know/no answer 22%
Source: The Airline Trends Survey 2002 (conducted by SITA and Airline Business Magazine)
Figure 3: Airline cost savings expected to be made through B2B e-Commerce by 2004
Credibility: The initial market hype and the proliferation
of eMarket sites caused a degree of confusion within the
Asian aviation industry. Many airlines adopted a ‘wait
and see’ approach, where they joined eMarkets on a trial
basis but never actually committed to long-term
participation. With the bursting of the Internet bubble,
the majority of aviation emarkets went out of business.
There is still is no clear emergence of leaders or
standards causing a general loss of confidence and some
pockets of cynicism. “People said, if you are not part of
it you are going to miss out on influencing the direction,
I said well what is the direction coz their not doing
anything” (Australia).
Reduced expectations: There now appears to be a
reduction in expectations regarding what value eMarkets
can provide and the timeframes for delivery of such
value. “It’s just been much slower and harder work than
we had hoped” (Hong Kong A). The leveling off in
expectations is supported by research which estimates
potential savings from e-commerce have slipped from
early promises of savings of 20% or more to an average
closer to 12% and in the latest survey this has come
down to 7%. Figure 3 illustrates the research results.
Regional diversity: Results also showed a marked
regional diversity with regards to levels of buy-in and
usage. The usage and investment in eMarkets was higher
for more economically developed countries, such as
Hong Kong, Japan and Singapore. These countries have
more developed IT and Internet infrastructures
supporting eMarket usage compared to emerging
markets, such as China and Indonesia, showing a lower
level of usage and commitment. It should also be noted
that less developed countries had lower exposure to
SPEC2000 and therefore could have lower EDI-related
‘barriers to entry’ (China) for eMarkets.
7.2 Research Findings related to KSF’s
Overall, there was little perceived differentiation
between the KSF’s as it appeared that all features and
functions of an eMarket where seen as having
importance for an eMarket to be effective and successful.
Both the “basic enablers” and many of the
“differentiators” where seen as “a given”. Of the
differentiators discussed, most emphasis was placed on
integration capabilities in particular the ability to provide
a clear path between the existing EDI platform and the
new eMarket platform. It also covered the issue of
integration into the customer’s internal or back-end
systems. Regarding integration of eMarkets to back-end
systems, one interviewee indicated “I think this is the key
to the success of this whole thing” (Hong Kong B).
Whilst identified KSFs were relevant, results indicated
that they where neither the prime reasons for usage nor
the prime issues perceived by interviewees. It appears
that the identified KSF’s focused mainly on the
“internal” aspects of an eMarket, whereas many
“external” aspects also needed to be considered.
Results showed many environmental factors had a strong
bearing on the success of eMarkets. These factors appear
to present significant barriers to entry and are
summarised as follows:
Industry power and politics: A degree of political power
struggle was evident within the industry supply chain,
between major buyers and sellers. eMarkets provided
both a threat and an opportunity to various parties
leading to significant “political maneuvering” by certain
key industry players, which hindered the effective
development of eMarkets. eMarkets pose a threat to the
balance of power in the marketplace that was previously
held by large OEM suppliers. Therefore, many suppliers
set up their own private eMarkets and consortium sites,
competing with public eMarkets. “The larger vendors
expect you to sign up or use their sites. We talked to
XXXX (major supplier) about linking to our procurement
site. They weren’t interested at all and told us to use their
site or nothing at all” (Singapore A).
Existing EDI platform (i.e. SPEC 2000): The airline
industry has been using it’s own proprietary EDI
protocols (SPEC2000) for several decades and this
platform is well entrenched, both in terms of usage
norms and also in terms of IT systems integration. The
existence of this strong incumbent EDI platform has a
great impact upon the willingness and the ability of users
to adopt the new eMarket alternatives. SPEC 2000 has
been in place for over 40 years and some airlines use it
for over 90% of their purchases. “I think ATA is working
on and a web front end for SPEC 2000, but this is a big
issue. The industry’s order volumes are much too high to
take data out of one system and key into another one”
(Hong Kong B)
Industry and technology standards: In addition to the
SPEC2000, the airline industry is governed by strict
quality standards that incorporate documentation
required for parts purchasing. Airlines themselves also
have their own internal (or country specific) quality
standards regarding suppliers and parts. All of these
standards provide a challenge for the easy transition to
eMarkets, as any changes to processes still need to
An Asian Perspective on Airline Industry eMarkets
46 Australasian Marketing Journal 12 (1), 2004
comply with existing quality standards requirements.
There also appears to be a high level of confusion
regarding the standards that are being developed for
eMarkets and how these can be integrated with the
existing SPEC2000 standards.
IT and Internet infrastructure in the country and
company: The ability of users to access the Internet and
the reliability of this access has a significant impact on
the potential for eMarkets. Variations in IT and Internet
infrastructure have great impact upon the eMarket
uptake across Asian countries. Some markets (eg China)
are still excited about the benefits of using PCs and
simple email functionality on the Net. “Infrastructure is
key in developing countries. If you go to countries like
Indonesia, the rate at which data is being transferred is
so slow that they don’t even bother with online services
and anyway most buyers down there don’t have a PC on
their desk” (Singapore B).
Economic conditions and issues (e.g. 9/11): The aviation
industry in Asia (and indeed globally) has been suffering
from significant economic problems and cost pressures
in recent years that have greatly impacted the industry’s
confidence to invest in new technology. In addition, the
recent downturn in Internet business optimism has
greatly affected this confidence level on B2B. “At this
point in time the market is bad, ever since the dotcom
bubble burst – everybody is careful of spending a single
dollar on IT. They are very cautious” (Japan A) or “we
are an associate member of XXXX (Consortium name)
but we have not engaged in any activity as yet and the
priority of these activities has been shifted due to the
effects of 9/11” (Taiwan).
7.3 Overall model development
Given the importance of environmental factors on
eMarket success, a revised KSF relationship model is
required to provide a more “holistic view”. The initial
model focused primarily on the “internal” functions and
features of the eMarket and took some account of users
and usage. However, the research highlights the need to
incorporate the “external” environmental factors in more
detail. A revised model is illustrated in Figure 4
categorising the KSF’s into four distinct bands.
An Asian Perspective on Airline Industry eMarkets
Australasian Marketing Journal 12 (1), 2004 47
Industry Power
and Politics
Usage
Volume
(Critical
Mass)
IT and Internet
Infrastructure
Technology and
Standards
Confidence/hype
Core
Functions
Value added
services
Market readiness
Environmental
influences
Competition
Economic
Climate
User Uptake
(number of
buyers and
sellers)
Figure 4: Revised KSF Model – an holistic view
Core functions: these are the basic e-commerce
capabilities described as the “basic enablers” in the
initial conceptual model. These include the ability to
search, select, transact and manage. In addition they
cover the need for an eMarket to provide a secure,
reliable and easy to use platform for electronic trading.
Value added services: these are the additional features
and functionality that help an eMarket position itself
relative to the competition, deliver additional value
above and beyond the core capabilities and also drive
additional revenue streams. These include the
development of community services and select
consortium groupings, as well as the ability to provide
innovative functionality such as supply chain
management and inventory management.
Market readiness: relates to the prevailing conditions in
the industry or sector being targeted by the eMarket.
Confidence levels, as well as the level of hype or buzz,
regarding the introduction of new technology need to be
considered. Market readiness also relates specifically to
user uptake and usage of eMarkets.
Environmental influences: are the external forces in the
environment that influence the market and the level of
market readiness. These environmental factors have been
studied in great depth in classic marketing literature and
include politics, technology, economics and
infrastructure.
Overall, the marketing strategy used by the eMarketmaker
should consider each of these aspects when
developing their offering. This research has shown that
external environmental factors play a large role in the
viability of new ventures.
8. Implications for business
Although the above model was developed based on the
case of the airline industry there are many characteristics
that this industry has in common with other industries.
For example, the use of an existing well-utilised EDI
platform and the requirement for quality control of direct
inputs is also prevalent in other industries such as:
automotive; pharmaceutical; finance; distribution/
wharehousing; government services and many more.
EDI is used by 80% of the Fortune 500 firms with it
commonly being used for procurement by many
businesses. Internet infrastructural differences between
different countries will affect all industry electronic
procurement practices, not just the airline industry.
Although economic conditions such as 9/11 and SARS
affected the airline industry greater than other industries
other environmental issues will conceivebly affect other
industries. Therefore, the results might be generalised to
other industries where similar characteristics are
prevalent.
The key implications for business are as follows:
B2B eMarkets need to develop business strategies that
incorporate the whole environment.
The bulk of current literature on B2B eMarkets focuses
mainly on features, technology and functionality, which
are essentially under the control of the eMarket provider.
However, the research highlights that many external
factors in the environment have a significant impact
upon eMarket success. Therefore it is critical that B2B
eMarkets develop business strategies that reflect the
trends, opportunities and threats in the external
environment – such as social, cultural, political and
economic factors.
In this particular case, it is clear that technology and
economic issues play a very important role in the
environment. But such situations will arise in many
different industries and therefore, eMarkets must adopt
strategies that adequately account for these conditions. A
complete environmental analysis is therefore vital prior
to the development of strategy. Environmental factors
can also be incorporated into the “performance
dashboard” of the business (Rayport and Jaworski, 2001)
so that managers are continually updated on
opportunities and challenges as they evolve.
In particular, the regional diversity in IT and Internet
infrastructure presents a challenge to eMarkets
developing business in the Asia region. However, it
should be noted that the region’s main areas of Internet
growth are forecast to be the less developed markets. The
research also highlights that these markets have much
lower EDI related barriers to entry and may therefore
present the biggest opportunity for future eMarket
development.
eMarkets need to position effectively in relation to
existing EDI platforms.
A strong existing EDI platform can have a ‘double-edged
sword’ effect on the development of eMarkets within an
industry. It is very clear from the research that many
users are confused regarding the pros and cons of
adopting the new technology, especially if many industry
players believe the existing EDI platform works very
well. It seems that eMarkets targeting the Asian aviation
An Asian Perspective on Airline Industry eMarkets
48 Australasian Marketing Journal 12 (1), 2004
sector did not adequately recognize the significance of
SPEC2000 and may have assumed that the new eMarkets
would simply replace the existing platform. The last 3
years have shown this not to be the case and eMarkets are
now adapting their product to co-exist with SPEC2000.
It is critical for eMarkets to effectively position
themselves in the industry with regards to the existing
EDI platform and to communicate clearly, to all industry
stakeholders, the benefits, costs and related issues. The
positioning of eMarkets against the well-established EDI
platform will be a challenge for eMarket-makers as EDI
has many supporters. It may therefore be advantageous
for eMarkets to position themselves as a
“complementary” technology to EDI or offer services
such as integrating third parties that existing EDI may
not offer. The emphasis can then be placed on assuring
the industry that the migration to eMarket usage will not
disrupt existing processes and will provide clear
additional benefits for all parties involved. eMarkets
need to integrate with the existing EDI platforms to
ensure that they do not compete directly. Kandampully
(2003) highlighted integration between EDI and
eMarkets in the case of Covisint.
eMarkets need to work on changing perceptions within
the industry and reducing levels of confusion and
cynicism amongst potential users.
In addition to the general industry confusion regarding
eMarkets, there appears to be a relatively high level of
cynicism amongst users. This is perhaps understandable
given the roller-coaster ride that Internet fortunes have
taken in the last 5 years. It is now important that the
remaining eMarkets focus efforts on re-building overall
confidence levels within the industry to improve the
industry’s levels of “market readiness” as described in
the Revised KSF Model (Figure 4).
9. Future Research
These findings can be further examined and tested
through research of other, similar industries in the Asia
region, such as the automotive industry which also has a
well-established EDI platform. Additionally, the research
base could be extended to cover companies in other
continents, to measure the impact of identified
environmental factors on the development of eMarkets in
the aviation industry.
The conceptual models developed in this paper appear to
have merit, based upon the research findings. However,
further work is needed to develop more conclusive
models on the relationships between the internal and
external KSF’s for eMarkets, which have been identified.
In particular it would be interesting to explore the
impacts of changes in “environmental factors” on the
“market readiness” factors identified for eMarkets. This
research would be helpful to support management
decision-making and strategy development in this field.
10. Conclusion
Purchasing managers are still uncertain about the use of
eMarkets in their overall procurement strategies. This
research indicated that eMarkets do have a long term
role, but they need to be robust enough to weather
external environmental factors as well as differentiate
themselves from competitors. Previously discussed
differentiators are perceived by users as standard, forcing
e-marketmakers to provide customer service that
differentiates itself from current EDI system. One quote
which summed up the attitude of the managers was “in
simple terms I was being asked to change placing orders
from a high speed secure network to using a low speed
insecure network – and not much else changed” (Japan
A). Marketmakers need to consider their marketing
strategies relative to both their external and internal
environments.
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Biographies
Mark Neill recently completed a Masters of Marketing
at the University of Western Australia Business School.
He has extensive industry experience within the sales
and marketing areas of the aviation industry. He has
worked in the UK and the Asia Pacific Region, managing
sales and marketing functions for regional subsidiaries.
Sharon Purchase is a lecturer at the University of
Western Australia Business School. Her research focus is
on business marketing within the areas of e-business and
business relationships. Her research has been published in
Australasian Marketing Journal, International Marketing
Review, Industrial Marketing Management and the
Journal of Business to Business Marketing, and others.
Correspondence Addresses
Mark Neill, University of Western Australia, 35 Stirling
Highway , Crawley, Perth, Email: mark.neill@bigpond.com;
Sharon Purchase*, University of Western Australia, 35 Stirling
Highway, Crawley, Perth, E-mail: spurchas@ecel.uwa.edu.au
*contact author
An Asian Perspective on Airline Industry eMarkets
50 Australasian Marketing Journal 12 (1), 2004