Chemical Suppliers Form Online Marketplace

Twelve major chemical companies announced Wednesday that they will form an international business-to-business (B2B) e-commerce marketplace.

The new online allies -- former rivals in the $1.6 trillion (US$) chemical business -- include four United States companies: Rohm and Haas Co.; Dow Chemicals Co.; DuPont Co.; and Van Waters & Rogers. Other participants include France's Atofina; Germany's BASF; Germany's Bayer; the United Kingdom's BP Amoco; Japan's Mitsui Chemicals; Japan's Mitsubishi Chemicals; France's Rhodia; and Japan's Sumitomo Chemical Co.

Streamlined Operations

The new B2B exchange will offer participation to other chemical firms worldwide. The main thrust of the new concern will be streamlining supply chain operations and combining services for buying and selling basic, intermediate, specialty and fine chemicals. The companies say their target market is about $400 billion.

Following the lead of a number of other recently formed online B2B marketplaces, the new company will be independent of its owners, with a separate management team and board of directors.

Initial capitalization is reported to be in excess of $150 million, with Morgan Stanley Dean Witter serving as financial advisor.

Chemical Industry Presence

The new B2B marketplace is not the first of its kind, although it has the potential to be the biggest. San Francisco-based ChemConnect, an online exchange that has operated since last July, already has more than 4,000 companies buying and selling products online, with the average transaction size reported to be about $300,000.

Its closest rival, CheMatch, boasts an even higher average transaction of $500,000, according to the company's SEC filing.

Critics Express Skepticism

While the concept of bringing the bulk of buying and selling activity in the chemical industry online appears sound, some critics say it will not necessarily work in the long term.

Many smaller suppliers are reluctant to participate in B2B exchanges, over concern that the major players will use their combined industrial muscle to drop prices, forcing them to reduce already-tight profit margins. Some analysts are predicting widespread closures as larger firms take a bigger chunk of business through online buying and selling.

According to one Forrester Research report, however, the smaller suppliers should consider the potential benefits of participation in B2B e-commerce, including a drop in the cost of transactions and increased global reach without additional marketing expense.

Another possible snag for the B2B exchanges is that some online marketplaces have already run into roadblocks due to the inability of some software programs to communicate from one country to another.

Nevertheless, according to AMR Research, 68 percent of chemicals will be sold through online trading exchanges in transactions worth about $76 billion by 2004.