HOW TO INCORPORATE

Pioneering the Web's Last Frontier

A plan to get rural businesses online.
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Brandon Spear knew he had his work cut out for him the first time he visited Rustenburg, a mining town in northern South Africa that has about 100,000 residents and is surrounded by free-roaming lions and elephants. Spear, senior vice president of operations for Quadrem, a Plano, Texas-based online marketplace for buyers and suppliers of products and services used in the mining industry, was in Rustenburg in late 2003 to convince local businesses to subscribe to Quadrem's service, which would allow them to bid online for purchase requests from buyers around the world. Building a large network of suppliers from which buyers can pick and choose is key to the success of online marketplaces. For Quadrem, the problem was that many companies in the mining industry have extensive operations in undeveloped areas. Suppliers in those areas tend to be small rural companies that make specialty items such as mining helmets and socks--and don't have access to the Web. "A lot of these guys had never used the Internet," Spear says.

Spear expected rural suppliers to be behind the times in terms of technology. But he didn't realize that in many cases, phones and fax machines were their only means of communication. Quadrem, founded in 2000 by a consortium of mining businesses seeking to create a streamlined worldwide procurement network, had charged Spear in 2003 with the task of signing up 5,000 new suppliers in South Africa by June 2007. For him to accomplish that, Quadrem would have to devise a whole new approach to building a worldwide network. "We must have the ability to deploy our services regardless of the barriers that exist," says Charles Jackson, Quadrem's CEO.

When Quadrem launched, online procurement websites were touted as the next big Internet development--one that would connect businesses of all sizes from around the world in virtual marketplaces for buyers and vendors. The model had proved a success, at least when it came to connecting businesses that were already equipped with computers and Internet access. But technologically challenged companies in poor rural areas and developing nations remained out of reach. Quadrem had to devise a way to bring those businesses online and into the fold.

After the dispiriting trip to Rustenburg, Spear, a native of Johannesburg, contacted South Africa's newly formed Small Enterprise Development Agency, which is akin to the U.S. Small Business Administration, and suggested that they work together. The agency agreed to partner with Quadrem to set up mobile information centers in repurposed shipping containers in South Africa's remote regions. The agency smoothed the way with local governments and provided the containers and Web access. Quadrem supplied free software, training, and technical assistance for clients. Today there are 26 so-called business development centers in rural South Africa. Using contact information provided by the development agency, Spear and his team also invited rural business owners to information sessions and offered them six-month trial subscriptions to Quadrem.

One happy customer is Nugville Investments, an 18-person Rustenburg company that sells heavy-duty socks designed to be worn with mining boots. Before Nugville signed on with Quadrem, the 25-year-old business received its purchase orders by telephone and fax. It made all the socks on-site and had one computer, which it used to keep accounting records but hadn't connected to the Internet. One of Nugville's biggest customers, Anglo Platinum, a Johannesburg mining company that has hundreds of suppliers in South Africa, had joined the Quadrem network earlier that year, so it made sense to follow suit. Nugville's manager, Mohamed Suliman, signed up for Internet access and a subscription to Quadrem.

Now, for a monthly fee of about $45, Suliman receives an e-mail notification each time an order comes in from a buyer in Quadrem's marketplace. He can bid for projects, track bid requests, and check the status of payments on Quadrem's site. Buyers can compare prices of vendors around the world and place orders in a variety of languages and currencies. The result, Suliman says, is a more efficient operation. "It minimizes all the paperwork," he says. "It makes life easier."

Spear is on track to sign up 5,000 South African suppliers by next year. Quadrem recently rolled out a similar program in the Andes Mountains in Peru, and the company's worldwide network now comprises 600 buyers and 27,000 suppliers in Africa, Australia, Asia, North America, South America, Europe, and the Middle East. Jackson expects between $12 billion and $14 billion in transactions to flow through the marketplace this year and is now branching into new industries, including consumer packaged goods, gas, and oil. "The potential customers are there," he says. "The challenge is keeping up with the support structures so that we do it right."

Resources

To check out more online marketplaces, visit the Source Guides website, which allows users to search for dozens of business-to-business exchanges according to industry, region, and service.
Last updated: Aug 1, 2006




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