COST ACCOUNTING

At the end of 2004, TradeBeam Holdings, Inc., a leading provider of global trade management (GTM) solutions that streamline global trading processes for enterprises and their partners, announced that it has acquired the assets of Open Harbor, a leading provider of international trade logistics (ITL) solutions. TradeBeam solutions include import and export compliance and global trade finance solutions like open account and letter of credit (LC) management, but also inventory management, shipment tracking, and supply chain electronic management (SCEM). The vendor has over 3,000 customers with users in over 100 countries worldwide. Terms of the deal were not disclosed.

Founded in 1999, Open Harbor possessed deep expertise in trade compliance, including a comprehensive centralized repository of global trade content (harmonization engine) containing millions of trade rules from more than sixty countries, in a one-to-one relationship manner. The company was considered a leading player in the landed cost management arena. Customers leveraged its technology and experience to gain crucial accurate pricing for international orders based on an aggregate of product cost, shipping costs, and fees charged by exporting and importing countries. However, the failure of Open Harbor, however, was not caused by lack of market demand and opportunities, but unfortunately by poor management.

Almost any business process, particularly GTM practices need to have access to trade experts that can interpret and apply trade regulations to improve operational and financial performance and Open Harbor was no exception. TradeBeam, on the other had focused more on the application side of trade management, such as creating shipment tracking, insurance, event management, and other applications central to the actual movement of goods.

Nowadays even small shippers can leverage import/export software through third parties. Specialized software and managed service providers working behind the scenes make it possible for carriers and freight forwarders to offer selected services to their customers, such as landed-cost calculators, product classification, and document preparation, often on a fee-per-transaction basis. For example, international shipping and freight companies DHL and FedEx partnered with Open Harbor and NextLinx respectively. NextLinx, database carries nearly 20,000 HTS product classifications and more than 40 landed cost components for 100 countries, accounting for about 95 percent of the entire world's trade.

TradeBeam believes that Open Harbor brings a logical extension to its current offering, because customers will now have enhanced access to the latest global trade content of more than sixty countries, as well as landed cost management functions. The move continues the strategic expansion of TradeBeam's product footprint, which covers the entire life cycle of global trade across order, logistics, and financial settlement activities—all to improve operating efficiencies and working capital. This should also provide a complimentary vertical focus, since Open Harbor had developed solutions and attracted clients in the hi-tech and automotive markets.

As seen by this move by TradeBeam, the GTM space is consolidating and point solution providers are disappearing. The leaders seem understand that to truly improve global trade, one must be able to manage both the physical and financial supply chain. Across the entire trade transaction export/import compliance, document management, SCEM, security and contract issues must be managed along side purchase order processing, LC management, pre- and post-shipment financing, reconciliation, invoice presentment, foreign exchange, and insurance management.

Product integration between TradeBeam and Open Harbor should be complete by the second half of 2005, with TradeBeam pledging to maintain uninterrupted service and support to a key group of Open Harbor clients during immediate transition phase and post contract execution. TradeBeam has also been communicating with Open Harbor's customers to understand their specific circumstances, the scope of their projects, and to jointly agree on terms to work together to ensure business goals are aligned for both companies.

This is Part One of a five-part note.

Part Two will present TradeBeam's background.

Part Three will discuss tackling the supply chain.

Part Four will detail TradeBeam's GTM solution blueprints.

Part Five will cover competition, challenges, and make user recommendations.

GTM Market Opportunity

According to the World Trade Organization (WTO), global trade has grown at a compound annual growth rate (CAGR) of 9.3 percent since 1980. Furthermore because global trade volume is in excess of $8 trillion (USD) per year, it is clear that the management of this process is becoming an integral part of business. The expansion of free trade agreements, outsourcing, and increased government security requirements make implementing a GTM solution a strategic priority.

Most supply chain management (SCM), let alone enterprise resource planning (ERP) vendors typically lack strong international trade logistics (ITL) and global trade management (GTM) capabilities. Simply put, while technology may be rendering a world that appears a lot smaller, in reality, the world has become a lot more complicated in the process. Most businesses are ill-prepared for the many barriers that inevitably still exist to conducting international business over the Internet.

The Internet has enabled a networked world enabling a communication infrastructure and emerging enterprise applications, which have opened the door for international trade in earnest. But not many applications really offer multi-enterprise services and software to automate the complex multimodal transportation and Internet-based logistics management needs of a global trading network. In other words, most modern Web-based, buy- and sell-side applications fall well short of providing automated global trade management and a traditional international trade logistics.

As described in more detail in International Trade or ITL Adoption, ITL and GTM, which are execution systems designed to automate the import/export business process. Their basic functional components are trade documentation generation and transmission, and regulatory compliance validation, and include a complex exchange of information between multiple entities. Among these entries are suppliers, carriers, freight forwarders, customs brokers, banking institutions, and other third party transportation and storage providers. A true ITL/GTM system is, in effect, an inter-enterprise resource management system, and requires a data model that takes into account the breadth and depth of information exchanged between this multiplicity of interrelated entities. Thus, ITL/GTM systems should support export and import borders-crossing processes, documentation, and compliance (which are incomprehensible to ordinary mortals), accounting, and financial reporting in a multicurrency, multilingual, and multi-units of measure (UOM) environment.

When we talk about the risks of globalization, many are usually referring to the threat of domestic jobs moving overseas. Global trade compliance is rarely discussed, even though it poses a risk that might affect almost every manufacturer that either imports or exports. Namely, getting these goods and parts shipped from one country to another is a daunting task and needs the support of a GTM software and service provider with a combination of global trade domain knowledge, proven processes, and international trade best practices.

Each of the nearly 200 countries in the world has individual governmental requirements for importing and exporting goods, where one has to account for factors like tariffs and duties, country-to-country preferences and anti-dumping laws—with the danger of incurring hidden costs at every step. If that is not complex enough, the events of September 11, 2001 have increased the scrutiny countries place on global trade and can impact costs adversely. According to the Brookings Institution, the cost of slowing the delivery of imported goods by just one day because of additional security checks could amount to $7 billion (USD) per year. Stringent new documentation and homeland security requirements are placing serious legal and financial consequences on importers and exporters that violate these constantly changing trade regulations. Furthermore, the burden is on the importer/exporter to know exactly what the regulations are and how to comply with them.

Although global trade requires the multimodal transportation of goods across borders, many international shippers do not yet have e-logistics software that provides the necessary visibility and flexibility to e-businesses wanting to automate their global supply chains. They also do not have e-procurement software that can analyze the total landed cost, including all the costs of sourcing and shipping a product internationally, customs management, tariffs, transportation, cost of goods, etc. However, a number of Internet-based logistics tools are helping companies analyze and reduce costs by automating the processes of booking shipments, keeping customers informed, and making sure goods arrive on time (for more information, see Understanding the True Cost of Sourcing). Savvy customers have increasingly been asking for help in researching costs for importing from different countries. By using software to check duties, taxes, and trade regulations in the potential countries of origin, GTM experts should be able to create "what-if" scenarios that will help importers make the right decision.

First Mover Advantage: TradeBeam

GTM is a new and potentially very large enterprise applications space that has been compared by some to be the next corporate paradigm after enterprise resource planning (ERP). TradeBeam is increasingly considered as a category thought-leader owing to its significant "first mover advantage". It has had a few years head start compared to most competitors, and it started with an "end-to-end" GTM portfolio in mind, instead of trying to retrofit its GTM solution into similar enterprise applications. So far, TradeBeam has an impressive functional scope progress and promises much more to come in the future.

TradeBeam is a GTM company providing both software and services. Its offering is an on-demand suite of applications that are integrated into one platform. The suite is based on the idea of allowing corporations to manage their global orders, control global shipments, and optimize global finance. Because managing global trade involves two parallel and interrelated supply chains, the physical and the financial, sharing data between the two chains throughout an international transaction, is crucial (see figure 1). Leveraging this concept, TradeBeam helps corporations save time and improve working capital for order-to-cash and procure-to-pay cycles.

TradeBeam's integrated solutions provide import and export compliance, inventory management, shipment tracking, SCEM, and global trade finance solutions such as open account and LC management. Implementing TradeBeam solutions might thus enable corporations to grow top-line revenue and reduce supply chain costs; provide full visibility into shipments; minimize working capital in inventory and accounts receivable (AR); comply with required governmental reporting and security mandates; and measure the efficiency and performance of global trade policies, procedures and trading partners. TradeBeam believes its innovative offering represents a major step forward for companies that want to address cross-border security concerns while improving both their physical supply chain processes and their cash flow and working capital management.

Figure 1 Physical and Financial Solutions Value Chart (Source: TradeBeam)

Although TradeBeam is a young company, created only in early 2000, the vendor has emerged in 2005 as possibly the only vendor with a full-featured solution suite optimized to effectively manage order, logistics, and financial settlement processes involved in global trade. TradeBeam has assembled a broad GTM product suite used by users in over 100 countries and its revenues breakdown is about 65 percent in Americas, 25 percent in Europe, with the rest based in Asia Pacific. Even more impressive, is TradeBeam's GTM portfolio has been achieved by, on average, spending only a third of the capital spent by its competitors. It is forecasting a positive cash flow in 2005, and currently has no debt.

TradeBeam's Market Adoption

TradeBeam's comprehensive product suite, meanwhile, is being used by over three thousands customers in multiple industries, such as automotive, banking, government, retail/distribution, hi-tech, medical, and logistics. Current market traction shows that

* Over 60 percent of the tier one global original equipment manufacturer (OEM) automotive parts suppliers are reportedly using one or more of the company's applications;

* More than eight million parties and four million licenses are being screened for trade compliance on behalf of hi-tech companies;

* In retail and distribution, TradeBeam reportedly handles billions of dollars of goods flow that is tracked annually through dozens of integrations with logistics companies;

* In the government sector, TradeBeam was selected to drive the Department of Homeland Security's (DHS) Operation Safe Commerce initiative; and

* In the banking and financial services industry, more than $2 billion (USD) LC are processed through TradeBeam applications with integration to some of the largest banks in the world.

TradeBeam's motives are in response to large banks that are also trying to enter the GTM market. For example JPMorgan Chase has acquired Vastera, (link to Merging Global Trade Management with Global Finance). Third-party logistics (3PL) companies are also engaging in the market, with other large, high caliber partners. For the financial services industry, know-how and Web-based software technologies have strategic importance, and this will be both a blessing and a curse for the likes of TradeBeam, as will be expanded upon later on.

TradeBeam Management and Acquisition Strategy

Signaling ongoing consolidation in the GTM sector, the purchase of Open Harbor's assets follows several other strategic acquisitions in the last thirty months. By acquiring distressed companies, TradeBeam is wisely extending its solution footprint and in doing so, it seems to be adopting the strategy of the prominent ERP vendor, SSA Global. Over the past few years, TradeBeam has also acquired the assets of eTime Capital, IFR, and LC Express. It has also acquired the source code for the Global Parts Management product of Commerce One, and has added Qiva and SupplySolution to its portfolio. In addition to the astute functional nuggets gained from these acquisitions, TradeBeam has also assembled a GTM-savvy and seasoned management team, many of which have come from these former competitors.

Chief executive officer (CEO) Graham Napier has worked in the international arena for several logistics and technology corporations over the past twenty years. Prior to joining TradeBeam in August of 2001, Napier served as president and chief operating officer (COO) of Fritz Companies, a $1.8 billion (USD) integrated logistics services provider. There he managed operations and drove strategic initiatives for an organization consisting of 14,000 people working in 121 different countries. As the first company to integrate customs house brokerage with logistics, Fritz was at the forefront of using technology to link physical and financial supply chains, a concept that is at the heart of TradeBeam's GTM platform today. The logistics company was sold to UPS for over $440 million (USD) in May of 2001.

Napier was recruited to Fritz from AlliedSingal, the leading aerospace manufacturer now part of Honeywell, where he served as vice president of strategic business development and new ventures for AlliedSignal. His primary focus was on building new services in logistics and distribution to extend the value of the company's core products for a $2 billion (USD) division. Early in his career, Napier founded LogicCorp, which was bought by Ryder Integrated Logistics and he became the general manager of international operations for the new entity. Other TradeBeam executives have backgrounds with Qiva, CommerceOne, SupplySolution, Capstan, Accenture, Pinacor, MicroAge, and British Telecom.

While the less fortunate companies (which have been acquired) were unable to receive additional funding for continued independent operation, TradeBeam has been served well by renowned venture capitalists (VC). GTM remains one of the few un-automated areas of the enterprise business processes and has emerged as the next great opportunity for business process improvement, and also as an area where world-class VCs are looking to invest. Therefore, it is no surprise that in November TradeBeam announced that it has received new funding led by Carlyle Venture Partners, the US venture arm of The Carlyle Group, one of the world's leading private equity firms. Also participating, were existing TradeBeam investors Sigma Partners, Enterprise Partners Venture Capital, Sprout Group and Silicon Valley Bancventures. This resulted in a total $18.25 million (USD) for TradeBeam. Earlier, in May, TradeBeam announced $9.85 million (USD) financing led by then a new investor Sigma Partners. Enterprise Partners Venture Capital continues to be a major investor in TradeBeam along with Silicon Valley BancVentures who joined.

SOURCE :http://www.technologyevaluation.com/research/articles/tradebeam-keeps-on-rounding-out-its-gtm-set-17984/