Joint venture flows from 'bet' strategy

A "bet the company" strategy has paid off for electronic marketplace developer Global Ecomex, with the small Auckland firm forming a joint venture to build an online trading exchange for the Malaysian palm oil industry.

Chief executive Tony Wright said the company was looking for investment capital to develop exchanges for industrial parts, tapioca, seafood and other commodities under a similar joint-venture model

"Dividends from the palm oil exchange won't start flowing for 18 months, and we have other exchanges we want to launch," Mr Wright said.

The 138 existing shareholders have agreed to a new holding company structure aimed at making it easier to attract investment. Mr Wright said Global Ecomex needed about $5 million.

"We won't be selling control - our valuation must be in the $30 million to $40 million range. We are looking for a local investor to take up a proportion of the shares, which will allow us to negotiate with international venture capitalists from a position of strength."

Global Ecomex originally developed a Dos-based trading system for the NZ timber industry.

When the company founders decided it was time to rewrite the system to cope with internet technology, it brought in Mr Wright, who previously ran the Asian operations of engineering firm Boral.

"I focused them away from timber, because even if an online marketplace could run well, it was a small market here," Mr Wright said.

Learning that the Malaysian Government was encouraging the development of an exchange for palm oil, of which Malaysia produces half of the world supply, he set the Global Ecomex developers to work, aiming for a partnership with Hei Padu, the privatised former Government computing department.

"We wrote the front end on spec, in a bet on the company strategy. When we presented it to Hei Padu, they said 'you are so far ahead we are prepared to join you in a joint venture'."

"They arranged for major players in the palm oil industry to come to a meeting, and once they saw the demo they bought shares in the company."

The Malaysian Palm Oil Exchange (ePOMEX) is the the world's first electronic exchange for trading oil palm products for physical delivery.

The shareholders represent the producers of half of Malaysia's 9 million tonnes of palm oil exports, so there should be enough trade going through the exchange to make it profitable.

At present HeiTech Padu has an 18 per cent stake in Ecomex Palm Oil (ePOM), the company which undertakes the implementation and operation of ePOMEX, followed by Global Ecomex (19 per cent), the Federal Land Development Authority (10 per cent), plantation companies IOI Corp (3.9 per cent) and Austral (5 per cent).

Several other plantation companies, including Golden Hope, Sime Darby, Kumpulan Guthrie and Perlis Plantations have also made commitments to take 5 per cent stakes.

"Our strategy is to hold 15 to 25 per cent equity in exchanges and sell the rest to industry participants, so they provide the capital to build and run them," Mr Wright said

"We see ourselves as a partner in the exchange. Our competitors were just trying to sell software."

He said Global Ecomex exchanges had a client-server architecture, meaning users must load software onto Windows PCs to use them.

The application can work off-line as well as online. Mr Wright said that because of the amount of data connected with trades, pure browser-based systems are not up to the job.

The screens users work on are the same documents they are familiar with in their industry, so there is not the need for a lot of training.

"The exchange connects buyers and sellers in a relationship model, and it assumes people don't just buy from the ether, they buy from people they know. That's why we have a one-to-one real time negotiating facility," he said.

The ePomex exchange also includes shipping rates and financial and industry news feeds, offering an unprecedented level of transparency. Mr Wright said this was expected to reduce corruption in the market, one of the aims of the Malaysian Government.

Links


Malaysian Electronic Exchange for Oil Palm Products
Heitech

Global Ecomex