COM-MART
Executive Summary
COM-MART wants to create an eBay like marketplace for developing world merchants
to sell to consumers in developed countries. With the virtual marketplace, COM-MART
has a vision of having $1 billion of flow by 2008 resulting in $100 million (10%) in
revenues. COM-MART has important social goals in addition to its financial goals. It
wants to enrich and preserve 10,000 artisan communities in developing countries around
the world and create 1 million jobs. eBay used the collectibles beachhead to start its
marketplace and then sell all kinds of products/services. COM-MART intends to use
WCF (World Community Fund) branded products made by artisans as its beachhead and
then encourage sale of all kinds of products by developing country merchants. To get a
WCF endorsement, a merchant must agree to transparent pricing and share in the mission
of enriching communities by repatriating ‘tips’ paid by customers of back to the local
communities.
We expect the growth by the virtuous cycle: the more listed inventories and the more
people visiting the site, vice versa. Decent products produced most cost-effectively under
international standards and with the most affordable price attract traffic. Our biggest
barrier to entry will be that most people will get daunted by the complexity of the
challenge, as evidenced by the fact that companies like world2market.com burnt up $100
million of investor’s money and sank. We estimate PROFIT in Year 1, because online
marketplace business model is a fabulous one. Our funding requirement for the 1st year is
around $1 million; around $5 -$10 million in year 2 and on.
Funding
requirement
(in
thousands)
Online Marketplace building cost
Operating expenses
Total Funding requirement
Year 1
Year 2
Year 3
437
450
887
3227
4500
7777
16385
22500
38885
Business Overview An important part of our business model is to reengineer the existing
value chain where for a product that retails for $20 the artisan gets $1, the developing
country exporter gets $4 and the US Importer gets $16. This chain has a lot of waste and
by eliminating waste and using the web effectively we believe we can get a far greater %
of the retail value back to the developing country. We plan to use entrepreneurial market
makers in the US to drive sales building on models such as Avon, Tupperware etc while
avoiding some of the negative connotations associated with models such as Amway.
Flow ($million)
Revenue (%)
Revenue ($ million)
Exporter
Countries
US cost/Total cost
Overseas cost
Profit/Loss
Year 1
10
0
1
5
1
1
0.25
0.008
Year 2
100
0
10
100
2
1
3.14
1.03
Year 3
500
0
50
500
20
1
17.33
6.67
Year 4
1000
0
100
1000
100
1
39.98
11.15
Caveat: Reaching $1 billion of flow is vital to build a sustainable business and that will
be hard if we were to limit ourselves to artisan products.
Another important aspect is to create a movement around Community Friendly Products
like ‘buy green products’ movement which will create a sense of community amongst our
buyers. COM-MART will also provide options to a customer to ‘tip’ a producer directly
and to get feedback on how the ‘tips’ are used.
For our plan to work we have to solve complex logistics problems and attract
 Merchants in developing countries
 Market Makers in developed countries
 Consumers in developed countries
Market Opportunity There is a huge appetite in US for international goods. COMMART has a potentially very large market size. According to US Census Bureau, trade
from China to US reached $113.5 billion in 2002, and trade from India reached $10.9
billion. Therefore, $1 billion flow in 2005 is a very small fraction, considering all trade
volume from developing countries to US. Even though the trading volume between
developing countries and the US has increased in double digits in the last 10 years, the
importing channel has not been updated much with the evolvement of the information
technology, which is connecting people worldwide as easily as clicking the mouse.
To suppliers, it’s a pain because middlemen usually are not willing to put them into
connection directly with parties in US. Even if suppliers eventually build direct
connections with their US counterparts, suppliers have no means to contact the end
customers in US. Due to the broken of the last-mile supply chain, the suppliers lack
market information of the real demands in US market. They don’t have the right channel
to reach their end-users either. Actually, those suppliers who are doing business with US
market at least have participated into this global supply chain, even though they play
clumsily. There are still thousands of individual artisans and cottage workers in
developing countries who have no way to get them involved into global business
transactions. Their lives are miserable, because what they have produced, if cannot be
sold within 10 kilometers of their residence, just go wasted. Even people in their own
country cannot know what their suburban brothers are doing because of information
blockade. However, some of those individual artisans actually are masters of local arts
and some of them are relics of local culture.
For most consumers in US, they miss opportunities to enjoy richer culture from
developing countries and suffer paying much more for commonalities that cost actually
little to produce. Their living standards are decreased by the invisible hand of trading
barriers.
The traditional importers and exporters are competitors of COM-MART concept. They
will be finally obsolete once suppliers in developing countries and the consumers in the
developed countries can find each other by themselves. Some e-commerce advocators
like
Eziba
(www.eziba.com),
Novica
(www.novica.com)
and
Getafrica
(www.getafrica.com), try to boost business and cultural exchange, but they are all niche
players. They carry their own categories of products, act as online middlemen with
specialties rather than create a public market place to facilitate cross-continent trading.
They also follow high price, high margin and low volume strategy under the assumption
that US customers pursue only exotic and unique products in developing countries, while
they satisfy their basic demands for commodities in US. There are some B2B websites
like Alibaba (www.alibaba.com), but C2C or B2C international trading has not yet
carried by any websites in a large scale. In contrast, COM-MART pursues low-margin,
high volume and value shopping strategies, which must work because people just like
shopping in this way.
Market Solution
 Service
COM-MART is dedicated to build a virtual market place to facilitate small to medium
suppliers in developing country to find their customers in developed countries, first in
US. In terms of services for suppliers, COM-MART will first start its mission in India.
COM-MART will recruit suppliers and help recruited suppliers to build their own stores
online. COM-MART will see the needs so as to decide whether partners with
international shipping companies such as FedEx or DHL to facilitate international
shipping.
In terms of services for consumers, COM-MART is innovative for the Market Maker
concept. Market Makers are entrepreneurs as well as experts on the goods that they
promote on behalf of COM-MART. Market Makers are designed to purchase sample
products from COM-MART and show to the potential customers with the sample. In this
case, E-commerce’s innate disadvantage, i.e., the inability to touch and feel, can be
overcome. Potential customers can save time from browsing tons of web pages, but buy
what they really want and buy quality products only with much cheaper price. Consumers
can become market makers also as long as they feel like to promote COM-MART’s
products to their acquaintances. Market Makers get a 5% to 25% commission based on
the sales revenue they achieve. Consumers can also help to improve the living and
working standards of artisans in developing countries through ‘tipping’. COM-MART
will provide space for customers to ‘tip’ producer communities directly and make sure
that the ‘tips’ are repatriated by the exporter to the local producer community to improve
their living and working conditions.
 Prototype
For details of prototype, please go to www.suvy.com.
 Remove the pain
To suppliers in the developing countries, they can access COM-MART’s website either
at home, internet café or with the help of COM-MART’s representatives at their own
countries. Language barriers are to be removed because COM-MART is built under
multi-lingual system. Suppliers can wait until consumers in US find them, and then
Suppliers may need aggregate shipment orders and export into US under the help with
COM-MART’s representative. For any requests from consumers, consumers may contact
COM-MART’s representatives directly. At the same time, COM-MART will be
responsible to collect customers’ feedback, so that suppliers can improve their own
SKUs.
As for consumers, once they are introduced to COM-MART’s website and products by a
market maker, they can shop among a large selection of goods with much cheaper price
from developing countries, no matter commodities or unique handcrafts. Consumer may,
through COM-MART’s website, monitor the usage of funds established for the purpose
of improving communities in the developing countries. Consumers may even contact the
local producer communities who have made the products they purchase, aided by COMMART’s multi-lingual system. Consumers can also have a virtual tour of distant
communities with the help COM-MART’s video steam of local community. Imagine how
fun it is to see who made your quilt and how they lives on the other side of the world.
 Entry barrier
Recruit of reputable suppliers: The suppliers that COM-MART recruit firstly will be
inspected by COM-MART’s representatives at the developing countries. To get a WCF
endorsement, a supplier must agree to transparent pricing and share in the mission of
enriching communities while making a fair return. COM-MART may preferably select
suppliers who conform to international working standards, for example ISO4000, and
utilize the network of supplies to gather local individual artisans. Recruited suppliers are
encouraged to sign non-competition agreement with COM-MART for certain years,
therefore, COM-MART expect to retain high percentage of the best quality suppliers.
Recruit of passionate customers: For the same reason, COM-MART will recruit the
passionate consumers in US with relatively low cost. COM-MART’s customers are
encouraged to become market markers and therefore establish long-term relationship with
COM-MART.
Local advantage in India: In COM-MART’s management team, there are people coming
from India. With their local knowledge, the recruitment of suppliers, local government
support from India, and even local PR can be much easily accessible. Since COMMART’s local representatives in the developing countries also play very important role,
COM-MART’s management team with local knowledge can select best candidates as
local representative also.
The Market
 Identification of customers
Total retail in the US in 2003 was US$3 trillion and out of that online retail sales was
US$114 billion. Forrester Research predicts that ecommerce in the U.S. is set to grow at a
25 percent compound annual growth rate for the next five years to reach $217.8 billion by
2007. This will account for 8 percent of total retail sales.
The World Bank's Department of Commerce estimates the current market for traditional,
handmade arts and crafts is $22 billion in the United States and $280 billion worldwide.
Sales on Ebay in 2003 are estimated at $20 billion making it the world’s 50th biggest
retailer. Looking at the way EBay is grown this target is modest and achievable.
 Industry analysis and forecast
Online shopping is dominated by portals of 2 groups: America Online (AOL), MSN and
Yahoo! as the 1st group; Amazon and eBay as the 2nd group.
While AOL, MSN, and Yahoo! are generating plenty of sales for their retail partners
because they provide the cross-platform promotional experience to consumers, these
portals are facing competition from the 2nd group. Just over two years ago, the big three
could command any deal they wanted, but things are different now. Retailers
aggressively pressure portals to make deals pay off. Furthermore, portal shopping sites
are undifferentiated, and competitors like Amazon and eBay, are breathing down their
necks to steal their business.
Amazon is a portal because it aggregates retailers and shopper. Because Amazon has a
high concentration of online shoppers that make more money and spend more online than
any other site's audience, it's an attractive portal partner to any retailers.
eBay is also a portal even without complicated partnerships. With US consumer online
auction sales expected to reach $54.3 billion in five years, and eBay's share projected to
be 85% to 90% of that. The company seems on a course to dominate online auction sales.
Like Amazon, eBay aggregates sellers and millions of attractive online shoppers. eBay
launched fixed-price and auction storefronts for major retailers. It charges a listing fee, a
percentage of the sale, and optional site placement fees. And retailers don't need a formal
relationship with eBay to start selling, they just need one person in-house to run auctions,
or they can outsource the work to an auction software management vendor like Andale.
The structure of shopping portals probably will maintain in the next 2 to 3 years, because
it’s extremely costly to drive online traffic to a website unknown. COM-MART is
considering building its own website on top of one of the 5 portals. eBay is the most
favorable because of COM-MART and eBay can be highly complimentary.
Management Team
Business Advisor - Mr. Sanjay Bhargava: Sanjay has a bachelor's degree in Mechanical
Engineering from IIT Bombay (Class of 1978) and an MBA from IIM Ahmedabad (Class
of 1980). He is also a a certified cash manager (CCM) and an accredited ACH
professional (AAP). He is a 2002-2003 Reuters Digital Vision Fellow at Stanford
University. His first success was with Citibank in India where he built a cash
management business which moved 5% of India's GDP and was used by 275 of the
top 300 companies in India. He moved to Thailand to head transactional services
business for Citibank and built the custodial services business market share from 1% to
36%. In September 1999 he joined PayPal as a founder employee and was the main
business architect for all the back office functions of PayPal. He is the inventor of
"random deposit to verify bank accounts". This has been used by over 5 million
consumers and was the key element that made the PayPal business model profitable.
Business Lead – Rahul Barkataky:
Financial Analysis COM-MART is determined to be a true international cross-border
marketplace, facilitating whatever people want to exchange but cannot or are very
difficult without COM-MART. The financial model will be similar to eBay’s. COMMART charges 10% of the transaction value that each community or supply achieved
through COM-MART; in return, COM-MART provides local community service to the
sellers and their communities, online tools such as different ways of listing, sales
tracking, shipment assistance to sellers and buyers, marketing campaigns with the theme
of social conscious-raising, and a lot of PR to drive traffic to the site.
Pro Forma Income Statement:
Assumptions: Each community carried by COM-MART will have a similar eBay store.
Therefore, cost is based on the eBay equivalent charges for each store listed.
Net revenue: based on 10% of the transaction flow
Cost of net revenues includes:
1. web/store hosting expense- 50% of the community will have anchor store
structure by $499.95/month; 50% of the community will have featured stores
charged by $49.95/month
2. Basic store inventory listing including gallery fee-$0.06/each listing/month
3. Upgrade inventory listing fee (highlight, bold, featured in search), applies to half
of the community - $27/month
Operating expense:
1. Sales and marketing: 30% of the transaction flow
2. General and administration: 10% of the net revenue
3. Others: 20%, 15%, 10% and 10% of the net revenue, respectively in 4 years
Income tax provision: 40% corporate tax rate
Pro-Forma Income Statement (In thousands, except otherwise specified)
Flow
Revenue
Net Revenue
Cost of net revenue
Web hosting (anchor stores)
Web hosting (featured store)
Store basic inventory listing
Store enhanced listing
Gross Profit
Operating expense
Sales and marketing
General and administration
Others
Total operating expense
Income from operations
Provisions for Income Tax
Net Income
Year 1
10000
10%
1000
437
200
20
1
216
563
Year 2
100000
10%
10000
3277
1500
150
7
1620
6723
Year 3
500000
10%
50000
16385
7499
749
36
8100
33616
Year 4
1000000
10%
100000
36410
16665
1665
80
18000
63590
250
100
200
550
13
5
7.85
2500
1000
1500
5000
1723
689
1033.86
12500
5000
5000
22500
11116
4446
6669.30
25000
10000
10000
45000
18590
7436
11,154
Social Analysis The success of COM-MART is even more important to the people living
in developing countries, who struggle in survival and preliminary safety. Some children
in developing countries sacrifice their education to work in cottage industries; however,
what they produce may be not appreciated in their vicinity at all. Ethnical tradition of
culture and arts could be extinguished even before this side of the world can know and
help. People live in poverty, strive for communication and work hard with bleed. They
must be helped in macro-environment before their sparks for life can be generated. So,
COM-MART can help even the poorest communities in developing country:
Health: improve life-expectancy of people in poverty with better nutrition, better medical
care, better living conditions because their produce can generate better monetary return
for them
Human Capital Development: help contribute to the local tax base due to more
employment and increase wages for low-income population
Community Development: increase prosperity in local communities due to increased
commerce
Education: increased cultural exchange and retain cultural relics, increased education
opportunities for children living in poverty, potentially decrease cost to society of crime
associated with poor school attendance
Social return Quantifier: (in thousand)
Year 1
10000
Flow
‘Tips’ to communities 500
(assuming 5%)
67
Communities
Income
for
each 7.5
communities
Year 2
100000
50000
Year 3
500000
25000
Year 4
1000000
50000
500
10
2500
10
5556
9