GlobalGlobal CommerceZoneCommerceZone

Case StudyEntrepreneurship Course 2001

Shani Shalgi

Pini Reisman

Ziv Yirmeyahu

Itai Ra’anan

Nocham Ohana

Ze’ev Getner

TeaserTeaser

Keep existing without a major customer...

75 Employees

7 Branches Around the World

$10M~ Investment

• 14 employees• 2 Branches: Israel, US. • $150K Burn Rate

AgendaAgenda

• The Problem

• Company History

• The Solution

• The Shift

• The Target Market

• Business Model

• Competition

• Our Input

• Thanks

The ProblemThe Problem

• Clearing international deliveries through customs

– Customs classification is complex.

– Regulations are updated frequently.

– The chain of pain.

Chain of Pain - Chain of Pain - BuyerBuyer

• Unknown import charges

• Two payment points

Buyer

Chain of Pain - Chain of Pain - RetailerRetailer

• Dissatisfied customers

• Customer service costs

• Lost revenues

• Cost of exceptions

Buyer

Retailer

Chain of Pain - Chain of Pain - CarrierCarrier

• Merchant complaints

• Customs collection

Buyer

Retailer

Carrier

Company HistoryCompany History

• Foundation: 1999

• Founders: Haim Chasman, Richard Demb

• Investors: BRM, Yazam.

• Original name: vShip inc.

• Investment: ~$10M.

The SolutionThe Solution

Technical infrastructure to:• Provide automated, guaranteed landed cost quotes

and documentation for international parcel shipments.

• Enable single payment point for all charges.• Seamless transfer of customs funds from the

merchant to the carrier clearing the shipment through customs.

How Does It Works?How Does It Works?• GCZ classifies each product on the client’s

catalog for every destination country.• When a consumer makes an order, an XML query is sent to

GCZ’s server.• GCZ returns a quote of the full product price including

customs duties and NTBs for the product, plus commission.• GCZ guarantees the given quote.• The consumer pre-pays whole landed cost.• GCZ receives the custom costs plus commission from the

retailer.• GCZ transfers the customs to the carrier after he fronts the

customs for the consumer.

Flow of Funds - Flow of Funds - TodayToday

$70 Customs and Duties

Collected by Carrier

Buyer

$260 Cost of Merchandise

$40 Shipping Costs

Paid at time of purchase

Retailer$40 Shipping Costs

Charged to Seller

Carrier

$70 Customs and Duties

Paid by Carrier

Customs

Flow of Funds - Flow of Funds - with with GCZGCZ

Buyer

$260 Cost of Merchandise

$40 Shipping Costs

$75 Customs and Duties + commission

Paid at time of purchase

Retailer

$70 Customs and Duties

Paid by Carrier

Customs

$40 Shipping Costs

Charged to Seller

Carrier

GCZ

$75 Customs, Duties + commission

$70 Customs, Duties

The ShiftThe Shift

• Bubble expectations: there will be several “Amazons”, they were the target clients.

• The bubble popped, no new “Amazons”:– New focus:

• B2B and B2C market, not necessarily e-commerce.

• Go to where the money is.

– Structural reorganization.

– The solution was not changed.

U.S. Outbound Market & U.S. Outbound Market & RevenueRevenue

$605 Million60.5 Million238,097Total

$355 Million35.5 Million139,763B2B

$250 Million25 Million98,334B2C

Revenue Opportunity ($10)

Annual Package Volume (254 days)

Daily Package Volume

Sources: Maxwell Sroge, Forrester Research, FedEx, UPS, DHL, excluding USPS and smaller couriers. Average Courier Revnue $44 per parcel

Business ModelBusiness Model

• Catalog classification outsourced and charged at costs.

• Commission on each transaction for the quote, insurance and money handling.

• Buying insurance for guaranteeing the landed cost.

• Making profits on the money during the time gap between collection from the retailer and payment of carrier.

• Marketing model (big clients only):

– Using the carriers as a channel to the market.

– Direct approach to other big clients.

CompetitionCompetition

• Direct: Landed cost Calculations– Vastera, Nextlinx, OpenHarbor, Xporta, ClearCross

• Indirect: Portal and B2C – Borderfree, Douwantit

• Inhouse Solutions – Branching (Amazon)

• Financial Transaction Focus – Global CommerceZone

,,,, Risks Risks

– (GCZ buys insurance and updates its classification database frequently)

• Carriers can become hard competitors by providing the solution themselves.

• Globalization: free trade agreements, moving towards making the world a global village.

• Changes in custom taxes rates• Changes in exchange rates

The VisionThe Vision

• Like the American payroll market model.• Clients will avoid distraction from core business.• Developing and maintaining a system takes customs

experts and a lot of energy.• Advantages to scale:

– The system learns and corrects mistakes– One classification can serve several clients

• High loyalty expected with big clients.

Conclusion: the market has place for only one or two ‘gorillas’.

First DoubtFirst Doubt The Question of NeedThe Question of Need

• Is the financial feature really

necessary to the clients?• GCZ’s clients are expected to pay for the classifications,

the updates and the quoting system as they would any competitor.

• In addition, GCZ’s clients need to pay commission per transaction that covers the insurance.

• Our opinion: prepayment and guarantee of landed cost is necessary and valuable.

Second Doubt Second Doubt The Question of DifferentiationThe Question of Differentiation

• What does it take for competitors

to develop the financial and insurance services?

– GCZ insures itself externally, by signing a contract with an insurance company.

• Our opinion: – This can be done by the competitors as well. – Transaction handling is more complicated and

will require a strategic change.

Third DoubtThird DoubtThe Question of CompetitionThe Question of Competition

• What about outside competition?• GCZ’s technology is not an entry barrier • GCZ outsource the classifications.• Only 1 in-house customs expert !! No significant entry barriers.• The competitive advantage is the connections with the

carriers• Our Opinion:

– The market will be a ‘gorilla market’. Possible ‘Gorillas’ are either existing competitors or the carriers themselves.

Doubts - SummeryDoubts - Summery

Is BRM’s support in the past (and future?) justified?

1. Is the unique service needed?2. Can the competitor develop the same

service quickly?3. Are there significant entry barriers?

YESYES

NONO

YESYES

Gorillas market, but under carriers control

Survival SecretsSurvival Secrets

A lot of faith A little help from personal connections One big client at advanced stage of

negotiations

Once the Client Signs…Once the Client Signs…

• Radical cash flow improvement.

• Validating the vision & business model:– Further funding rounds possible

• A reference to other big clients.

ThanksThanks

• GCZ– Herb Zlotogorski - CEO– Ze’ev Frimer - CIT expert– Arie Kadosh - CTO

• BRM– Nir Barkat– Johnny Klair