- The Washington Times - Monday, July 3, 2000

Doing business in China has never been easy, but William Gorog gave it a shot back when the very concept was as foreign as an American in Shanghai.

That venture fell flat, but Mr. Gorog has joined a group of investors having another bite of the apple by backing a new, Reston-based start-up that wants to take the hassle out of Sino-American trade.

After President Nixon's historic visit to China in 1971, trade with China became legally possible, though the United States still had no trade agreement with the Asian giant. Mr. Gorog, who would later serve as an adviser to President Ford on international economic policy, formed a trading company to exploit this new opportunity.

His enterprise rooted out American companies interested in sourcing products from China. Mr. Gorog took clients to trade shows that were at most held biannually. He tried to broker deals that, inevitably, involved a raft of Chinese bureaucrats and endless delays.

"You can imagine what cost, and what agony that was," Mr. Gorog said. "After three years, we gave up."

But as a member of the Capital Investors Group of Virginia, Mr. Gorog is now helping to finance Reston-based Twinbays International, a new Internet procurement service that is the digital-era equivalent of his ill-fated 1970s venture. Twinbays wants to use the Internet to get American companies the best prices from Chinese suppliers, and to get Twinbays a large enough volume of business to make money.

"We are bringing together the three most potent factors in the global economy: Trade, the United States and China," said Twinbays CEO Martin David.

Chinese venture

Twinbays began in April 1999 as an Internet venture that sold pearls, silk clothing and Chinese antiques directly to American consumers. A year later, founders Yan Liao and Sheldon Zhou turned the company into a service that catered to American buyers of all sorts of products. Mr. David, a veteran of the Chinese market who came from the French multinational Alston, joined as CEO.

Twinbays has already persuaded a total of about 900 customers to take the plunge, according to Mr. David. Potential buyers go to the Web site and request a quote for a specific product. Twinbays will handle any product area now, but the company plans to develop areas of specialization, Mr. David said.

After clarifying any details about the request, Twinbays contacts suppliers and provides the prospective customer, at no cost, with several different price quotes. Twinbays hopes to make money by taking a percentage from suppliers. Through partnerships with Northwest Airlines and United Parcel Service Inc.,Twinbays can also facilitate shipments directly to customers in the United States.

The appeal of direct links between American buyers and Chinese suppliers through the Internet is clear enough. Many products currently travel a tortured route through an exporter based in Taiwan or Hong Kong, as well as an American importer, and even a wholesaler before businesses or consumers get a crack at them. As a result, much of the $81 billion Americans paid for Chinese imports in 1999 was paid to middlemen, not the original manufacturer.

The market

The market for business-to-business transactions between the United States and China is not enormous by American standards, but Forrester Research analyst Matt Sanders expects $8.9 billion in "B-to-B" electronic trade by 2004. And the Internet platform, combined with effective contacts in China, offers fertile ground for start-ups like Twinbays, he said.

"The difficult thing about China has always been that companies are not prepared to sell directly to companies in the United States," Mr. Sanders said.

Though a first in the Washington area, Twinbays is playing catch-up with a small number of companies who have slightly different business models but the same goal: to facilitate links between buyers and suppliers. San Francisco-based MeetChina.com, for example, lists Chinese manufacturers with whom it has a relationship on its Web site, and devotes its energies in the United States to finding potential customers.

"It's an auction where the buyer can hunt for the lowest possible price," said Keith Blackie, the company's vice president for marketing.

Mr. David said that Twinbays wants to be more than a mechanism by which companies cut out the intermediaries and increase their profit margins. The Internet puts buyers into contact with suppliers on a daily basis, and many companies, such as major American automakers, are rushing to create "electronic marketplaces," he points out.

But such electronic interfaces, though flexible, quick and cheap, do not necessarily bring forth new wealth-creating transactions. Twinbays, if it is successful, would allow procurement in China by small- and medium-sized companies which cannot normally procure products from China because they do not have the necessary contacts. And using traditional import-export mechanisms is prohibitive.

"We are not repackaging transactions," Mr. David said. "We are creating new ones."

At the same time, Mr. David concedes that Twinbays cannot, like a typical B-to-B venture, use the Internet to completely squeeze out the human element that importers currently provide. Many Chinese companies "don't even have a fax machine," so Twinbays hopes to be a vital intermediary that leads American companies to Chinese suppliers, Mr. David said.

"We're not a classical B-to-B company," Mr. David said. "It's B-to-H-to-B. There is a human contact in the middle."

Importers, though they recognize the threat posed by transactions that bypass intermediaries, believe that the broad-brush approach of companies like Twinbays that cater to any and all buyers could backfire. Buyers sometimes need middlemen who understand their specific needs, not blind purchases from faraway suppliers, Mr. David said.

"General merchandising importers are essentially out of business," said Gene Milosh, president of the American Association of Exporters and Importers. Mr. David concedes that this danger exists, but points out that Twinbays has established a strategic partnership with the Swiss giant SGS, which will monitor the specifications and quality of products sold via Twinbays. But providing multiple quotes to buyers exerts intense pressure on suppliers to cut costs, a fact that might tempt buyers to venture into the unknown.

"If you are saving 30 or 40 percent, you might be willing to take that risk," Mr. David said.

Mr. Yan, Twinbays' chief operation officer and a Chinese-American born in Beijing with 15 years of experience in international trade behind him, will be the company's point man in China. With suppliers constantly under the gun to compete for customers, his job will be to ensure that the well does not run dry.

"The challenge will always be to find new suppliers who can provide quality products," Mr. Yan said.

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