An Inevitable Choice: E-Commerce in Chinese Petroleum and Petrochemical Industries

Hou Yu , RIPED, PetroChina, Beijing, P.R.China Abstract

Commerce is the kernel of e-commerce, being as an Internet form of enterprise resources and experiences gained over years. Our work and life styles were, are and will be changed by ecommerce. Global e-commerce is developing rapidly. It is beyond imagination that e-commerce in petroleum and petrochemical industries is progressing at full speed now. As estimated, the amount of e-commerce in global petroleum and chemical products will be up to US$ 713 billion in 2003. Some petroleum and petrochemical companies in Europe, America and Asia are setting up their ecommerce sites. As well a lot of sites are built in petroleum and petrochemical enterprises in China, but the concept of e-commerce is less acknowledged and the amount of e-commerce trade is still low. PetroChina has begun an e-commerce portal site in Beijing on 6th July 2001 after its intranet and extranet. It is estimated that the amount of e-procurement will reach US$ 1.2 billion and e-sales US$ 1.03 billion in 2002. In the coming 4 years, e-procurement will increase to US$ 7.06 billion. Sinopec has developed two B2B e-commerce trading platforms. The amount of e-commerce procurement has come up to US$ 0.97 billion by the end of 2001. The first phase of CA Unicenter TNG project was checked and accepted by CNOOC in March 2001. Petroleum and petrochemical enterprises need e-commerce. It is necessary to realize e-commerce through three steps: intranet, extranet and e-commerce. An overall enterprise e-commerce is to introduce the e-commerce mode into the overall enterprise management. For petroleum and petrochemical business, B2B site may be established, including e-commerce among enterprises and clients as well as among enterprises and suppliers. M2M (Marketplace-to-Marketplace) e-commerce is a new trend. The petroleum and petrochemical industries in China will go through B2B and M2M e-commerce process eventually.

Introduction
E-commerce means the conduction of business and trade activities between buyer and seller through simple, quick, low-cost electronic communication. Commerce is the kernel of e-commerce, being as an Internet form of enterprise resources and experiences gained over years. Jeff Bezos, the founder of amazon.com, initiated his Internet bookstore with an investment of US$300,000 in July 1995. Four years later, the company had 13.1 million customers totally and attracted US$7 billion sales. He was named as Time magazine's Man of the Year 1999. "Bezos is a person who not only changed the way we do things but helped us to pave the way for the future," said Time chief editor Walter Isaacson, explaining the magazine's choice. Although the falling of Nasdaq index and terrorists attack to U.S have shocked American and global economy, e-commerce, the vigorous new thing, will spread worldwide quickly. Our work and life styles were, are and will be changed by e-commerce. The influence of e-commerce is as great as the Industrial Revolution, even surpasses potentially. According to incomplete statistics, the amount of etrade approached US$ 2.8 billion in the whole world in 1996, 60% of which were conducted among enterprises and individuals and only 40% among enterprises. However, as predicted by International Data Company, global B2B e-trade will increase at high speed, up to US$ 916 billion in 2002 and US$ 4300 billion in 2005 1. By the end of 2005, US will still lead the global B2B e-commerce tide with an amount up to US$ 1560 billion, accounting 36.28% of global e-trade in the year.

The paper introduces mainly the development of e-commerce in Chinese petroleum and petrochemical industries and discusses the challenges in e-commerce development and proposes the solutions for e-commerce of enterprise.

E-commerce in global petroleum and petrochemical industries is developing rapidly

Global e-commerce is developing rapidly. The emergence of B2B e-commerce will have a huge impact to petroleum and petrochemical industries because more than 90% commercial activities are commerce conducted among enterprises in these industries. Statistics showed that it will allow procurement price decreased by 5-10%, procurement period shortened by 50-70% and inventory cost decreased by 25-50% 2. It is beyond imagination that e-commerce in petroleum and petrochemical industries is progressing at full speed. As estimated, the amount of e-commerce for petroleum and chemical products will be up to US$ 713 billion in 2003. Some petroleum and petrochemical companies in Europe, America and Asia are setting up their ecommerce sites. Exxon-Mobil, RoyalDutch/Shell, Chevron-Texaco and Norwegian Statoil have begun their e-procurement program. BP-Amoco develops its e-commerce with an investment of US$ 1 billion 3 . Some large oil companies have decreased their procurement cost by 5% to 7% through ecommerce. A lot of sites have been built in petroleum and petrochemical enterprises in China, but the concept of e-commerce is less acknowledged and the amount of e-commerce trade is still low.

E-commerce in Chinese petroleum and petrochemical industries

According to IDC, the amount of B2B e-commerce in China will reach US$133 billion by the year 2005. However, it only amounted US$ 2.2 billion in 2000 4. Why did IDC make such an optimistic prediction? They found out that almost all enterprises in China need to get online and e-commerce. After Chinas accession to WTO, enterprises must comply with international trade rules and enhance their scientific management. In fact, e-commerce not only is an e-trade, but also a high-efficiency management for procurement, production and marketing through IT technology. E-commerce will develop quickly through combination of traditional business with e-commerce. CNPC, PetroChina, Sinopec and CNOOC are giant enterprises in petroleum and petrochemical industries in China. They will play a vital role in development of e-commerce. PetroChina drives for e-commerce actively. Since its start up in Beijing on 6th July 2001, EnergyAhead e-commerce site has become an e-commerce portal site in PetroChina. It is invested jointly by PetroChina, Hutchison-Whampoa Limited, Goldman Sachs Group, Inc. (Asia) and others. The trading amount on the first day came up to RMB 130 million (US$ 15.7 million). Mr. Huang , CEO of PetroChina, said that EnergyAhead e-commerce site should become an open international site and an interactive B2B trading center in petroleum and petrochemical industries. PetroChina convened an e-commerce conference in Beijing in November 2001. It is estimated that the amount of eprocurement will reach RMB 10 billion (US$ 1.2 billion) and e-sales RMB 8.5 billion (US$ 1.03 billion) in 2002. In the coming 4 years, e-procurement will increase to RMB 58.4 billion (US$ 7.06 billion) 5. In 2000, Sinopec proposed an initiative of Be on internet first before entering the stock market. Sinopec has developed two B2B e-commerce trading platforms after its IPO. The amount of ecommerce procurement came up to RMB 8.118 billion (US$ 0.97 billion) during August 2000 to December 2001. The procurement involves steel, noble metal, coal, cement and its products, chemical products, catalysts, co-catalysts, additives, rubber and its products, special equipment for petroleum and petrochemical industry, general equipment, power equipment, transportation equipment, electrical equipment and its accessory, electrician material, fire fighting equipment, general instrument and apparatus, special tools, valves and piping fittings. Internet site www.bjoil.com of Beijing Oil Company can satisfy oil-marketing demand of various users in Beijing and accept registration of new members. After order placing, the company can select optimal shipping location to sold all types of gasoline, derv, kerosene and lube oil by self-lading or distributing within 24 hours.

The first phase of CA Unicenter TNG project was checked and accepted by CNOOC in March 2001. Computer Associates, famous e-commerce software supplier, has become the partner of CNOOC 6. Some sites in China, such as ChinaOilAsp.com, provide some necessary software for e-commerce, covering usually online survey system, client feedback system, issuance and inquiry system of product qualification, remote service system, shopping system, technology support system, construction of B2B e-commerce site and others.

Challenges in e-commerce development

Various challenges will be encountered in e-commerce development. Challenge to suppliers. According to data from Hurwitz Group, less than 20% suppliers have ability to develop its online business in American market. Moreover, some suppliers have a kind of phobia to emarketplace. They are fear of their profit to be damaged because e-marketplace encourages all suppliers to compete freely, which might decrease the price of products in market 7. Challenge to clients. Main motive of most clients for accession of e-marketplace is to decrease their management cost. However, some existing software platforms are incomplete at present. A report from Giga Information Group indicated that there are about 50% clients who think that B2B e-trade platforms cannot satisfy their requirement and only 10% clients think the platforms can satisfy 8. Challenge to proprietors. They may fail to provide excellent service to clients and suppliers. In addition, general standards and specifications are absent. XML has been extensively accepted, but it is not an industry standard yet.

E-commerce solution for petroleum and petrochemical enterprises

Petroleum and petrochemical enterprises need e-commerce. It is necessary to realize through three steps: intranet, extranet and e-commerce. Intranet is the LAN in enterprises to realize an internal share of information and equipment within an enterprise. Extranet is an extension of the intranet in an enterprise. Through connection of its own net with the nets of other enterprise and business partner, the enterprise can expand its business continuously. E-commerce is a strategic transform. An overall enterprise e-commerce is to introduce e-commerce mode into the overall enterprise management. For petroleum and petrochemical business, B2B sites may be built facing to clients, i.e. e-sales (ecommerce between manufacturer and client) or facing to suppliers, i.e. e- procurement (e-commerce between manufacturer and supplier). Take B2B e-sales site as an example, the solution of e-commerce should at least have the following functions: 1, Information issuance. The enterprise issues the information of technologies and products to clients. 2, Technology consultant. The enterprise provides tailored information to satisfy clients specific inquiry with sample picture, application instruction and other detail information about technology and products as well as prediction about technology trend and updating product. 3, Online ordering. The enterprise provides clients with online ordering service. 4, Remote shipment. Enterprise issues instruction for client service to its local affiliates. 5, Online payment. Client pays for its order to enterprise through online bank. 6, Service management. Enterprise assigns missions to its after-sales service institutions and exercises tracking and feedback to the service process. Currently the total trade income in petroleum industry is US$ 2500 billion per year and the amount of 9 procurement is US$ 430 billion per year . E-marketplace in petroleum and petrochemical industries

has become an inevitable choice due to its significant advantage in capital. As of March 2000, at least 50 e-commerce companies planed to serve oil and gas industry. A powerful software tool XML allows the dream of e-commerce come true. PetroXML developed by TransZap Company has solved the invoicing problem in e-commerce of petroleum industry. The combination of PetroXML with post-office system software will constitute an excellent B2B framework. M2M (Marketplace-to-Marketplace) e-commerce is a new trend. According to Japanese Economy News, there are about 1500 B2B e-marketplace in the world. Enterprises complain about too much service fee caused by the over-dividing market. For this cause, e-marketplaces have begun a lateral incorporation union. It is regarded that every industrial sector can at most support 3 e-marketplaces. The e-marketplace global Internet exchange GNX had been established among 7 largest global retail dealers in February 2000 10. We believe, as other global oil companies, the petroleum and petrochemical industries in China will go through B2B and M2M e-commerce process eventually.

References
1. Zhi Linfei, U.S.A. Research Institution predicts that the global B2B e-commerce will have a rapid growth, www.sohu.com, Oct.11, 2001 2. E-commerce will bring huge economical profit for petroleum industry, www.oilchina.com, Nov.28, 2000 3. BP invests US$ 1 billion for e-commerce development, www.oilchina.com, Apr. 16, 2001 4. IDC study reports: Development of B2B e-commerce in China, www.sina.com.cn, Jul.24, 2001 5. The amount of PetroChina e-procurement will reach 58.4 billion in the coming 4 years, www.oilchina.com, Nov.13, 2001 6. Computer Associates News Center, The first Phase of CA Unicenter TNG project was checked and accepted by CNOOC, www.cai.com.cn, Mar.27, 2001 7. Liu Yanzhi, Why is B2B e-marketplace depressed? Science and Technology Daily, Oct.18, 2001 8. Xiaoqin, Survey shows B2B e-trade platforms are not satisfactory, Computer World, Nov.22, 2001 9. E-commerce: opportunity and challenge in petroleum exploration and development, www.oilchina.com, March. 21, 2001 10. E-commerce in US enters into an integrated times, www.oilchina.com, March. 1, 2001