Procurement Environment and the Rise of E-Marketplaces

There is ample evidence that in the private sector procurement environment benefits, risks and opportunities may accrue to both purchasers and suppliers (Greenstein & Vasarhelyi, 2002). When e-marketplaces are established as an independent business, this may bring a third party into the benefits equation. Even in this situation, the assessment of benefits and costs is relatively straightforward. However, public sector procurement can be a far more complex environment with its potential to impact on a variety of other policy issues of interest to stakeholders, particularly the government of the day and the bureaucracy. For example, in Western Australia, the state government has a "Buy Local" policy that is expressly designed to further the government aims of regional development, rather than to achieve the most cost-effective procurement for the purchasing agency.

There has been a plethora of e-marketplaces developed in the last decade. These marketplaces come in many forms.

• The development of traditional markets into electronic marketplaces, for example, the conversion from floor trading to electronic trading at most major world stock exchanges.

• Some markets have been established as vertical markets to service specific industry sectors, including motor vehicle manufacture, mining, plastics and the pharmaceutical industry.

• Some markets appear to have been established simply on the basis that integrated software solutions enable them to be effective, for example www.Mysap.com.

On another dimension, markets have been established by:

• Buyers (typically where the buyers are in a position of power in the market)

• Sellers (typically where they have the power)

• Intermediaries (typically where there is threat of disintermediation in the market)

E-marketplaces may be seen to facilitate the stages in the life cycle of trade which cover negotiation, execution and settlement (Bytheway, 1995a).

Nokkentved (2000) provided a continuum of functionality for the development of marketplaces. He suggests four major categories of function can be provided by e-marketplaces, from the provision of information to facilitation, then transaction and finally, integration.

In this chapter, we consider e-markets as they relate to e-procurement, therefore we concentrate on markets which reflect different structures according to the demand for products and services rather than their supply. The characteristic "configurations of demand" (Edquist & Hommen, 1998) in which buyers operate are known as monopsony, oligopsony, and polypsony. These configurations relate directly to the more common categories of supply: monopoly, oligopoly and open competition.

In a geographically isolated location such as Western Australia, it is apparent that the government, if it exercises a central influence on agencies in their selection of suppliers, has the capacity to create an oligopsonistic market for some classes of goods and services. This market configuration leads to a "buyer's market," therefore, given our previous discussion; it is no surprise that it has embarked upon its own e-marketplace.