B2B online platforms for Value Networking: Implications for Automotive and

Semiconductor Industries
Abstract:
As industries are shifting from supply to value chain networks with the integration of
product and service sectors such as Automotive as well as semiconductor industries; they face a
continuous challenge of managing relationships and the associated information flow within the
internal organizational structure or with external stakeholders and partners. Such challenge is
even increasing with the evolution of market economy and intensifying competitiveness leading
to more complex business relationships of joint-venture, merger& acquisition as well as industry
alliances or clusters. Hence, the exploitation of technology can play a pivotal role in managing
such complex relationships and information flow effectively and efficiently, baring in
consideration the risks and issues arising from knowledge exchange among different companies
and organizations, such as information security, intellectual property and technical deficiencies.
This paper discusses the case of Covisint as a model in applying online value networking as a
B2B solution in managing complex value chain relationships and information flow. The paper
also try to learn successful lessons from this case to be applied in the semiconductor Industry.
INTRODUCTION: value co-creation& networking
In order to be more competitive, organizations strive to offer solutions with higher value or
perceived benefits that can satisfy their customers and make them willing to pay for such product
or service as well as build a relationship of loyalty to that organization and sacrifice the
associated risks of investment time and effort. Maximizing value through collaboration with
partners in a value network can be achieved through integrating their resources. Value co-
creation at actor level is about integrating resources within the organization to create value, while
at the relationship level, the actor collaborates and integrates resources with another actor
through activity, resource and organization links. A higher level of collaboration is value co-
creation at network level where a network of actors do a pattern of activities to co-create a value
through resource constellations or a platform to facilitate resource integration, relationships
management and value co-creation activities. (Jaakkola & Hakanen, 2013).
The objective of value creating network is to create superior customer value. The extent of this
value is determined by the capabilities of the member firms trying to integrate their resources as
well as the nature of relationships to facilitate value co-creation in the network. The need for
maintaining sustainable win-win relationships among network participants is important for
maximizing the value, capabilities and efficiency of overall network performance. It is more
important to assess and find the suitable and qualified partner first. However such process takes
long time, high transaction cost and high risk. E-commerce and the internet platform try to
minimize those factors (Kothandaraman & Wilson, 2001).
In the case of an industrial solution network, a machine retailer is an example of organization
trying to be differentiated and competitive by partnering in co-creating value involving both
products and services. The integrated solution required to fulfill the manufacturing industry’
customers in this case is a collaborative integration of machine tools and after sales services (i.e.
maintenance& repair) from supplier (A1) with robots delivered on demand from supplier (A2),
and maintenance software from supplier (A3). The relations were complementary, constructive
and trustworthy in which Supplier A1 core competence focus on customer and market insight
while other suppliers complement the secondary technology components. The resource
constellation can be easily predefined if the solution content is more or less standardized
precisely for partners. Not only solution developers are fully informed and aware of the solution,
but also involve customers in feedback to insure they receive the best value and help customize
the solution according to their preferences. Moreover, such transparent and information
exchange among developers and customers help in making the whole operation more agile and
lean by streamlining, planning and mapping the activities more effectively and efficiently.
However, relationships intensity between actors differs according to the criticality and continuity
of the activity.(Jaakkola & Hakanen, 2013).
The internet is fertile ground for multisided platforms that articulate the production of goods or
the execution of services between third parties, thus relying on value co-creation as their core
business model mechanism. Entrepreneurs should first accurately identify the type and nature of
resources each potential actor can bring to the co-creation process, and base the value
proposition on this identification. At the same time, entrepreneurs must be aware of the potential
divergences in interests and expectations of those involved that could negatively impact the main
value proposition and value capture of the business model. The ability to monitor the value co-
creation process constantly and learn from experiments and tests becomes vital. If the experiment
shows an unbalanced co-creation process in terms of resource allocation or value capture,
entrepreneurs should be ready to step in and propose changes in the co-creation mechanisms or
even in the business model itself. For instance, if the business is highly dependent on a vast
database of user information, maybe it would be advisable to run a first version of the business
model focusing on the delivery of value mainly for the owners of such vital information, free of
charge, in order to build the critical resource.

Figure 1 represents and evaluates the perceived value dynamics for all actors involved in a co-
creation process. The focal firm is the key provider of multisided platform and owner in the
business model, based on which the different values for the actors involved are proposed. It also
defines the strategies for engaging stakeholders in the co-creation process. Finally, the co-
creation process must be monitored by the local firm in order to substantiate incremental
improvements on value propositions and value capture structures or even total redesigns of the
business model.i
Covisint and the early B2B industry
United States was a global leader in the automotive industry throughout the twentieth
century, in which the big three Original Equipment Manufacturers (OEMs) were Ford Motor
Company, General Motors, and Chrysler. The industry at that early stage was highly complex
due to the hieratical supply chain in which OEMs rely on big parts and sub-systems from various
Tier 1 suppliers who in turn rely on many of Tier 2 suppliers for small and basic parts, who in
turn rely on a bigger number of Tier 3 suppliers for raw materials and basic parts. However,
during the 1970s the Japanese lean management and flexible Kieretsu supply chain style was a
competitive advantage allowing Japanese OEMs to build and deliver cars more quickly and with
lower cost. Japanese OEMs offered a small number of options packages of their different car
models and maintained a large inventory at their US dealers and used “ship in 5 days model”
allowing dealers to ship cars from their network of lots in response to customers’ orders. The
Japanese competition was a rising threat to the American automotive industry while car prices
fell 2.6% from January 1997 to October 2001. On the other hand, American big 3 responded by
a more competitive supply chain approach of “build in 5 days” model similar to Dell approach in
which OEMs offer the exact set of options each customer wanted and not offering customers a
set of options as in the Japanese model. The American model made OEMs to source larger car
components from a fewer number of large Tier 1 suppliers to be able manage their supply chain
complex relationships within a limited number of partners, so that cars can be built from a small
number of modules designed for reuse across product lines to reduce cycle times and costs.
However, the new American supply chain style needed information technologies to support
collaboration and performance tracking. (Applegate L.M. and Collins E. L., 2006a).ii
Tavares, J. (2001) gave a historical overview of B2B industry referring to the pre-internet
period of mid 1990s in which B2B markets were available only to large firms that owned
expensive electronic data interchange (EDI) systems. At that time B2B was a useful procedure to
minimize transaction cost by stimulating outsourcing and market expansion, with new
competition rules including a new profile of entry barriers and an ambiguous impact on market
transparency... Covisint was latter established in February 2000 by Ford, General Motors,
Daimler-Chrysler and Renault-Nissan as a B2B joint venture company to connect the 4 partner
companies with about 60 thousand prospective suppliers and was able to handle about US$250
billion worth of parts per year with added value of reduced model design cycles from 40 months
to 15 months and eliminating about 90% of current transaction costs”.iii
In year 2000, the internet service was commercially announced with the dot-com bubble,
making higher potential volume of orders that can flow through Covisint which became a
dominant Business to Business (B2B) industry exchange bypassing around 2000 other exchanges
in operation at the time, including the 150 already used by automakers and suppliers. Covisint
operated as an application service provider (ASP) developing and hosting supply chain
applications for industry participants to manage the complex industry relationships.. One of the
most successful application solution was a system to enable online auctions, which was expected
to streamline the procurement process and significantly reduce OEM costs. In order to introduce
this solution quickly to the market, Covisint licensed its auction software from a software vendor
and other applications followed the same process during Covisint early years of existence. The
auction software had immediate success for both Covisint and its OEM founders. In year 2000
for example, Daimler-Chrysler conducted 27 auctions through Covisint saving 17% on
procurement costs for the OEM founders. With the increase of revenue and cash flow, Covisint
decided to build and promote a standard set of applications to drive out costs with its own
intellectual property products. However, the OEMs all had different needs and the CEO of
Covisint Bob Paul explained “we were forced to develop multimillion-dollar projects for one
OEM that were never adopted by other OEMs” (Applegate L.M. and Collins E. L., 2006a).
Econornides N. (2006) referred to Covisint in discussing B2B solutions and issues in
network and supply chain industries and stated some of them: “B2B exchanges can provide
substantial benefits by consolidating trades, increasing market liquidity, improving
standardization, and reducing search costs. But B2B exchanges also have the potential of
creating significant antitrust issues.”iv
The Japanese management style still hold a unique competitive advantage in supply chain
B2B: “While in Europe and the United States the relationships between auto producers and their
suppliers have been traditionally antagonistic, the Japanese industrial system opted for
cooperation, long-term commitments and tacit knowledge, which resulted in lower production
costs and successful models.” (Tavares, J., 2001).
Restructuring B2B supply chain alliances:
Despite Covisint’s early success, their auction site tool increased competition and
squeezed prices, in addition to the diversity of investment in application products, are some of
the issues threatening Covisint’ growth. In 2003 the new CEO Bob Paul had an ambitious plan to
save the company from a great loss. Paul and his executive team customized a set of techniques
for marketing high-tech products and created a nine point scorecard to identify markets to serve
as well as products and services to offer in order to maintain Covisint sustainable proprietary
advantage. The process also enabled them to define businesses to exit or to avoid in the future.
His customer target was decision makers i.e. CTO\CIO in which they participated in the
assessment in collecting performance metrics and find solutions to customer satisfaction. The
main arising issue was that a company needs to share information across the supply chain base,
customers, base and within all the processes. He stressed on the importance of investment in
business applications to facilitate and achieve these information management tasks bearing in
mind the different security, technical and economic factors driving CIOs to adopt them. Bob
followed leader companies with high capital and successful IPO strategy to invest in one
problem and develop a world class application solution rather than investing in many
applications as a small company. One of most successful remaining products by Covisint was a
single platform for companies to communicate and collaborate with their customers and
suppliers. This platform composed of 3 products supporting machine-to-machine connections
for data messaging and people-to-people communication and collaboration via the portal. It also
provide an infrastructure for common access to different applications. (Applegate L.M. and
Collins E. L., 2006b).v
 Paul and his executive team customized a set of techniques for marketing high-tech
products and created a nine point scorecard (exhibit4) to identify markets to serve as well as
products and services to offer in order to maintain Covisint sustainable proprietary advantage.
The process also enabled them to define businesses to exit or to avoid in the future.
Paul believed that Covisint needed to expand its portal offerings and creating a vision perception
in customer minds by adding a messaging hub , and get red of distracter or noncore products
that exhausted energy and resources. The data communication messaging hub addressed the
critical problem of automotive supply chain around data flow and communication. GM alone
sent nearly 50 million electronic data interchange documents to its suppliers annually costing
around $8 us dollars per transaction, and it is getting harder and harder to cope especially for
Tier 1 companies. Covisint developed its messaging hub by forming a consortium of
stakeholders including the big 3 OEMs and Johnson Controls, Lear, and Delphi, in which they all
invest in such cooperation business framework to solve the problem and change business model
of how companies can work together in the future.
One of most successful remaining products by Covisint was a single platform for companies to
communicate and collaborate with their customers and suppliers. This platform composed of 3
products supporting machine-to-machine connections for data messeging and people-to-people
communication and collaboration via the portal. It also provide an infrasturcture for common
access to different applications (see Exhibit 8)
 Covisint understood the increasing challenge for supply chain companies is to manage
their alliances, partnerships and business networks relying on a secure and reliable system for
information and knowledge sharing. Exhibit 11 illustrate their business development.vi

According to Covisint’ new parent company, Compuware.com (2007), the Trusted

Identity Broker acts as an intermediary between and within organizations. As a centralized
identity management hub, this solution most often delivers value in 3 areas:
1. Intra- and inter-organizationally--companies need to communicate and collaborate both
internally and externally. Covisint enables business units to retain autonomy and control of
their users, yet provides a flexible way to federate data across all business units. –
2. Through mergers and acquisitions--often, the success of an acquisition is predicated on how
efficiently the different business units can be quickly integrated or separated. Covisint
federates identities into an integrated whole, securely bringing together stakeholders from
multiple organizations.
 3. Via outsourced services--organizations often reduce costs by outsourcing non-core business
functions. Covisint enables organizations to access and manage their own data, simplifying
the user experience& eliminating redundancies i.e. multiple password entries. vii
Bob divested all but 3 of its applications and developed a differentiated strategy and
selected applications with higher value proposition. Other reformation actions was layying off
staff and moving into smaller and less expensive office space as well as 56% reduction in the
company’s operating expenses. As a result of such restructures, top-line revenue remained the
same despite the exit of most applications. In May 2003, Covisint celebrated their first year
profits earning 11$ US million, and a growing value proposition. Its user base had grown by
178% in 2003 to more than 135000 in 25,000 organizations and in 2004 Covisint got a
successful acquisition deal by Compuware to expand their market and capital.
Semiconductor Industry
The method of e-commerce employed by TSMC, or more specifically TSMC-Online, acts as a portal
providing comprehensive support for its customers’ major operational tasks, ranging from prototyping
and design, to engineering and logistics.
In terms of design, aided by its B2B Internet applications, TSMC has drawn on a portfolio of design
solutions from third parties to help its customers to achieve better designs, more reliable design reuse and
faster time-to-market, leading to virtual integration of a network of firms.
The framework of TSMC’s VF

TSMC defines itself as customers’ VF. TSMC wants to provide customers real-time information
access. To construct customers’ VF, the first step of TSMC was to reengineer itself to become a
customer-oriented organization. Then, it chose the appropriate information technology
infrastructure for VF. TSMC’s VF is composed of three major parts: they are shop floor system,
business operations and the transmission of real-time information and services to all customers.
So, from the customer’s point of view, we could understand what the TSMC provide for the
customer from the below 3 functions:
TSMC-Online
TSMC-Online is a Web-based, browser-accessed information services. It provides
customers the real-time visibility of orders, WIP and shipping status during the foundry service
cycle. The capabilities provided by this system are as follows:
* Review technical documents, brochures, and manuals during foundry selection and chip
design stages. * Submit mask-tooling information, enter foundry service request forms, and
place orders.
* Check WIP status, weekly schedule reports, lot reports, and daily reports on wafer shipments,
backlog, and delivery schedules through the production cycle.
* Review the quality and reliability data, and news or information; such as product yield
forecast, R&D project status, and technical marketing information.
TSMC-Direct
 TSMC-Direct is a system-to- system integration service via the Internet and allows
customers to participate in off-site manufacturing and achieves business process integration. This
software acts as a translator, which receives information from TSMC’s engineering systems,
product data management systems, manufacturing execution systems, and Enterprise Resource
Planning (ERP) applications, and then transforms and stores the information into customers’
systems. Thus, the system enables customers to place orders and receive confirmation in real
time; track WIP directly; enact collaborative planning and engineering data sharing with TSMC.
TSMC-YES
TSMC-YES helps customers to perform engineering analysis in their own sites. This system
uses the Internet to establish a direct real-time connection between customers and TSMC’s fabs
during process development and enables customers’ designers and TSMC’s engineers to share a
common yield-analyzing tool and to obtain a set of real-time test data. This shortens process
development cycle time, simulates a customer-owned fab, and improves product yields. TSMC-
YES also maintains complete histories that correlate the yield of every lot with its process
history. Using this system, customers can work with TSMC to quickly identify major yield
limitations while ramping up a new product introduction.viii

Online B2B collaboration across semiconductor companies in Taiwan and China

Firm S is a Chinese company established in 1998 with the ambition of developing circuit
analysis services and software and helping IC Design Company promote competitive ability and
protect IC intellectual property. The firm has extensive levels of involvement across a variety of
foreign markets. Market coverage is extensive due to their internationalization efforts and
strategies for expansion. Since its first joint venture in France in October 2004, the firm
subsequently acquired a Russian firm as the first overseas R&D centre and established another in
Taiwan. The firm has expanded its global activities in North America, South Korea and Japan
through wholly-owed enterprises and joint ventures. By collaborating with a Taiwan-based
semiconductor material analysis firm, the strategic alliance provides an online platform for sales
and business consultation in the failure analysis, circuit analysis and EDA tools. By 2007, Firm S
had grown to 140 employees globally, with sales of US$1.5 M with over 125 per cent of sales
growth rate due to international expansion.
Conclusion and Implications for Semiconductor industry
Covisint was an IT company offering digital services to the big American automotive industry
players and later on, Covisint was acquired by Compuware, a bigger American IT company to
strengthen their differentiation and competitive advantage over the Japanese and Asian
automotive competitors. The same approach is applicable to semiconductor industry . There are
opportunities of online business platforms to offer solutions for value chain network industries. In value
chain network industries, companies seek collaboration with their stakeholders, especially in
B2B context. The big firms usually call for partnerships with the help of online platforms to
manage their value chain activities and co-create value. This collaborative platform is ideal for
network industries not for SMEs. however, medium size companies in tier 2,3 can still be part of
the network if they can expand their business by joint venture, merger and acquisition as a way
of their alliance strategy, then they can be integrated in enterprise value networks.

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