Transcript Slide 1

What is a business market?
In its most basic form,
a business market is a network of
transactions and relationships among
buyers and sellers.
Questions to consider when designing a market
1.
Which activities should we perform ourselves and which should we
source from the outside?
2.
How should we relate to outside parties, including customers,
suppliers, distributors, partners, and others?
Which activities should we perform ourselves and which
should we source from others?
Options
Description
Vertical
Integration
Locate all but the most routine, transaction
oriented activities inside the firm.
-
Selective
Sourcing
Source selected activities from the outside.
Traditionally, sourced activities were controlled
through short term contracts.
Virtual
Integration
Become part of a network of highly specialized,
independent parties that work together to perform,
coordinate, and control value chain activities.
How should we relate to outside parties?
Transaction
Contract
Partnership
Basis of
Interaction
Discrete exchange of
goods, services, and
payments; e.g., simple
buyer/seller exchange
Prior agreement governs
exchange; e.g., service
contract, lease, purchase
agreement
Shared goals and
processes for achieving
them; e.g., collaborative
product development
Duration of
Interaction
Immediate
Usually short-term and
defined by the contract
Usually long term and
defined by the relationship
Level of
Business
Integration
Low
Low to Moderate
High
Coordination
and Control
Supply and demand
(market)
Terms of contract define
procedures, monitoring,
and reporting
Information
Flow
Primarily one way;
Limited in scope and
amount; Low level of
customization
One or two way;
Scope & amount are
usually defined in the
contract
Inter-organizational
structures, processes, and
systems; Mutual
adjustment
Two-way (interactive);
Extensive exchange of
rich, detailed information;
Dynamically changing;
Customizable
A framework for analyzing
market structure and relationships
Structure
Virtual
Integration
Selective
Sourcing
Vertical
Integration
Transactions Contracts Partnerships
Relationships
How will markets organize in the Network Economy?
Emerging networked market models
Components of a Business Model
Components of a Business Model (continued)
What is it?
An organization's business concept defines its
strategy. The concept is based on analysis of:
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Market opportunity
Product and services offered
Competitive dynamics
Strategy for capturing a dominant position
Strategic options for evolving the business
An organization's capabilities define resources
needed to execute strategy. Capabilities are built
and delivered through its:
 People and partners
 Organization and culture
 Operations
 Marketing/sales
 Leadership/Management process
 Business development/Innovation process
 Infrastructure/Asset efficiency
A high -performing organization returns value to all
stakeholders. This value is measured by:
 Benefits returned to all stakeholders
 Benefits returned to the firm and its owners
 Market share and performance
 Brand and reputation
 Financial performance
How will we?
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Attract a large and loyal community?
Deliver value to all community members?
Price our product to achieve rapid adoption?
Become #1 or #2?
Erect barriers to entry?
Evolve the business to "cash in on strategic options"?
Generate multiple revenue streams?
Manage risk and growth?
Achieve best-in-class operating performance?
Develop modular, scalable, and flexible infrastructure?
Build and manage strong partnerships with employees
and the community?
Increase the lifetime value of all members of the
community?
Build, nurture, and exploit knowledge assets?
Make informed decisions and take actions that increase
value?
Organize for action and agility?
Deliver value to all stakeholders?
Claim value from stakeholder relationships and
transactions?
Increase market share and drive new revenues off
existing customers?
Increase brand value and reputation?
Generate confidence and trust?
Ensure strong growth in earnings?
Generate positive equity cash flow?
Increase stock price and market value?
New York Stock Exchange market model in 12/2000
Auction Market Model
• Floor-based trading of over
• Screenbased
3025
securities
trading enables
Specialist
Acts as Agent
BUY
SELL
• Specialists
maintain
a central
complete
view
of
order
book
–
order-driven
orders
system
• High levels of
• Average
daily trading within
volume
transparency
was 1.0 billion shares per day
global markets
and the # of listings was 2,862
• Limited sources of
• Average market value was
$UScapital
12.4 trillion
Stocks are traded on a physical trading floor using the
- open-outcry auction method.
Until recently, investors placed orders through stockbrokers who then communicate
those orders to floor brokers who completed the trades at the booth of a specialist.
In 2000, 30% of orders were transmitted electronically directly to the specialist at
his/her booth on the physical trading floor. Specialists are members of the NYSE
who act as auctioneers for their assigned stocks. Each stock is assigned to one
specialist.
Nasdaq Securities Exchange market model in 12/2000
• Screen-based trading of over
4734 securities
Market Maker Model
Multiple Market Makers act
as Principals
BUY
SELL
• Screenbased
• Computer
displays
buy and sell
quotestrading
from multiple
market
enables
makerscomplete
– quote-driven
system
view
of
orders
• In 2000, the Nasdaq market united
over• 500
market
making
High
levels
of firms
transparency within
• On average, each stock was
markets
traded global
by 10 different
market
makers, which encouraged
• Limited sources of
competition among market
makerscapital
driving prices down
• Average daily trading volume was
1.8 billion shares per day and the
# of listings was 4,734
• Average market value was $US
3.6 trillion
Unlike the NYSE where trading was driven by the flow of orders received by specialists,
trading on the NASDAQ was driven by quotes from multiple market makers that commit their
own capital to establish a buy and sell position in each stock that they wish to trade. The
position reflects the price they would be willing to buy (bid) and sell (offer) a stock. The pricing
window between the best bid and offer is called the “inside spread.”
ECN market model in 12/2000
Automated Trading
Market Model
Computer System acts as
Agent
BUY
SELL
• Screen-based automated trading
• Computer acts as a specialist
attempting
to matchbased
orders from
• Screenindividuals
and market
makers –
trading
enables
order-driven system
complete view of
orders
• In 2001, the
oldest and largest ECN,
Instinet, had over 21,000 subscribers
• High levels of
and accounted for over 12% of Nasdaq
transparency within
daily volume
global markets
• Unlike exchanges, ECNs were not
• to
Limited
sources
required
divulge the
identity of
of
capital
individuals and firms trading on its
network and could charge a
subscription fee of its members
• In 2001, ECNs charged $2-$5 per trade
vs $50-$60 per trade by a human
broker
Like the NYSE, Electronic Communication Network (ECN) trading was driven by the continuous flow of buy
and sell orders, rather than by the competitive quote-driven trading as seen on the Nasdaq. But, unlike the
NYSE, orders traded without the human intervention of a specialist. When a buyer or seller submitted an
order to an ECN, the computer first attempted to match the order within the ECN market; in 2001 ECNs
were able to match about 50% of their orders internally. If the order did not match within seconds, the ECN
assumed the role of a Nasdaq market maker and the order was submitted to Nasdaq. In 2Q2001, ECNs
accounted for 29% of Nasdaq market volume, up from less than 3% in 2Q 1998.
The TSE/OSE market model (mandated order flow)
ECN
Market
Specialist
Auction
Market
Model
Automated System
system
acts
Acts
as as
an Agent
agent
SELL
BUY
• Screen-based trading of over
1400
securities (TSE) and
• Screen-based
over 1200 (OSE)
trading enables
complete
view
ofbook
• Automated
central
order
orders
(limit
and market orders)
• High
levels
ofvs. 18%
• OSE
turnover
is 9%
within
on transparency
TSE, 88% on NYSE,
and
over
100% on
Nasdaq
global
markets
• •In 2001,
OSE sources
had 88 domestic
Limited
of
andcapital
20 foreign broker/dealer
members
Until the late 1990s, stocks were traded on a physical floor using open outcry auction.
The “itoyose” process was used to set opening price, and the “zaraba” process was
used to price continuous order flow. “Saitori” (“nakadashi” at OSE) execute trades but,
unlike NYSE specialists, there was no obligation to correct imbalances. With full
automation, the Japanese markets have been likened to the ECN with mandated order
flow.
The Nasdaq Japan market model
Auction Market
Model
Specialist
Acts as Agent*
BUY
SELL
• Floor-based trading
enables complete
view of orders
• High levels of
transparency within
local market
Hybrid Market Model
combines advantages of
various market models
BUY
SELL
• Limited sources of
capital
• Screen-based
Market Maker Model
Market Market Specialist trading enables
Multiple Market Makers
complete view of
Act as Principals**
quotes
BUY
SELL
• High levels of
transparency among
multiple market
makers
• Multiple sources of
capital
ECN Market Specialist
Automated System
Acts as Agent
SELL
BUY
• Screen-based
trading enables
complete view of
orders
• High levels of
transparency within
global markets
• Limited sources of
capital
• Screen-based trading
• Screen-based trading
enables complete view of
enables complete view of
orders and quotes
orders and quotes
• Competing market makers
• Competing market makers
yield narrower spreads
yield narrower spreads
• Multiple sources of capital
• Multiple sources of capital
• Meets needs of retail,
• Meets needs of retail,
institutional, and
institutional, and
corporate investors
corporate investors
• Enables anonymity
• Enables anonymity
• Continuous order flow; no
• Continuous order flow; no
need to stop for
need to stop for
imbalances
imbalances
Comparison of Japanese securities markets
TSE accounts for 70% of shares listed, 80% of trading value, and 90% of trading volume
Large/
Established
TSE
TSE and
and
OSE
OSE
Section
Section 1
1
Nasdaq
Nasdaq
Japan
Japan
Issuer Size
& Maturity
TSE
TSE
and
and OSE
OSE
Section
Section 2
2
Small/
Young
Slow
20 - 25 years
Jasdaq
Jasdaq
OTC
OTC
TSE
TSE
Mothers
Mothers
Fast
3 - 5 years
Average Time to Public Offering
Nasdaq Japan market entry strategy
June 19, 2000
Early 2002
???
Phase 1
Phase 2
Phase 3
Enter Quickly Using
OSE Market Platform
Launch Hybrid
Market Model
Link Global Pools
of Liquidity
The Nasdaq Japan market model
Business Concept:
Market Opportunity
Product and service offered
Competitive Dynamics
Strategy for capturing dominant position
Strategic options for evolving the business
The Nasdaq Japan market model
Market Opportunity? 1999
USA
JAPAN
Ratio
GDP
9.2T
4.5T
48.9%
Trade Vol
1994M
711.9M
35.7%
Turnover78%(NYSE)
44%(TSE)
56%
# of Listings
8623
3185
# of IPOs
545
20
Market Value
17.64T
7.338T
41.6%
6.79(TSE)
14.8%
Avg Price/Share 43.77(NYSE)
36.9%
3.6%
Competitive Dynamics
Nasdaq Japan financing history
Nasdaq U.S.
Softbank
Post-Money % Ownership
Burn Rate:
December 2001
Nasdaq U.S.
Softbank
42.9%
42.9%
Strategic
Investors
13.8%
Limited
Partners
2000-2001: ¥1.9 billion
www.nasdaq.com
www.softbank.co.jp
2002: ¥24 million
2003: ¥12 million
June1999
2001¥¥300
937.5
million
June
million
Dec. 2001 ¥ 937.5 million
Nasdaq Japan, Inc.
June
million
June2001
1999¥¥937.5
300 million
Dec. 2001 ¥ 937.5 million
0.4%
October2000
2000¥5
¥5billion
billion
October
www.nasdaq-japan.com
Strategic Investors (¥500 million each)
October
October2000
2000¥800
¥800million
million
Limited Partners
Nasdaq Japan Key Challenges
Nasdaq Japan is quickly running out of cash
Failure to attract high liquidity stocks from Nasdaq US
.
Competing interest of powerful stakeholders: widely
divergent and complex cultural norms has impacted
ability to launch
and grow company
.