Selling the Internet to the Skeptics

Victoria Leung is a master of the unspoken word, the not-so-innocent question, the sympathetic smile. She knows the danger of saying too much.

Leung knows she has only a few moments to sell herself--to tell a potential client that she works for a firm called Rebound; that she can help his company get rid of its unwanted goods; that his problems are her own.

What she doesn’t mention upfront is that Rebound, an online auction site, relies on the Internet. Here in Asia, that word too often triggers a polite goodbye.

While Internet use in parts of Asia is indeed exploding, this is also a region where millions of people don’t even have private telephone service. Once you venture beyond the multinational firms that operate in a hot-wired global playground, Asia is filled with storekeepers and factory managers who need to be cajoled--even shamed--into using an Internet service that might save money but will certainly cause discomfort along the way.

To watch Leung and her colleagues grapple with this technological resistance is to see how the world works in the early days of the new century--and to realize that not much has really changed.

The birthing of Rebound collided with a plain truth about the new economy: Growing an innovative global Internet company has to be done the old-fashioned way--face to face.

The qualities that make the Internet so attractive--its anonymity, speed, global reach--also create a high level of angst. And those fears are magnified exponentially when bridging continents, cultures and huge technology gaps.

This has created an ever greater appetite for human contact to bridge the inevitable chasm between people’s fears and technology’s promise.

And so the success of Rebound, and thousands of other young Internet firms, is likely to be less determined by bandwidth or Web interface than by the likes of Victoria Leung.

“My very first customer was a 75-year-old man who didn’t know anything about this stuff, hadn’t ever used a computer,” Leung recalls. “I figured if I can teach a 75-year-old man to do business online, then I can do anything.”

Until these new-age Willy Lomans complete their rounds, we will remain far short of the seamless supply chain that is supposed to hook Pakistani rug makers with West Hollywood home furnishings dealers, Japanese auto makers with Mexican brake suppliers, Chinese garlic farmers with your corner grocery store.

Rebound is a logical step in an ancient process. People have always swapped what they had for what they wanted, whether it was stone arrowheads or spices, silicon chips or cocaine. It is how the trading is done--by phone or fax, camel or express mail--that has changed dramatically.

The woman behind Rebound, Marybeth Dee, the 35-year-old daughter of a successful Philippine industrialist, got her start in 1989 selling jewelry in Vancouver, Canada. But she soon realized there was more money to be made working among the bottom feeders of the retail food chain--the liquidators.

Liquidators step in when the system breaks down: An overzealous buyer cancels an order for a container of pumpkin-shaped Halloween mugs; a bankrupt retail chain leaves 10,000 embroidered T-shirts on a dock in Hong Kong; fickle shoppers clean the shelves of fancy slippers, leaving warehouses filled with unwanted sturdy heels.

The inheritors of these excess goods are usually willing to dump them on a middleman for a fraction of their wholesale price, just to avoid the hassles of management and storage.

Economic Collapse a Liquidator’s Dream

When Asia’s highflying economies collapsed in the summer of 1997, Dee was surrounded by heavily indebted manufacturers with a glut of excess inventory and idled plants. American consumers barely jolted by the turmoil overseas couldn’t get enough cheap imported shoes, shirts and household goods.

It was a liquidator’s dream, a $100-billion global market in surplus consumer goods. But finalizing these deals by phone or fax across several time zones was a logistical nightmare. If the goods were particularly hot, Dee had to purchase them without a buyer lined up to keep competitors from outbidding her by a few cents.

The Internet, which was just becoming a commercial phenomenon in the United States with the launch of companies such as Yahoo and EBay, offered a solution: an online auction site where people could anonymously sell their surpluses to the highest bidder. Buyers also could seek out suppliers, a process that’s come to be known as a reverse auction.

With the help of Jeremy Tang, a charismatic Australian who had managed Hong Kong’s trendy Shanghai Tang retail store, Dee started her online business in the fall of 1998 in Hong Kong. Tang, 32, a marketing whiz, assumed the chief executive officer role and focused on raising capital and developing a corporate strategy. Dee, president of the firm, managed the day-to-day operations.

By the following summer, they had recruited several Hong Kong expatriates and raised $650,000 from what they jokingly called “friends, family and fools” among the territory’s close-knit business community.

After settling on the name Rebound International, they decided to co-headquarter the company in San Francisco to raise its U.S. profile.

But Silicon Valley venture capitalists weren’t interested in venturing so far from home. It wasn’t until the end of 1999 that Doug Woodring, a former Merrill Lynch analyst and one of Rebound’s early recruits, helped nail down $3 million from Goldman Sachs in Hong Kong and Chengwei Ventures, a San Francisco-based investment firm.

Now came the hard part.

For an Elvis fan in Atlanta to go online and buy a black velvet painting of the King from a Los Angeles collector is relatively easy. Settle on a price, use a pre-approved service for handling the credit card charge and call Federal Express to deliver the painting overnight.

Not so in China or the Philippines or Indonesia, where Internet service is slow and expensive, credit card use is spotty and next-day delivery might mean next-week delivery or not at all.

China offered a particularly intriguing opportunity: Its inefficient state-owned factories were sitting on billions of dollars in excess goods. Rebound targeted the Taiwan- and Hong Kong-based parent companies that controlled the bulk of the mainland’s export-oriented factories.

Like the knife-making company of Alex Wong.

When saleswoman extraordinaire Leung first approached Wong at a Hong Kong trade show earlier this year, he braced himself for the pitch. He had seen the Internet ads on buses and billboards promising to make him rich overnight. He didn’t buy it.

Still, Wong, director of Takey Industries Ltd., knew he couldn’t stay out of technology’s grasp forever. The Internet offered intriguing possibilities for his firm, which produced stainless steel knives in China and sold 75% of its goods in Europe.

“Sure, I know computers,” the businessman joked during an interview at his cramped sales office in Hong Kong’s Kowloon district. “C-O-M-P-U-T-E-R-S. That’s what I know about computers.”

Far More Pressing Things to Focus On

In Wong’s world, there were far more pressing issues than getting wired. At least three days a week, he crossed the border into southern China, where he managed 700 employees at two factories. There, he was thankful if the telephones worked and the production lines ran smoothly.

Conducting business on the Internet from that side of the border seemed too risky given the lack of security, expensive phone service and the specter of the Chinese government monitoring every move.

Leung offered Wong a seemingly painless way to get his business onto the World Wide Web. As his personal Web shopper, she would post his surplus products on Rebound’s Web site, monitor the bids and even drum up possible buyers from Rebound’s global network. The cost: a 4% to 8% commission depending on the size of the transaction. The minimum transaction: $10,000.

“How could I lose?” Wong thought to himself.

It wasn’t long before Leung was part of the Takey Industries family. She phoned Wong frequently, updating him on the status of bids or checking for order cancellations or factory overruns. His staff soon learned to put Leung’s calls at the top of his callback list, even edging out his wife.

“Victoria never lets me go, even when I’m in China,” he said.

Within two months, Wong had auctioned off tens of thousands of knives to buyers in Manila and Singapore. By the end of this year, he expects, Rebound will have expanded his sales by as much as 10%.

For this Hong Kong businessman, Rebound wasn’t simply a company. It was Leung, a single woman in her early 30s who didn’t think twice about answering an anxious client’s call on Chinese New Year or flying to Shanghai over the weekend to help a Japanese retailer sort out the paperwork to import electronic goods from the U.S.

“Victoria motivates me,” Wong explained. “We are really partners. I don’t feel alone.”

Rebound’s success depended on replicating that kind of personal relationship many times over. At any given time, Leung was helping at least a dozen customers not only find buyers or sellers but locate banks, customs brokers, shipping companies and inspection services.

She also worked her Rolodex. Within a few months of joining the company, she persuaded a former boss, Lewis Luk, to post Rebound’s services on the Web site of the Toys Union of Hong Kong, whose 8,000 members control the lion’s share of the global toy industry.

This aggressive networking paid off, as new customers joined Rebound from Manila; Taipei, Taiwan; and even Tokyo’s tradition-bound retail industry, where the owner of a discount chain asked Rebound not to translate its site into Japanese lest his competitors learn about it. The big corporate trade associations in Taiwan and Hong Kong signed on as partners.

But it was unclear just how quickly Leung and her colleagues at Rebound could extricate themselves from the role of technology go-between, a time-consuming endeavor that undermined one of the Internet’s key selling points: the elimination of the hassles and costs associated with human interaction.

That is the Achilles’ heel for these online auction companies, according to Merle Hinrichs, the founder of Hong Kong-based Global Sources, a computerized trade catalog that was the precursor to today’s online trading firms. The company has 200,000 customers in more than 230 countries.

Hinrichs, who lost two key employees to Rebound, insists that he doesn’t resent the new Internet competition. But he believes Rebound has vastly underestimated the time it will take to turn a profit.

He said it took five years to move Global Sources onto the Internet because of the complex logistics and customer resistance to conducting big deals online. During that period, only one customer completed a transaction over the Internet.

“They’re burning a lot of cash,” Hinrichs said of his dot-com competitors.

Indeed, all the personal attention that was winning Rebound converts in Asia was expensive--and was scaring investors. The company was launched in March, when technology fever was sweeping Asia and tech stocks were hot worldwide. But a month later, the Internet bubble had burst, erasing $2 trillion in value from the U.S. stock market and destroying thousands of dot-com dreams.

In June, the firm turned to Menlo Park, Calif.-based New Venture Marketing to help sell its story to Wall Street. Tang reassured Robin Stavisky, the firm’s managing partner, that Rebound was just weeks from closing its second round of financing. He promised to identify the three investors as soon as the ink was dry on the contract.

What a frustrated Tang didn’t tell Stavisky: He was spending up to four hours a day trying to nudge his investors closer to the finish line, a process he likened to herding cats.

Funding Uncertainty Is Taking a Toll

Four months later, they are close to getting a final commitment from their investors. In Rebound’s first seven months, the company’s customer base has grown to 2,700 and the firm has closed $12 million in deals online, 83% of which cross-border. Pointing to a growth rate of 25% to 30% a month, the firm’s founders say they are on track to hit profitability by the end of next year.

However, the long uncertainty over funding is eating away at Rebound’s competitive edge. Hiring decisions are being delayed and costly trips reconsidered. A plan to open offices in the Middle East and London has been put on hold.

Well-connected U.S. competitors, including Retailexchange.com and Tradeout.com, are moving into Rebound’s turf, spending heavily at Asian trade shows and pressuring partners such as the Toys Union of Hong Kong to switch loyalties.

Tang knows that Leung and her colleagues are his most valuable--and vulnerable--commodity. Cell phones and e-mail translate into 24/7 workdays for 80 employees in 11 offices across the U.S. and Asia. Economy-class airplane seats have become temporary offices; hotel rooms are second homes.

A shortage of talent, particularly in Asia, means that Rebound’s top employees have attractive job options. No one has bolted, but Tang knows they have mortgages and college tuition costs and dreams. Victoria Leung, the fast-talking dynamo in heels, fantasizes about retiring at 35.

How much more can Rebound ask of them?

“I think a true entrepreneur is someone who can convince relatively sane people with relatively good jobs to leave and join this fast-moving, crazy company,” Tang says. “We all share this vision. . . . But I’ve been kept up at night worrying about making it work and not taking 30 or 60 people down with me. That’s real pressure.”

*

Iritani recently completed a fellowship at the Pacific Council on International Policy at USC, where she studied technology in Asia.