Intermediaries have been the most affected by the arrival of the Internet. Whether the activity is banking, broking or trading, the Internet is changing the established patterns of doing business. The tea auction system, which has lasted for generations in this country, is one business which is likely to be totally transformed. Indeed, the process has already started, though in a small way. A company called teauction.com has started auctions on the Net. The advantages are obvious. Currently, conventional auctions account for about 8 per cent of the expenses incurred by tea sellers. The costs are many -- warehousing the tea, sending samples, printing the catalogues, and most importantly, the inordinately long time taken to complete the entire auction process, which results in funds getting blocked. These problems have led to tea sales moving away from auctions, in spite of the statutory requirement that companies must route at least 75 per cent of teas sold through auctions. Tea companies admit that only about 55 per cent of tea sales in the country is currently through auctions. Moreover, so long as distance was a major hindrance to the buyer and seller coming together, auctions were the best way to do business. But improved communications have meant the death of distance, and buyers and sellers are able to get to know each other in a way they could not before. The saving in cost is of course a great incentive, and the amount of private sales (i.e., outside of the auctions) has been steadily rising.
An online tea auction combines the best features of the auction system with the cost efficiencies of private sales. The advantages are obvious. One is that of reach -- buyers all over the world can bid. The process of fixing the price is transparent, and can be followed online. In addition, physical presence is not needed, the auction is open for seven days, and all kinds of tea can be bid for on the same website. One estimate puts the cost of selling through the conventional auction system at Rs 6 per kg, compared to a little less than Rs 3 per kg through the online auction route. And that cost can only come down. For instance, the brokerage charged in online auctions is currently more than that charged at conventional auctions. Sellers don't mind because the total cost is lower. But competition will soon drive brokerage lower, as has happened with online stock trading. And once the e-commerce laws are in place, volumes will burgeon, enabling brokers to lower commissions further.
All this doesn't mean that tea auctions will disappear. All that has happened is that they will shift online. There will still be a need for intermediaries which will stand as honest broker between buyer and seller; even the teauction.com model envisages a trade guarantee. It is also significant that teauction.com has tied up with a traditional broker, AW Figgis, thereby signalling that far from being in danger of fading out, the established brokerages have an important role to play. Add to that their traditional role in financing tea companies' receivables, and they will give the new dotcoms a run for their money. But the moral of the story is clear unless the incumbent players start using the new medium, they stand a good chance of being Amazoned.
