Victor Tong, President & CEO, Webplus
Webplus, Inc.
860 Blue Gentian RD, Suite 360
Eagan, MN 55121
(651)-209-3100
victort@talentsoft.com

Closing the Information Gap

Aberdeen, SD - January 02, 2004

To illustrate a point, Tony Tong tells a story about a taxi ride he took recently while in China. The driver asked him what business he was in. When Tong said, "The Internet," the driver said, "Ah! My son is on the Internet!"

"With the one-child policy in China, even though it can cost an entire years salary to buy a computer, parents are going to make that investment," says Tong, CEO and co-founder of PacificNet.com, a business- to-business e-commerce solutions provider for trans- Pacific businesses, with headquarters in Minneapolis. Tong, who spends nearly two-thirds of his time in China, estimates that less than 1 percent of China's population is currently on-line but says the Chinese understand that the Internet can give them advantages in their growing economy. "It is estimated that within five years the number of Internet users in China will surpass that of the United States," Tong says.

While the anticipated explosion in consbumer Internet use in China and other Asian countries is exciting to Tong, he can hardly contain himself when conversation turns to the potential for growth in e-commerce between businesses. "I think the overall B2B [business-to-business] market is where the Internet market is heading," Tong says. "There are way too many B2C [business-to-consumer] companies out there. It's becoming a very crowded market and getting saturated.

"The B2B market size is 10 times the size of the B2C market size,"he continues."Some researchers say B2B is a $1 trillion market, and right now less than 1 percent of those transactions are done over the Internet. So that represents the market size for us."

Just a year old, PadficNet.com is positioning itself to grow along with the business-to-business market in Asia. This spring, Hong Kong-based Creative Master International, Inc., a maker of die-cast collectible toy cars, acquired pacificNet.com, which will receive 21 million new shares of Creative Master stock, a substantial majority interest. Through the reverse takeover, PacificNet.com will become publicly traded through Nasdaq in July. PacificNet.com's value rocketed to $140 million because of the deal." After the acquisition, we control 80 percent of the company. We will rename the company, set the direction of the company. We will not be doing toy business,"Tong says and smiles.

Tong was born in mainland China but moved to Hong Kong with his family when he was 8 years old. After graduating from high school, he went to prep school in Minnesota through a cultural student exchange. "I didn't pick Minnesota; I was assigned to a school here," says Tong. "But I fell in love with the place. I play ice hockey and cross-country ski and ice skate."

Tong then attended the University of Minnesota and earned a bachelor's degree in mechanical engineering in 1992. Upon graduation, Tong took a position at Andersen Consulting in Minneapolis, developing client-server applications such as for Northwest Airlines to track ticket sales. Two years and two jobs later, Tong and his younger brother, Victor, who had followed Tony to Minnesota and earned a physics degree from the University in 1993, co-founded a Web design, Internet, and e-commerce consulting company in 1994 called Talent Information Management, later renamed Talentsoft.com.

The company struggled for a couple of years but showed great promise, developing e-commerce packages and partnering with such industry leaders as Microsoft and experts at the University of Minnesota. Minneapolis- based Key Investments noticed Talent Information Management and acquired several segments of the company in 1997. One of the pieces that the Tongs held onto, however, was PacificNet.com, its Asian operation.

The Tongs spun PacificNet.com off into its own company in June 1999 with Tony at the helm, but all the while he had continued to hold day jobs, including as chief technology officer at Vallon, Inc., in Minneapolis. In the fall of 1999, when China Strategic Holdings and Fortune Tele.com acquired portions of PacificNet.com infusing much needed capital, the business began demanding Tong's full attention. (Victor Tong continues to head TalentSoft.com.)

PacificNet.com has offices in Hong Kong, Beijing, Guangzhou, and Malaysia and provides e-commerce expertise and technologies to Asian companies transacting with primarily North American businesses. In Hong Kong alone, PacificNet.com has 1,500 corporate customers mostly small and medium sized, using its eMerchant 2000 e-commerce system.

PacificNet.com has also entered into joint ventures with several big businesses. "Once we identify a partner that's a leader in its industry, then we find a synergy," says Tong. "We say, 'OK, you guys are a leader in the paper industry or the steel industry or whatever industry. We are a leader in technology, and we can help transform your business by taking advantage of the Internet" One such joint-venture partner is Asian Pulp and Paper, which controls about 30 percent of the paper products market in China.

"Most of the Chinese manufacturers are not seeing the benefits of e-commerce," says Tong. "Right now Asia, especially China, is the industrial powerhouse that manufactures a lot of the low-end consumer electronics and consumer goods and exports to the rest of the world. But if you go and talk to these manufacturers and ask them, Are you making money? Are you doing well? they're going to tell you that every day they're having a hard time surviving. Their margins are extremely thin. Their labor costs are low and they can manufacture cheaply, but the price gap is huge. The manufacturer is not making the money. Most of that cost difference is because of the information gap, because the manufacturers do not understand how to reach the corporate buyers directly and they don't know how to market."

The problem, Tong says, is that many levels of middleman cut into the manufacturers' profit margins: exporters, importers, distributors, wholesalers. But he foresees a day when the power shifts from the consumer side to the supply side with a drastic reduction of middlemen, such as is happening with travel agents and stockbrokers. "Companies that can make the transition and combine traditional business with the Internet will survive," says Tong. "Middle- men afraid of the Internet or who do not want to take advantage of it will be eliminated from international trade.

"With the Internet we're reducing the information gap, the geographical distance gap, and also, with the World Trade Organization, the political gap. I know some people are protesting against it, but I think the overall direction is that the world is becoming a freer place, information-wise."

Tong says he is able to bridge the cultural gap as well. In addition to English, he speaks Mandarin, Cantonese, and Japanese, and he understands the cultures in Hong Kong and in mainland China, where building a relationship can take a long tine. "The relationship is as important as whether a proposal is obviously a good deal, practical,"says Tong.

"The Internet is really a fast growing market. We want to capture the market share before somebody else does," he says. "That's what most companies want to do, but I think the difference between our approach and others' approach is that many traditional U.S. companies spend a huge amount of money marketing and branding. We spend more time setting up the business relationships and actually building the fundamental business. We're not spending that much time bragging about ourselves. We let the story speak for itself.'

Tong does spend a lot of time recruiting employees. PacificNet.com has 14 in Minneapolis and about 50 in Hong Kong and hires new teams for its joint ventures. He has worked with the University's computer science department to form research collaborations and has taken on interns, eventually hiring some. He has also been an adjunct professor at the U, teaching undergraduate and graduate Internet and e-commerce courses.

While Tong dreams of being a leader in business-to-business e-commerce in Asia, he actually he sees himself as a "serial entrepreneur,' perhaps someday forming incubators to help other young entrepreneurs start companies. "I'll have to see if I enjoy this CEO role,"he says. "Once the company becomes a several-hundred or a thou- sand-person organization, then it's a different type of skill and I may move on and do something more interesting"