Author:ZeMing M. Gao, business strategist; IP attorney (USA); Company-as-a-Product (CaaP) expert; IP builder/strategist/economist; blockchain strategist/economist; tokenization and smart contracts expert; SEC/FINRA Investment Banking representative, Chief Advisor at advising multiple companies;  email:

Arbitrage is a main driver of cross-border global economy.

In the past, the arbitrage opportunities have mostly been in arbitraging things. This will continue, but new opportunities are emerging from arbitraging knowledge.

Things are goods or ‘what one makes’. Knowledge is services or ‘what one does’.

Since the publication of Ronald Coase’s Nobel prize-winning paper ‘The Nature of the Firm’ in 1937, revolutions have happened with regard to how economies are organized, all driven by the fundamental Coasian concept of ‘transactional cost’. The supply chain and the Internet economy are two most prominent examples.

But relatively little has changed in the “the nature of the firm” itself.

The former is about how economies are organized, while the latter (the nature of the firm itself) how organizations are economized.

Changes are happening, and more will be coming. Watch out for the emerging “decentralized employment” and “open employment” movement, which includes gig economy but is a far broader concept.


Toolots Inc is building a “Virtual Firm” platform to serve manufacturers in global merchandising. The platform combines both arbitraging of things and the arbitraging of knowledge.

The Toolots platform helps participating manufacturers to gain in the arbitrage of what they make and helps participating workers to gain in the arbitrage of what they do.

On the Toolots platform, arbitraging knowledge is synergistic to arbitraging things. This is significant, because with existing business models, the two arbitrage opportunities, even if they do exist at all, are usually separate or unrelated, and frequently even contradicting to each other.

All this is made possible by the design of virtual firm structure to solve the problem of the ubiquitous boundary conflicts.

The vertical platform

At Toolots, a cross-border and cross-functional team is building the world’s first vertical platform for merchandising that is scalable.

What’s so unique about it?

Well, scalable horizontal platforms are common, including well-known companies such as Amazon and Alibaba. But there has not been a scalable vertical platform for global merchandising.

The truth is that the world very much needs such a platform.

This is because the entire global economy is facing some fundamental challenges:

  • Traditional business models create boundary conflicts, and these boundary conflicts in turn cause severe conflicts of interests among the parties that need to collaborate, especially in the cross-border commerce.
  • The boundary conflicts also cause severe Imbalances among business resources, and these imbalances in turn cause inefficiencies and inabilities
  • At the same time, the global business requires more and more vertical businesses that have depth, but vertical businesses cannot scale on their own.

Altogether, these problems cause disincentives, reduce productivity and limit the potentials of technology.

When doing business, everyone likes a good bargain, but an experienced businessperson understands that, unless the collaboration improves efficiency, increase productivity, creates new value, and makes it possible to fairly allocate costs and benefits among the participants, one party’s gain always comes at the cost of another.

Everyone likes win-win. But win-win is much more than just an attitude or even sincerity. It requires a business model that creates actual room, or actual space, for everyone to win. The problem is that the traditional business structures and models create such boundary conflicts that leave no room for everyone to win. As a result, win-win becomes just a slogan, and even a scam in a worse case.

What are boundary conflicts, what do they have to do with Virtual Firm?

Boundary conflict is one of the most fundamental problems in human society.

The “boundary conflicts” in the economic system are the biggest natural enemies of productivity and creativity.

“Boundary conflicts” may sound like an unfamiliar academic concept to many, but it is something that permeates every part of the business world.

For example, suppose you are a manufacturer in one country and want to sell your products in a foreign country. Unless you build everything in the entire chain of merchandising, from end-to-end, without collaborating with any other company, the biggest obstacle you would face is the boundary conflicts.

We are not talking about country-to-country physical territory boundaries here. We talk about internal business boundaries. These boundaries exist not only among the collaborating businesses but also within each business itself. These include allocation of resources, allocation of expenses and profits, exchange of economic interests, organizational sovereignty, access channels, information communications, etc.

Toolots has a Solution to this fundamental problem.

Toolots does it by creating a global merchandising platform.


To understand what Toolots does, let me first explain the concept of “merchandising”.

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From manufacturer to the end-user, other than the manufacturing itself, there’s a whole section of business called “merchandising”, which may include at least all of the following:

  • Research;
  • Matching, sourcing, curating;
  • Marketing;
  • Importing and Exporting;
  • Shipping and Warehousing;
  • Transactions (such as payments, communications, etc.);
  • Branding;
  • Intellectual property;
  • Corporate services (such as legal, accounting, IT, insurance, warranties etc.);
  • After-sales services;
  • And more.

Toolots takes the entire section of merchandising, creates comprehensive capabilities and solutions, virtualize them, and share them among merchants such as manufacturers.

Toolots solves the boundary conflict problem by collective creation, virtualization and sharing of the complex merchandising capabilities.

At the end of the day, this is also what integrates many industry verticals and makes them scalable on a vertical merchandising platform. It is also what creates new values, including lower costs, higher efficiency, more productivity, better return for capital investments, better information feedback, etc. All these factors together create a true win-win business model.

Virtual Firm & Enterprise Operating System (EOS)

What Toolots will ultimately build is a global “Enterprise Operating System” (EOS).

The foundation of EOS is Virtual Firm Technology.

Using virtual firm technology, Toolots has a three-step cycle: centralized creation, computerized virtualization, and decentralized sharing.

Specifically, we create necessary business capabilities and solutions through a collective and centralized platform. We then transform the created capabilities and solutions through a highly sophisticated process called virtualization. Finally, we scale them on a decentralized platform through sharing with merchants on the platform.

Note that virtualization is a critical step in the three-step cycle from centralized creation, through computerized virtualization, to decentralized sharing.

Toolots is the first one to realize that virtualization is the only effective way to scale multiple verticals.

Virtual firm technology is a patent-pending invention by Toolots. It is analogous to the virtual machine technology, but fundamentally different.

When virtual machine technology came about two decades ago, it transcended the traditional computer operating systems. We all know what it did to the world in the last 20 years. Cloud computing is a direct result of virtual machine technology. But Virtual Machine is purely “computational” in a conventional way. It virtualizes components that are strictly computational, such as CPU, memory and networking components.

Virtual Firm Technology is something different. It is invented by Toolots. The concept is somewhat parallel to virtual machines but goes well beyond.

Virtual firm technology is to build “virtual business entities” that are each constructed using virtual business resources. These virtual business resources are abstractions of real business resources, such as human resources, computational resources, third-party service resources. One type of a virtual business entity serves as a virtual “branch” or “subsidiary” of a real business entity such as a manufacturer. Another type of a virtual business entity is a virtual product line that is constructed to maximize the efficiency and economic outcome as a unit associated with many different companies.

On the Toolots platform, each manufacturer coming to the platform is like a startup being incubated. The interests of the platform and manufacturers are very healthily aligned up with minimal conflicts, but lots of synergy.

At the same time, the incubation on Toolots platform is more sophisticated, more effective, and more scalable than that of a conventional incubator. Toolots does it by building virtual product lines which are platform constructs without any actual awareness by the manufacturers.

Already serving almost 3000 manufacturers (the number is rapidly growing), Toolots is a great platform to experiment and eventually implement the Virtual Firm technology.

These are not mere soundbites or buzzwords, but an expression of a new infrastructure of how business collaboration is done.

Our vision is based on a basic yet profound concept: the global business ecosystem can be abstracted, layered, and reorganized into a far more efficient system using an “Enterprise Operating System”, without destroying the traditional business entity sovereignty and economic incentives.

Virtualization via abstraction is the key. 

Only through abstraction and virtualization, things become a common base that can be shared, and such shareable common base is the secret of scalability.

The importance of this cannot be over emphasized.

We can use the current structure of the Internet to illustrate the importance of this point.

Everyone uses Internet, but few know that Internet has multiple layers, seven layers in one description, and even fewer understand why.

The secret of the Internet is the abstraction and virtualization of computational resources. At each layer, certain computational resources are abstracted and virtualized to become a common base that can be shared by a layer above it. And such shareable common base is the secret of scalability of the Internet.

Developing this new “Enterprise Operating System” is of course not easy. It is not simply software engineering. It starts with restructuring of many fundamental human organizational elements, which will necessarily touch upon multiple disciplines, including business, technology, finance, intellectual property, and law.

And That is what Toolots aspires to do.