So much of the world’s trade goes through Asia these days that it seems perfectly natural to explore for opportunities to develop supply chain finance in this market. At the same time, however, as I write this on my return home from Singapore and our first-ever Supply Chain Finance Community Forum Asia, I find myself reflecting on the progress that has already been made – in some cases, progress that professionals in western Europe and the United States can learn from.
In China, for example, the larger local buying entities – such as Alibaba and JD.com, as well as Taiwan’s Foxconn and other Asian companies – have all launched in-house SCF programmes to support their suppliers. These large buyers can see that their suppliers are struggling to get liquidity from a banking system which is simply not functioning properly for the SME segment. That means these SMEs cannot keep up with the growth-rate of their major customers – which clearly risks impeding everyone’s progress.
True, buyers can use their cash and buying power to extract the best possible cost price for the products they buy. But the more important reason they support their suppliers is to remove the growth bottleneck caused by a lack of SME finance. In Asia, therefore, there is a very different momentum for supplier finance than we typically see elsewhere.
The other thing that is notable in Asia (and China in particular) is the emergence of many, possibly hundreds, of supply chain initiatives in which online platforms link buyers to suppliers, helping in the sourcing of products and the organisation of logistics – with financial services as an add-on offering. Often, these are set up along sector-specific lines, such as electronics or agricultural products.
The pace of progress – in-house
But the third – and perhaps most instructive – learning point from the region is the speed at which we see companies in China piloting new SCF solutions. Some of them have blockchain elements – cutting-edge technology and yet these companies just try it and see if it works. They work at a much faster pace than I see in western Europe or the US.
It’s not only the pace at which they develop and trial these initiatives, but the fact that so many of them are developing the technology in-house. JD.com, for example, wants their own platforms and their own processes rather than buying it in from somebody else. They see it as a key differentiator to support the business.
That makes it a different ballgame: these e-commerce companies have the products, they need to ship them out with lightning speed and to organise the supply chain both incoming and outgoing. So any technology that supports that is a differentiator for them. And the financial dimension is an add-on.
Blockchain: will Asia overtake the West?
I expect that we will see new ideas and new structures originating from Asia to support broader supply chain finance solutions – developing beyond reverse factoring or dynamic discounting with new versions, new technologies that are more blockchain-based, with more links into other supply chain technologies. You will see these pilots emerging here in Asia and especially China – much more so than in other countries.
At our Frankfurt iSCF conference in May we asked for a show of hands as to which region was going to dominate blockchain: China, Europe or the US? The delegates divided almost equally across the three choices. So in other words, the professional view is that all three regions are strong in blockchain. It’s no longer one direction from the US to the other regions. There is a risk, therefore, of underestimating the rate of progress in blockchain in Asia. That’s something that the big American technology companies will need to be highly conscious of if they are to avoid being overtaken by Asian businesses.
There are problems in Asia, of course. It’s not all about rapid development of supply chain technology and finance solutions. There are difficulties arising from under-developed infrastructure which struggles to cope with the flow of international trade. In countries such as India, the Philippines or Indonesia these infrastructure challenges mean that more cash is tied up in inventory and goods. There is even the risk of product obsolescence because they can’t move through the supply chain fast enough or perhaps because there isn’t an uninterrupted ‘cold chain’ for food and agricultural products. The cash that’s tied up in these supply chains needs to be financed.
These infrastructure problems in logistics also mean that track-and-trace is more difficult. For many products, especially in agriculture, it is important to know exactly where it comes from, who’s touched it, what the conditions were, how they’ve been moved from A to B. So I see a need for further technology to support all these steps in the supply chain, as well as opportunities for finance programmes as you build up this information.
Singapore, the perfect launch site for SCFC Forum Asia
It was a real pleasure to bring together some of the leading business schools in the region – National University of Singapore (NUS) as well as Fudan University School of Management and China Europe International Business School (CEIBS) in Shanghai. We will be expanding that network and connecting with other centres of academic excellence. We will also be working to help break down the silos within these business schools so that, for example, their supply chain management and finance faculties can collaborate more easily.
We’ve made a very good first step with our Supply Chain Finance Community Asia launch event, bringing together as we always do the corporates, universities and financial institutions that are active in this space.
And Singapore was the perfect place for our first foray into the region. It’s so logical that Singapore is where we brought together the two worlds of supply chains and finance, given its big financial industry as well as its huge logistical infrastructure with the port and the airport. And that is the buzz we’re still feeling as we head home and reflect on the projects and opportunities in Asia that await us.