Funding a Globalised Supply Chain: A study of current and future corporate supply chain funding behaviours
The World Trade Organisation (WTO) has forecast that global trade volume is set to increase by 2.4% in 2017i. This is up from 1.3% growth in 2016 and all-round weak trade growth since the global financial crisis. Despite the expected increase in world trade volume for 2017 it continues to be below predicted global gross domestic product (GDP) growth of around 3%ii.
While overall trade volume is down when compared to historical trends, supply chains nevertheless continue to lengthen and increase in complexity with increasing numbers of suppliers and transactions. The developing complexity of supply chains for the world’s largest corporates, as well as regulatory changes and cost of capital pressures have all contributed to the rise in importance of efficient supply chain funding and with it the rise in potential revenue pools.
Traditionally, management of the supply chain has been product focussed – sourcing, manufacturing and delivering. Recently, very large businesses have begun using their supply chain as a source of inexpensive capital, taking the focus away from product and making it firmly about funding.
Funding, or access to funding, has always been a top priority for suppliers who are generally the smaller counterparty to the buyer. Having a functional and efficient supply chain in place, one in which suppliers are kept front of mind ensures long term resiliency for both parties.
Amid geopolitical and economic turbulence, a resilient supply chain and the stable funding of it is of vital concern for global corporates. When a supplier goes out of business due to lack of liquidity or there be a delay in production or shipping of materials due to changing political legislation or cross border regulations, consequences for the end buyer are very real and result in considerable impacts on the business.
Macro factors such as the potential of US inspired trade wars and barriers and the dismemberment of the European Union are the two chief risk issues facing global corporates in regard to their supply chain. These issues are of far more importance to global treasurers than the cost of funding, physical stock security or counter-party exposures.
Technology has also played a large part in the development of the supply chain. As global sourcing patterns continue their drastic change and become increasingly concentrated in emerging markets, technological developments have had to keep up with the ever-extending geographical supply chains of major importing nations. While once the domain of large domestic and international banks, fintechs have recently entered the market with their tell-tale agility and focus on operational and technology enabled solutions. Simplified on-boarding and implementation as well as improved interfaces have worked to secure fintechs a rapidly growing place at the supply chain table.
The role of financiers in funding today’s supply chain lies in developing strategies that benefit the buyer/supplier relationship and enable both to ultimately sell more and hence grow together. The question is how do financiers go beyond their traditional role and what areas are their corporate clients most focussed on?
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