29 August 2016

Technology can increase trade efficiency

Singapore's move to recognise how cloud computing is changing the way the financial sector and global economy will work puts the country at the cutting edge of the world's most potent technological revolution to date.

Steven Cranwell

Managing director and head of commercial banking, HSBC Singapore. First published in The Edge Singapore, 29 August 2016.

While technology has been disrupting the way the world works since the invention of the wheel, today's technological revolution is taking place on a scale that means the likely impact on the global economy could be the biggest we have ever seen — particularly when it comes to international trade.

Cloud computing's potential to spur supply chain innovation and boost corporate profit margins is hard to ignore.

Academic research has described the evolution of trade in distinct waves: The first was set off by the march of industrialisation and plummeting logistics and communications costs; the second by the globalisation of production triggered by the liberalisation of trade policy and simplification of supply chains.

A digitally driven third wave is now gathering momentum as the application of cheap, sophisticated, mobile technology accelerates the acquisition of affluence across the economies of Asia and the emerging markets of Africa and Latin America.

This third wave is likely to create a longterm surge in trade that is forecast to boost global exports to USD68.5 trillion ($92.5 trillion) by 2050, of which Asia will have a 46 per cent share, versus its current third.

Exporters around the world are vying for the attention of consumers in rising economies such as China and India — disrupting traditional supply chains and payment systems as they do so.

Instead of supplying goods to mainly homogenous consumers in the US or Europe, an exporter must deal with markets that are more heterogeneous in their needs, as well as their spending power.

The challenge is likely to be met by gearing supply chains towards efficiency of distribution, rather than efficiency of production.

The resilience and responsiveness of supply chains will become critical as differing tastes across markets will demand the flexibility to deliver customised products. All of this will feed into an already-sizeable store of big data, which has the potential to bring greater efficiencies to product cycles.

As international trade embraces the best that technology has to offer, payment systems will inevitably evolve. The smooth digital payment operations enjoyed by individuals, who in markets such as China are able to advance money to individuals and companies via their mobile phone, are just the start.

Some companies are already clearing transactions digitally along their supply chains, but this amounts to only a tiny fraction of the region's total payments.

For companies to truly go digital, it is not sufficient for the buyer and seller to agree to an online payment system. The entire ecosystem must also be on board — meaning that everyone from shipping companies to customs agencies must recognise the transaction method.

That tipping point could be fast approaching. Blockchain, a database that stores an ever-expanding record of transactions, has garnered plenty of attention, both from banks and financial technology, or fintech, companies.

Meanwhile, so-called smart contracts — which use technology to automatically check that all terms of a transaction have been completed before allowing payment to proceed — arc replacing manual processing.

While it is too early to say which technologies will take off, it is already clear that, in the future, importers and exporters will transact with each other very differently from how they do today.

Outsourcing guidelines recently revised by the Monetary Authority of Singapore recognise that this will also impact the way banks interact with customers, who are increasingly turning to cloud-based treasury management solutions to improve visibility of cash and liquidity across international borders.

As more corporate treasurers in the region switch to this new technology, the gap between adoption rates in Asia-Pacific (at 25 per cent) and North America (at 48 per cent) will close — and rapidly.

For banks to stay relevant in this third wave of disruptive change, being responsive to changes along the supply chain is likely to be a crucial differentiator.

Very few fintech firms have the capital needed to step into any lending breach, nor do they serve the millions of customers that generate the data necessary to make the best decisions about shifts in trends.

But by investing in, and collaborating with fintech companies, forward-thinking banks will contribute to the innovative wave that is hitting the financial industry — and reshaping the global supply chain.

The changes that technology will bring to the trade dynamics in Asia promise a mixture of knowns and unknowns. What is clear is that the future of trade will be digital.

At the recent GTR Asia Trade and Treasury Week held in Singapore, HSBC's Global Head of Trade and Receivables Finance, Ms Natalie Blyth addressed one of the largest industry gatherings of trade professionals and treasurers. Agile businesses must look at the opportunities in the rapidly changing dynamics in trade and proactively define their paths and strategies.

Click here to access Natalie's speech (PDF, 214KB).

This document is reproduced by The Hongkong and Shanghai Banking Corporation Limited, Singapore Branch ("HSBC" or "we").

The document is intended for those who access it from within Singapore. The document is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation.

The information contained in this document is derived from sources we believe to be reliable but which we have not independently verified. HSBC makes no representation or warranty (express or implied) of any nature nor is any responsibility of any kind accepted with respect to the completeness or accuracy of any information, projection, representation or warranty (expressed or implied) in, or omission from, this document. No liability is accepted whatsoever for any direct, indirect or consequential loss (whether arising in contract, tort or otherwise) arising from the use of or reliance on this document or any information contained herein by the recipient or any third party. If you seek to rely in any way whatsoever upon any content contained in this document, you do so at your own risk.

This document does not constitute an offer or solicitation for, or advice that you should enter into or start using, any of the arrangement, product, service or modes of payment infrastructure mentioned in this document. Recipients should not rely on this document in making any decisions and they should make their own independent appraisal of and investigations into the information described in this document. No consideration has been given to the particular business objectives, financial situation or particular needs of any recipient. Any examples given are for the purposes of illustration only.

No part of this document may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of HSBC.

Contact us

Customer Service and Technical Support

You are leaving the HSBC Commercial Banking website.

Please be aware that the external site policies will differ from our website terms and conditions and privacy policy. The next site will open in a new browser window or tab.

You are leaving the HSBC Commercial Banking website.

Please be aware that the external site policies will differ from our website terms and conditions and privacy policy. The next site will open in a new browser window or tab.

You are leaving the HSBC Commercial Banking website.

Please be aware that the external site policies will differ from our website terms and conditions and privacy policy. The next site will open in a new browser window or tab.