Transcript
Speaker: This is HSBC Global Viewpoint, your window into the thinking, trends and issues shaping global banking and markets.
Speaker: Join us as we hear from industry leaders and HSBC experts on the latest insights and opportunities for your business.
Speaker: A heads up to our listeners that this episode has been recorded remotely, therefore the sound quality may vary.
Speaker: Thank you for listening.
Speaker: Good afternoon, ladies and gentlemen.
Speaker: I have a distinguished and diverse group of panelists representing corporates, fintechs, and consultants, and they're joining us from right across the globe.
Speaker: So we have Susan from Walmart in Shenzhen, China, Sukhand from BCG in the UK, and Christian from TradeShift, who's normally based in San Francisco, but is joining us from Guatemala.
Speaker: So truly a global panel crossing across different time zones.
Speaker: I'm going to let my panelists introduce themselves in just a couple of minutes.
Speaker: But before that, I wanted to set some background to the discussions that we're going to have over the next 40 minutes.
Speaker: So if you could just pull up the slide.
Speaker: Thank you.
Speaker: So HSBC runs the Navigator survey across 10,000 businesses in almost 40 markets that span across our global network in the trade corridors we cover.
Speaker: So this represents a really rich and varied source of inputs directly from corporate businesses.
Speaker: I'm going to use three findings from the 2020 survey to really set the framework for our discussion today.
Speaker: So firstly, not surprisingly in this environment, over 90% of businesses have concerns with the resiliency and transparency of their supply chains.
Speaker: Half of the respondents said that they see digital and tech as an immediate and necessary priority in this particular context and to fix some of these concerns.
Speaker: Secondly, higher growth firms, so firms with high growth rates, are making most of their sales through online models and with the number of digital natives doubling,
Speaker: Without a doubt, this boom in e-commerce and the changing business model, the pace is going to gather even more momentum.
Speaker: And while overwhelmingly, the third point, while overwhelmingly businesses believe better sustainability transforms to more sales, however, there still remain concerns on the lack of transparency and the ability to monitor supplier performance against their sustainability requirements.
Speaker: So that, I think, just helps us set the context.
Speaker: And if we can take off the slide.
Speaker: But what we want to cover today really is a rich range of topics on weather and how technology is helping businesses.
Speaker: And we want to cover within that a few things.
Speaker: So the adoption to the new operating models, can technology and how can it play a role there, given the present environment challenges and opportunities, but also respond to changing consumer behaviors.
Speaker: The second is, how can tech help businesses create the networked and digitally connected supply chains they need for better agility, transparency and traceability?
Speaker: And finally, this often cliched point about can we really literally physically converge the physical and the financial supply chains and the advent of platforms, aggregators who have now got scale like never before, what kind of opportunities can that help unlock?
Speaker: And across all of these, we'd like to kind of also see how the financial service partners and fintechs are responding.
Speaker: So with that, I'm going to start with asking my panelists to introduce themselves and we're going to go from east to west.
Speaker: So Susan, maybe if you could start with you.
Speaker: Okay.
Speaker: Hello everyone.
Speaker: This is Susan Wu from Walmart China.
Speaker: I'm taking charge of Treasury Department in my company.
Speaker: In the past one year, one of my focus is developing a supply chain financing program together with Bens and FinTech company.
Speaker: Looking forward to this panel session.
Speaker: Thank you.
Speaker: Thank you so much, Susan.
Speaker: Thank you for joining us.
Speaker: Suken, you're in London.
Speaker: Good morning, Vinay.
Speaker: Good morning, everybody from London.
Speaker: My name is Sukhand Ramachandran.
Speaker: I'm a senior partner with the Boston Consulting Group.
Speaker: And as part of my role, I lead wholesale banking in Western Europe and the topics around trade globally for BCG.
Speaker: Happy to be here, share my perspectives and have a good afternoon.
Speaker: Thanks, Sukhand.
Speaker: Christian, all the way from Guatemala.
Speaker: Well, thank you so much.
Speaker: I'm CEO, co-founder and chairman of TradeShift, a cloud computing fintech platform that helps large Fortune 500 companies and large companies in general connect with their suppliers around the world in a digital way to do all of the trade main voices to purchase orders to working capital.
Speaker: become more than 100 plus countries and work with some of the largest companies.
Speaker: So these topics that you have today are of course of great importance to us, everything from resilience to ESG.
Speaker: Thanks, Christian, and thank you all for joining us today.
Speaker: I'm going to start now with my first question to the panelist, so maybe Susan.
Speaker: So with the shift from offline to online models, what organizational challenges have emerged and what role do you see technology playing in this transformation for Walmart?
Speaker: Okay, this is a good question to retail industry.
Speaker: There are always new challenges facing business as retail industry rapidly change due to technology evolution, especially the street from offline to online.
Speaker: Heightened customer expectation, massive advancement in technology and the rise of the omitranial commons are
Speaker: just a few of trends shaping the world of retail.
Speaker: In China market, most retailers now are becoming only China retailers.
Speaker: Retailers are finding technology solutions to catch up the trends and lead a transformation.
Speaker: Technology is playing a critical role in the transformation.
Speaker: Taking Walmart China as an example, in order to improve the customer payment experience, Walmart China worked with tech companies to upgrade the post-tech system, introduce self-checkout machine,
Speaker: scan and go payment time, which are providing customers more friendly payment time and reducing tax scenarios during COVID period.
Speaker: And also Walmart developed our own application to operate online business several years ago.
Speaker: In order to grow faster, we also build a partnership with leader marketplace JD
Speaker: and opened a Walmart flagship store on JD platform and developed a new business with Jindong for Jindong Dao Jia.
Speaker: The customer can do online booking and offline store pick up and deliver to the customer.
Speaker: I think this is typical omit channel retailer strategy.
Speaker: In brief, technology made retail transformation easier.
Speaker: Yeah, thank you.
Speaker: Thanks, Susan.
Speaker: That's fascinating to really hear that transformation at Walmart.
Speaker: Thank you for sharing that.
Speaker: So maybe I'll come over to you, Christian.
Speaker: What digital platforms that you see at TradeShift yourself are emerging, the solutions that are emerging to help with this transformation that Susan mentioned and to manage businesses?
Speaker: this shift on this adoption of online and also as we go through that it'll be good to also hear your thoughts on the inherent vulnerabilities in supply chains and you know it comes to fore with the potential of disruptions that we you know that the audience felt you're going to be seeing almost once every three and a half years so be good to get your your your sense on the digital platforms and then how you know to shift to the online mode but also then how does it address the vulnerabilities
Speaker: Yeah, no, thank you.
Speaker: I'll try to see if I can cover all of that.
Speaker: That was a broad question, but I think it's a really important one.
Speaker: So first to summarize the first part, the transition in supply chains we're seeing is actually exactly the same as we've seen as consumers.
Speaker: As consumers, we have over the last 15 years moved from on-premise to cloud and then to network.
Speaker: And we tend to think about cloud as the end stage, but as consumers, it's pretty clear that we don't have a single application today that's not networked.
Speaker: So the idea for five minutes we used to upload our photos to Google Picasso and just store them in the cloud, but then we got Instagram and Facebook and we shared them with everyone and the idea that we would just upload them to cloud without sharing them is gone.
Speaker: In enterprise it's exactly the same, right?
Speaker: And the reason for this is pretty simple, which is cloud computing drives down the cost of connectivity.
Speaker: So the easier it is to connect companies, the cheaper it is to connect companies, the more companies will be connected.
Speaker: And inversely, the more companies that are connected, the more valuable they'll be in being connected.
Speaker: So I think we're really seeing kind of an inflection point for what I would call fully digital supply chains.
Speaker: Most customers, we go out and help digitize and bring the supply base online.
Speaker: They come from supply chains that still are running on email, fax, PDF, spreadsheets.
Speaker: So you think in 2021, it's digital, it's not.
Speaker: And it's actually incredible to see that transition happening.
Speaker: COVID has massively accelerated it because a lot of suppliers are nervous about getting paid.
Speaker: So we see that as a massive, massive accelerator.
Speaker: In fact, when COVID started in March for real, we saw almost a doubling month over month of the amount of suppliers coming online, going from around 20,000 to 40,000 suppliers monthly trying to connect digitally to get paid.
Speaker: So I think we're seeing a real inflection point from offline or from on-prem to cloud to network right now in business.
Speaker: You then asked me about what are some of the disruptions and what are some of the challenges.
Speaker: I think a massive challenge we have is that the main supply chain paradigm that has existed honestly since the 80s has not really taken into account any of our modern realities, right?
Speaker: We essentially globally operate on most of the principles back from the 80s ideas of supply chain, which is lean, which means we operate with as little inventory as we can, as efficient as we can, with as few suppliers as we can.
Speaker: And there's a lot of challenges with that in a modern world.
Speaker: First off, we have few suppliers because it costs a lot of money in an old world to manage a lot of suppliers.
Speaker: Well, in the digital world, it don't cost a lot more to manage a thousand suppliers than ten suppliers.
Speaker: So that sort of is in the past, right?
Speaker: And the second big piece here is that the whole inventory question, I think everybody got a big challenge during COVID, right?
Speaker: I'll just take one example from the UK.
Speaker: The UK spent around $30 billion buying PPE to deal in the hospitals with COVID.
Speaker: Had they bought that PPE one year before, it would cost them $2 billion.
Speaker: And in fact, they wiped out more than 20 years of lean savings in the medical supply chains in one year.
Speaker: So I think one thing we're going to really take a look at is to say,
Speaker: Are these supply chain ideas that we have from the 80s that are built in a world that's extremely stable, had a very sort of set world order, no disruption, really viable in 2021 onwards?
Speaker: Because I don't think the disruption amount is going to go down.
Speaker: I think it's going to go up.
Speaker: um and and just to sort of finalize that thought um you know uh i think we're going to move from what i would say is is probably just in time with sort of been the mantra for 20 years to just in case um the cost of not being prepared is far more uh than having a little bit for instance of excess inventory or a little bit of excess suppliers in your supply base and i'm just a very clear thing right i know you guys have seen that but we've seen that as well
Speaker: suppliers from all over the world or buyers from all over the world reached out to us when COVID hit and said, do you know additional suppliers within this category?
Speaker: Do you know additional suppliers who can do this?
Speaker: And it's incredible to me that some of the largest companies in the world were sort of caught a little bit in a blind spot in such a situation.
Speaker: So I think there's going to be a big, big reckoning in how we run these supply chains in the future.
Speaker: Thanks.
Speaker: Thanks, Rishan, for that.
Speaker: And thanks for covering both the questions.
Speaker: And I think we'll come back to the supply chain resiliency and the point around, I think you said, from just in time to just in case and the number of suppliers.
Speaker: But just sticking with the first thematic of, you know, the B2B trading platforms and the move to digital.
Speaker: So I'm very keen to get your insights as you work with several corporates and banks on
Speaker: on how are you seeing these trading platforms disrupting the legacy models and accelerating the shift to digital?
Speaker: Let me refer to about two or three different data points that I've actually shared.
Speaker: I think your survey itself said something around sort of fast growth.
Speaker: I think Christian referred to the network effects.
Speaker: And let me borrow from one of your colleagues who quite eloquently described to me the fact that, you know, if you go back into the 18th and 19th centuries,
Speaker: to do what Christian talked about as networking.
Speaker: They came to ports.
Speaker: They went to Hong Kong, they went to Shanghai, they went to Rotterdam, they went to London.
Speaker: These were the big ports of those days, right?
Speaker: And that's where they went.
Speaker: I think if you look at the current century, actually this decade in particular,
Speaker: that port has become the sort of the platforms of the world, right?
Speaker: The digital world is where the ports are.
Speaker: These are the digital ports of commerce of the current world, right?
Speaker: And I think that the network effects of going to a port, which was physically in the old world about connecting to who my buyers might be, figuring out how do I do my logistics effectively,
Speaker: has now become electronic.
Speaker: And we're getting these electronic platform providers integrating all of these services, not necessarily manufacturing all of them.
Speaker: They're not creating it.
Speaker: They're just connecting it up and then making it available for businesses to interact and do commerce more effectively.
Speaker: So the decade of the 20s will see an acceleration of that.
Speaker: It will see the networking to happen very much in a digital world.
Speaker: Now, the interesting thing for me is you can have a debate on how
Speaker: rapidly would traditional supply chains, which have been very much, as Christian said, large to large with at least an intermediary aggregating a lot of small into at least large enough chunks to make this just-in-time model work, how disaggregated will that get?
Speaker: My sense is I think we're going to see a little bit of a balancing act over the next four or five years.
Speaker: It won't be a full trip to just in case.
Speaker: Again, we won't want to get in there, but I think digital allows two things.
Speaker: I think
Speaker: it'll create what we call the physical twin.
Speaker: It's a digital world will start tracking more telemetry as to what is happening, where is the inventory, what's the state of transit, when is it likely to be delivered.
Speaker: So more transparency around transitions will allow that trade-off between how much do I need to keep as inventory, how much is actually in transit, and how much is in manufacturing, and therefore see the whole flow much more dynamically, much more on a real-time basis.
Speaker: I think that information exchange will what create the trade-offs
Speaker: between do I need to keep a lot of stock?
Speaker: Do I need to actually have diversification around where my stock comes from?
Speaker: And or how ready am I actually to be resilient to any disruptions?
Speaker: So the digital world enables the creation because I can put data visualization on top of the physical world.
Speaker: I can create more networks digitally.
Speaker: And more importantly, I can actually share that information.
Speaker: Therefore, it's more valuable for other people.
Speaker: Thanks.
Speaker: Thanks, Yukant.
Speaker: I think that's fascinating how the increased transparency will help companies and businesses get more efficient with managing to do the digital models and the points around inventory.
Speaker: Maybe it's a good time for another question for the audience, if we could put up the second poll.
Speaker: And here we really wanted to understand, while you're dealing with both your supply side and your sell side or your distribution chains,
Speaker: What are probably some of the biggest challenges or even opportunities, you might say, that digital solutions could help you solve?
Speaker: So if you could choose one of those four options, so is it about sales channel management, so you're able to actually accelerate sales or go direct to consumer without necessarily going to resellers?
Speaker: Is that of critical importance?
Speaker: Or is it the second one where it helps you with your procurement and invoicing process
Speaker: and helps resolve some of the challenges around that?
Speaker: Is it going to do more with the diversification of supply chains?
Speaker: Is that a bigger pain point that you need to kind of address, especially given what we've talked on the disruptions?
Speaker: And then finally, is it around the shipping or the logistic challenges that at this present moment, you know, how kind of constraining the cost of containers, et cetera, have been?
Speaker: So really keen to understand what are some of the challenges, opportunities you see, and when the results are ready, if they could be flashed up.
Speaker: Again, just a general reminder for any questions that you have for the panelists, if you could raise them through your screen.
Speaker: We'll just give it a second to get the summary of what you see are the greatest challenges that digital solutions could help your organization solve.
Speaker: All right.
Speaker: That's really interesting.
Speaker: So over 30 percent, the majority feel that the challenges around managing shipping and logistics, I presume that's just the ability to book shipping logistics, the ability to get the right price is quite fundamentally challenging.
Speaker: And I suppose that then helps.
Speaker: That then kind of has an iteration into the negotiations with your buyers and sellers.
Speaker: The second most was a process around procurement and invoicing.
Speaker: So how digitally synchronized that could be.
Speaker: And then supply chain diversification.
Speaker: And then finally, sales channel management.
Speaker: That is really interesting insight.
Speaker: And I'm sure some of our colleagues working in the shipping logistics space will be very interested to see some of that.
Speaker: But let me kind of...
Speaker: come back to kind of Christian around the point that we last left off around disruptions and supply chain resiliency.
Speaker: So maybe, you know, specific to TradeShift, keen to understand, kind of Christian, some of the toolkits, technology systems your company is evaluating or adopting to strengthen the supply chain risk management and transparency for buyers and suppliers that use the TradeShift platform.
Speaker: Yeah, no, so first off, I mean, maybe just to give it a bit of context, we connect around
Speaker: 150 of the Fortune 500, probably not a thousand of the largest companies in the world, but around 2 million suppliers globally.
Speaker: And it puts around 500 billion dollars of trade through, right?
Speaker: So we see a pretty big slice of the global trade picture.
Speaker: It's across around 100 countries.
Speaker: And I think I just want to start with a global picture, which is one of increasing complexity across the board.
Speaker: We're not just even talking COVID.
Speaker: We're not just talking China, every single country in the world.
Speaker: There's increasing regulation for supplier compliance, increasing regulation for taxation.
Speaker: We're seeing more and more countries on invoicing having clearance rules where you need to post a copy of your transaction with the government and so on.
Speaker: So just doing business as a baseline has become probably, I would say, 10 to 20x more complex than it were even five or seven years ago.
Speaker: And actually, I don't think there's any path to managing that complexity and not being digital.
Speaker: Because managing that on paper, reading the data fields through a scanner, all of that is just going to be a very, very laborious process, right?
Speaker: So when we talk about working around the diversification and complexity, one of the things we worked a lot on is for companies to understand the supply base a lot better.
Speaker: On average, you know, for some of our largest customers, we onboard to digital around 30,000 to 50,000 suppliers.
Speaker: These are not small numbers.
Speaker: One customer we had in the fast-woman consumer industry, they had in 20 years onboard 1,500 suppliers to digital using 20 different solutions.
Speaker: meaning a very diversified landscape of solutions and data.
Speaker: In six months, we put 26,000 suppliers live for them on the same platform.
Speaker: And then we went and analyzed what suppliers are you actually doing business with?
Speaker: And that was a very different picture of what they thought they were doing business with.
Speaker: It was interesting in itself.
Speaker: We were also able to aggregate a lot of branches of different suppliers, which actually were the same legal entities underneath.
Speaker: So I think just having the ability to have that data on one platform and being able to consolidate and look also allow you to understand the risk.
Speaker: Finally, we can give signals.
Speaker: We don't always understand those signals, but again, some months ago, we saw trade drop to half in Wuhan.
Speaker: We had absolutely no idea of why that was happening.
Speaker: At the moment, come January, we obviously knew.
Speaker: But we were able to give our customers access to these baseline changes in certain regions where they do business.
Speaker: And they can then use their intelligence on the ground combined with other things to figure out what decisions they want to make, right?
Speaker: So I think the sooner and earlier you can react to these things, the better chance you stand, right?
Speaker: And honestly, I think we need to think a lot more about this almost like we do in cloud computing, where we think about cybersecurity, for instance, as a real threat to our network in real time.
Speaker: Everything right now in supply chain is very slow moving.
Speaker: We take a long time to react.
Speaker: We need to take a long time to analyze.
Speaker: And I think in the future, you probably will have built-in plans.
Speaker: That's part of your setup, even on a software level.
Speaker: So how you want to react if you see certain signals happening in your network,
Speaker: That could be currency fluctuations, that could be big changes in logistics prices, or that could just be trade activity moving very dramatically compared to what you think about in a region.
Speaker: And if you don't, I mean, there's going to be big winners and losers for those who can figure that out and those who can't.
Speaker: And again, I probably want to come back to, and this is a little self-serving as I sell to the station,
Speaker: you're going to have very little chance to participate in that game if you don't start with a baseline of digital.
Speaker: And I don't think we're talking about last generation of sort of EDI and legacy technologies, because there's no way you're going to reach 20,000 suppliers with that.
Speaker: You need to really get to that global scale, and that's going to be very, very hard for us out there.
Speaker: Thanks, Tasvishan.
Speaker: So baseline, start with digital, and then I can see you say that from a range of very micro alerts,
Speaker: to more macro insights is one way in which you can kind of improve the transparency and supply chain risk management.
Speaker: So maybe building on that point, and I think, you know, your earlier comment on kind of the digital transparency to help manage the physical supply chains, how do you see kind of corporates managing these emerging challenges and solutions around resiliency in supply chains?
Speaker: Yeah, I think I would say it's not even just corporate, right?
Speaker: I would go all the way on the commercial side, like small to large businesses all have to do it.
Speaker: Of course, the many aggregated up a large corporate will have quite material risks, especially if they've been running a sort of 20 year just in time supply chain and they're starting to see disruptions play out in multiple different places in their supply chain, right?
Speaker: So yes, the impact on large corporates is material, but it's equally true for small businesses.
Speaker: So we just concluded a series of research in ASEAN and South Asia.
Speaker: And one of the interesting insights from small businesses was where we were talking about logistics.
Speaker: I mean, like the...
Speaker: both the buyer and the supplier want transparency on who the logistics provider is, who's being used by the supplier to actually ship the goods, what's the certainty around that?
Speaker: And if you look at a lot of the small businesses, they are quite dependent on intermediaries who may not necessarily be fully plugged into the digital value chain.
Speaker: So to your question on what's the solution space and what should we think about from a digital perspective, I think
Speaker: There is almost a role here for large corporates to try and democratize access to some of that sort of digital solution.
Speaker: It actually will help them if they know that their suppliers, especially the ones who are smaller businesses who can't afford it, but have some very good specific tools and capabilities that in the supply chain is necessary for the large corporate to actually democratize access to some of those, right?
Speaker: So it's not easy and feasible for...
Speaker: all the small businesses to go and connect them into a myriad variety.
Speaker: And I think Christian's very right.
Speaker: It's not gonna be some dominant single solution space.
Speaker: It's gonna be a series of platforms.
Speaker: It's gonna be a series of interconnectivity points from a digital perspective.
Speaker: And you can't expect small businesses to connect to all of them.
Speaker: I think what will happen is corporates, especially the larger ones, will become the magnetic poles which will attract some of these platforms, which will attract some of the suppliers, and you will evolve into a digital standard.
Speaker: And then that then becomes a new norm around which other people can build.
Speaker: And to the first discussion, I would say there is a role for digital B2B platforms.
Speaker: in terms of creating data standards.
Speaker: There's a role for larger corporates in just sort of democratizing how they want to interact with suppliers.
Speaker: And I think there's a role for small businesses to actually be more digitally engaged as a means to provide transparency into the supply chain.
Speaker: I think everybody has a role to play here.
Speaker: Digital just happens to be the mechanism by which the information flow happens, which it reflects
Speaker: the real world physical supply chains.
Speaker: And then you understand when you look at the data where the disruptions might be happening, you can look for pre-warning signals.
Speaker: You can look for resilient ways to alternate supply paths, et cetera.
Speaker: Now, in the middle of it all, I think if you're a middleman who has no digital capability, I think you're likely to be the person losing that.
Speaker: But in a way, that's possibly the right thing for us to do going forward.
Speaker: Can I just attach a very brief comment to that, Vinay?
Speaker: Because I think you said something that was so spot on to kind of
Speaker: For instance, when we designed TradeShift, one of the very first design conversations we made was it had to be absolutely free for suppliers.
Speaker: And at the time, it was a completely radical concept.
Speaker: Everybody else in our industry was charging suppliers.
Speaker: But if your goal is to digitize your supply chain, if you put a cost in there for your supply base, you just created friction on your main goal.
Speaker: And I really think we have 20 years of technology
Speaker: in procurement and elsewhere that's tried to do one thing, which is to push the supplier as far away as possible, and to create a smaller needle hole as possible.
Speaker: You don't want to touch the supplier, you want to push them away, you want to put them on the other side of a tender portal.
Speaker: I think that needs to change.
Speaker: I think we need to think about it as part of our workflow.
Speaker: I think we need to think about them as part of our platforms, as part of our data process.
Speaker: And we completely need to inverse that.
Speaker: And that's a big part of the design criteria we put into the Traceship platform.
Speaker: And I think we're pretty excited about, I would say, that direction from some of the leaders in the space that are completely reversing direction, saying, okay, we don't need to push the supply away.
Speaker: We actually need to pull them in.
Speaker: And two, we cannot create friction by putting cost in front of them because it's actually our advantage that they're connected and digital and communicating with us as much as possible.
Speaker: Thanks.
Speaker: Very great question.
Speaker: Thanks.
Speaker: Thanks, Sukhan.
Speaker: Thanks, Krishan.
Speaker: Susan, so we've now talked a lot about kind of the business models, the offline to online.
Speaker: We've talked about the supply chain resiliency.
Speaker: We're going to now come to trade finance and how does this all overlay with it?
Speaker: So in your view, how do you find trade finance solutions need to evolve in the digital world?
Speaker: And what is really this new kind of normal for us?
Speaker: I think in China as part of the new normal, there has been a focus drive across industry on digitalization and platformization of chip chain ecosystem.
Speaker: Last year, Walmart China started to use the external think tech company to set up
Speaker: of platform for supply chain finance.
Speaker: Our thousands of suppliers and Walmart can have procurement data exchange in the platform, which is open to and can be accessed by banks for the credit evaluation and supply finance accordingly.
Speaker: HSBC China has been working with us to implement this project.
Speaker: It's not been a straightforward journey.
Speaker: We together studied the chain flow now, flow, data points of finance requirements and process optimization for better surprise user experience.
Speaker: Recently, we've seen suppliers being onboarded and started utilizing the facility.
Speaker: It's just a star.
Speaker: But we are confident that this would scale up very soon.
Speaker: HBC China has also discussed with me about the idea of having a string line working capital solution, integrating the pre and post-shipping financing lab to cover the end to end supply chain needs of suppliers.
Speaker: With the experience and synergy established, we are keen to move forward together to build a healthy and sustainable supply chain ecosystem.
Speaker: Thanks, Susan.
Speaker: And I think that's really interesting, right, as I think suppliers need financing earlier in the working capital at the pre-shipment stage and how the transparency and data we've talked can enable that happen and then integrate it across the post-shipment.
Speaker: So that's fascinating.
Speaker: On that same topic and what both Sukhan talked about, the different client personas,
Speaker: And Christian talked about, you know, how the SME supplier should be treated.
Speaker: I wanted to ask the next question to our audience.
Speaker: So if we can put up the third poll, I think, you know, it's obvious that I think, you know, it's fact that SME, small and medium enterprises across the world make up for almost 98 percent of corporates that trade globally.
Speaker: I just wanted to get your sense of what percentage of your organization's supply chain comprises these SMEs.
Speaker: And we've got ranges from 0 to 25, all the way from 75, all the way to 75 to 100.
Speaker: So if you could choose that, and I will let the event organize put up the results.
Speaker: I think the reason we're asking that question is exactly what was discussed before.
Speaker: We know that SMEs are pivotal to trade, but we also believe that
Speaker: that they're disproportionately being treated or being impacted by disruptions, right?
Speaker: And, you know, even without some of the pandemic challenges, it has been quite challenging for them to trade internationally.
Speaker: And we'll talk a little bit about, you know, some of the roles that digitization can play around that.
Speaker: And Susan's talked to that with the Walmart China partnership with HSBC.
Speaker: But if you could have the results of the poll when ready, that'd be great.
Speaker: Apologies for the overhead noise of the planes coming.
Speaker: They're all flying in from Asia this early in the morning.
Speaker: So you go straight over my head.
Speaker: So sorry for the background noise.
Speaker: Just waiting on the results to see what percentage of your SMEs constitute in your supply chains.
Speaker: So about 50 to 75 percent is by far the largest you can see there.
Speaker: So that's 34 percent of you have
Speaker: between 50 to 75% of SMEs make up your supply chain.
Speaker: So it's a significant chunk of your supply chain is comprised of SMEs.
Speaker: And I think to that extent, what we just discussed with Susan's engagement on an example of kind of making sure they get finance earlier in the working capital cycle is quite critical, right?
Speaker: Susan, just moving us on, maybe the next question back to you again is what kind of corporate bank partnerships would you be willing to form or you see already emerging in this space?
Speaker: And do you see a role for non-bank fintechs in this particular domain and area?
Speaker: This is an interesting topic.
Speaker: An ideal corporate bank partnership would be able to bring long-term and sustainable value to both and also the whole value
Speaker: a chain of corporate business, including supply chain stability and resilience.
Speaker: Walmart globally launched supply chain finance project in 2017, which is a sustainability platform to encourage and track 1 billion metric tons of greenhouse gas emission reductions within our supply chain by 2030.
Speaker: To better support and encourage our supplier collectively joined Project Jigerton, HSBC developed a unique tiered supply chain pricing model tiered to our suppliers' sustainability rating so that the more they achieve, the better finance rate they can enjoy.
Speaker: As to FinTech part, in China, we do observe that FinTechs have been more and more actively participating into the coq-ban relationship, especially in the supply chain business.
Speaker: Some of them take the lead to set up a supply chain finance platform involving both corporate and banks, and some of them provide a tailor-made solution to the corporate banks to build up the supply chain infrastructure.
Speaker: Taking back Walmart China, again, as an example, many Walmart suppliers may expect assets to bank financing leverage buyer support from Walmart.
Speaker: As I mentioned earlier, last year we stepped into implementation of digital platform divided by fintech companies together with HBC and banks and other banks and support our suppliers financing.
Speaker: We are looking forward to having more suppliers on board Eastern to benefit from this partnership program.
Speaker: Our ambition is to achieve a win-win-win, three wins for all participants on the program.
Speaker: Thanks, Susan.
Speaker: That's a very good example, like you best said, win-win-win across it.
Speaker: Just in the interest of time, I know you've only a few minutes left, but one of the three questions we set ourselves up was around the ESG objectives and sustainability, which Susan has given a great example of at Project Gigaton.
Speaker: Maybe Sukhan and Christian, starting with you, Sukhan, how do you see technology helping in real terms, getting that transparency that's required that help clients like Walmart track the sustainability across their supply chains?
Speaker: So, Vinay, I'll come at it from two specific points I want to learn.
Speaker: I think we often think about sustainability very much in the climate action space.
Speaker: But if you look at it from a UN SDG point, there are 16 other goals.
Speaker: And when we think about ESG, we think about all of the 17 UN Sustainable Development Goals.
Speaker: That includes elimination of poverty, child labor, that includes diversity and a whole bunch of other factors.
Speaker: So, yes, you can focus in on one of the ones that everybody's focused on this year in particular, especially in London with COP26 happening in Glasgow, which is climate change.
Speaker: But I think if you think about sustainability in the more holistic sense, it's about tracking those metrics.
Speaker: It's about knowing that
Speaker: the full supply chain.
Speaker: And when I say full supply chain, it's not just one hop.
Speaker: It's like, how do I go five, six, seven, eight hops to origin of goods, do the traceability of origin, figure out how well against the 17 UN sustainable goals the whole supply chain is operating.
Speaker: What can you do to influence that?
Speaker: And how do you make sure that everybody is aware of the fact that it's a holistic transition we as a society are doing.
Speaker: And this is not just simply about economics.
Speaker: This is actually good societal impact, which drives better economics for everybody and makes the planet a better place to be.
Speaker: digital traceability across multiple parameters is what will enable that.
Speaker: And I think the fact that you have multiple goals that you need to solve for makes digital absolutely critical to how to do this rather than just focus on greenhouse gas emissions as a single point.
Speaker: Thanks, and Christian's the same question.
Speaker: I mean, from a trade ship perspective, you know, the toolkits or the partnerships that will kind of accelerate the embracing of ESG objectives.
Speaker: I think what's crucial here is first you've got to know, right?
Speaker: If you have an organization buying, you've got to know what is the data.
Speaker: And to represent that data, you need to track it on a transactional level.
Speaker: It's not just enough to have a survey of supplier, right?
Speaker: You actually need to know what's the footprint of any given transaction.
Speaker: And we have apps today on the Tracer platform that allow you to track the carbon footprint.
Speaker: You can look at the shipping distances, measures, all of those things.
Speaker: We have anti-slavery apps that go look at, you know, goods procured, what are the risks of that?
Speaker: I think what's much more interesting is to say that's knowing, but how can we then make it effective?
Speaker: I mean, how do you cause change on the supplier side?
Speaker: I mean, supplier behavior and bad supplier behavior comes because most likely of cost.
Speaker: And I think one thing that we've been experimenting with a number of our customers is very interesting is to tie the development goals to financing structures.
Speaker: you can think about supply chain finance as more than just a strategic tool to collapse the payment term, but you can also look at the cost of supply chain finance as an incentive to do the right thing.
Speaker: And a really good example could be around, let's say, the Pormall supply chain in Southeast Asia, where, to be frank, a lot of that has to do with economics.
Speaker: So I think, you know, we've got to think realistically, we've got to combine what's going on in supply chain finance and the new fintech models we can put there with the data that we have from the
Speaker: insights and then say to the supplier, if you give us a full audit or access to how you produce this, guess what?
Speaker: You're going to get a lower rate of capital.
Speaker: Then you have a real carrot that actually moves something rather than saying you've got to do it because we say so.
Speaker: Great.
Speaker: Thanks.
Speaker: Thanks, Akhan.
Speaker: Thanks, Rishan.
Speaker: So just, you know, I'm going to take a question now from the audience, right?
Speaker: So I think I'll try and set up the answer because I want to sum up what you all said, but also give an HSBC perspective.
Speaker: And then I will come to you for a quick one minute kind of summary of what you think.
Speaker: So the question is...
Speaker: Will 2021 be the year that trade becomes more comprehensively digitized?
Speaker: And from an HSBC perspective, I'll say kind of just probably break it up in three parts.
Speaker: I think the first is our clients are increasingly using digital tools to communicate and instruct us.
Speaker: So our digital penetration rates were in the mid 20 percent a few years ago, just about two to three years ago.
Speaker: And that adoption was gradual towards digital, but the pandemic has just exponentially grown that and now 70% of all communication, whether applications for trade loans, letter of credit, advisors, is all happening through digital channels.
Speaker: So fair to say that I think by 2021, we'll have bulk of our communication with our clients digitized.
Speaker: So that's part one.
Speaker: The middle stream is about the trade documentation that's out there, physical bills of lading, all the paper that's out there.
Speaker: And that journey to digitization, my kind of honest answer to that is probably is going to take another two to three to four years to get scale.
Speaker: But we are seeing the adoption of blockchain and digitization of trade and electronic BLs
Speaker: again ramping up very very actively but it's not at scale as yet so that's probably a little bit longer journey but the third area of digitization is probably the most exciting is what you've all talked about susan you know so kind of question is how we can use digital information and data to change the way we lend to our clients and their buyers and suppliers so we've done a lot of that by lending on different platforms
Speaker: using data to make decisions in a matter of few hours or days, whether it is to take weeks or months.
Speaker: And that's something that I think is probably the most exciting area of digitization.
Speaker: And we'll see a lot of that happen in 21.
Speaker: That is the new way of lending.
Speaker: So the answer is probably we'll get there somewhere in 21 across themes one and three.
Speaker: But moving all the paper that's in trade, I think is probably going to be more challenging.
Speaker: But maybe I'll start with you, Sukhan, to see what your perspective on that is very briefly.
Speaker: I think it's in the nuance in the question, right?
Speaker: Is this the end of digitization?
Speaker: Heck no.
Speaker: I think this is, I would say the start of a journey.
Speaker: I think what has happened in 20, which is we're going to make 21 and forward different is a realization that information is critical in moments of disruption, right?
Speaker: And I think so what will happen is there will be more information which will get digitized and there will be more willingness to share that information where required with the relevant parties.
Speaker: But I think as you would do with any element of tokenization, what you don't want is a million different tokens which don't make sense to other people other than the ones who create the tokens, right?
Speaker: So it's a very simple fact of digitization is happening.
Speaker: Now we need to make sure that there is interoperability
Speaker: and shareability of that information where people can make sense of it.
Speaker: Otherwise, we'll have the Tower of Babel in digital, right?
Speaker: And I think we just need to make sure we avoid that and we're getting that sort of digital connectivity and common standards.
Speaker: I think I expect this year is where we will drive some more standards, more commonality and more digitization.
Speaker: It's not anywhere near the end of the journey.
Speaker: I would say this is the beginning of the end, but it's nowhere near the end.
Speaker: Thanks.
Speaker: And Susan, very briefly, and then Christian.
Speaker: Okay, in brief from corporate view of that for the digitalization and performance, how we use the digitalization and performance to benefit for the company and our clients and suppliers and how the efficiency we can achieve that.
Speaker: So in brief, we continue to search new tech to join our process, including supply chain or other procurement or other something like that.
Speaker: So we're not only using for supply chain financing, but we're also using for the tech digitalization to help to form our future process.
Speaker: Just like that.
Speaker: So from corporate view of that, we need to think the value being to a company and being to our stakeholders.
Speaker: Thanks, Susan.
Speaker: Christian?
Speaker: Yeah, no, I think maybe I want to nuance it a little bit differently.
Speaker: I think, yes, 2021 is also going to be a year of massive digitalization.
Speaker: But I think one thing we've got to nuance and really focus on is what kind of digitalization
Speaker: I mean, my Nokia 3210 30 years ago was digital.
Speaker: And we see a lot of companies who are still deploying, honestly, systems that are 20 or 30 years old in the architecture.
Speaker: And I'm afraid that they're going to be multiple of generations behind in how things are moving right now.
Speaker: And I think one big trade I would keep an eye on is, you know, for instance, classic procurement technology most companies use today is honestly just a digitalization
Speaker: of what used to be a pay-back catalog.
Speaker: It's not different from your Sears catalog 70 years ago, just in electronic form.
Speaker: I think we're going to see a massive switch to B2B marketplace.
Speaker: It's already happening.
Speaker: Amazon is coming in from below.
Speaker: We're seeing in the top, you're going to have multi-buyer, stakeholder marketplace.
Speaker: It's a very different technology set than classic procurement.
Speaker: There's going to be a lot of players who are not set up to that.
Speaker: We don't even understand what's going to happen there because they've gone down the classic procurement route.
Speaker: I think if you look at, for instance, AP automation, e-invoicing, right?
Speaker: You can have a strategy where you try to deal with everything that comes into you and hits you.
Speaker: You can try to scan it.
Speaker: You can try to digitize it.
Speaker: But actually, that is just sort of what I would call dumb digitalization, right?
Speaker: If you put in a network, if you put in smart pipes, you can actually sort of validate most of those transactions before they even get traded out on the supplier side.
Speaker: You can check for VAT, compliance, all of these things, right?
Speaker: So I think, you know, we are going to continue to digitize.
Speaker: We digitize for 50 years now.
Speaker: But I think what is going to matter really a lot, lot more is what kind of digitization we want to put in place.
Speaker: And if there was one thing I would ask everyone to put an eye on is what's happening in the network space.
Speaker: It's no mistake that Microsoft bought LinkedIn some years ago because they understand that we're moving from SaaS standalone to network SaaS.
Speaker: It's no mistake that this year or last year,
Speaker: Salesforce, they bought Slack.
Speaker: It's exactly the same transition, right?
Speaker: So I think I really would... So sorry, Christian.
Speaker: We're out of time, Christian, but thank you for that insight.
Speaker: That was really... So sorry to cut you off.
Speaker: Thank you, all of the panelists.
Speaker: Thank you for listening today.
Speaker: This has been HSBC Global Viewpoint Banking and Markets.
Speaker: For more information about anything you heard in this podcast or to learn about HSBC's global services and offerings,
Speaker: please visit gbm.hsbc.com.
