Transcript
Speaker: Welcome to HSBC Global Viewpoint, the podcast series that brings together business leaders and industry experts to explore the latest global insights, trends, and opportunities.
Speaker: Make sure you're subscribed to stay up to date with new episodes.
Speaker: Thanks for listening.
Speaker: And now onto today's show.
Speaker: Hello and welcome to this podcast on supply chain resilience.
Speaker: The COVID pandemic as well as other events have shown the importance of supply chains and how disruption can have a significant impact on the global economy.
Speaker: This has highlighted the need for resilience in supply chains and that's what we'll be talking about today.
Speaker: I'm Jane Cooper, the editor of TMI, and today I'm joined by Florence Tan and Brugu Singer, HSBC, to delve into this topic further.
Speaker: Hello, both of you.
Speaker: Thank you for joining us today.
Speaker: Brugu, let's start with you.
Speaker: So let's sort of bring us up to speed of where we're at now.
Speaker: What are the big trends and issues that we're seeing at the moment, would you say?
Speaker: So Jane, the world of trade is changing at a much faster pace than the world of banking.
Speaker: The common theme on our clients' minds is how do I prepare for the future?
Speaker: There are five trends that I'd like to call out that we see that are driving these changes and impacting our clients.
Speaker: Firstly, geopolitics is fundamentally changing what supply chains looks like.
Speaker: Different countries are taking protectionist measures to promote their national interests.
Speaker: The second trend is supply chain shocks, which seem to be occurring more frequently and resulting in disruptions to supply chains.
Speaker: The Suez Canal blockage, the current conflict in the Middle East, container shortages, Panama Canal water levels, just to name a few.
Speaker: All of these create disruptions and they have an impact on supply chains.
Speaker: Sustainability and climate transition is the third, and that's having also a major impact on supply chains.
Speaker: Today, around 145 economies have announced or are considering net zero targets.
Speaker: These cover some of the largest emitters of greenhouse gases like the EU, US, India.
Speaker: And companies not only need to focus on reducing emissions from their own operations, but they also need to address emissions arising from their supply chains.
Speaker: And the transition to a net zero economy also impacts the nature of materials that companies need to source, again, impacting their supply chains.
Speaker: The fourth trend is the change in business models.
Speaker: And I'd like to call out two things over here.
Speaker: First, the growth of services trade.
Speaker: Around 20% of global trade is currently in services.
Speaker: The IMF predicts that the share of services will go to about 28% over the next decade.
Speaker: This effectively means almost half of all new incremental trade will be in services.
Speaker: The second trend linked to the changing business models is the growth in e-commerce.
Speaker: B2B e-commerce is growing rapidly and the growth in e-commerce is reflected in how companies are trading.
Speaker: Purchases and sales are being concluded electronically on procure-to-pay platforms, on direct-to-consumer portals, as well as e-commerce marketplaces.
Speaker: And finally, technological advances and the digitization of trade is creating opportunities for clients to manage their supply chains differently.
Speaker: The journey of digitizing trade feeds like two steps forward, one step back.
Speaker: But thankfully, the building blocks for trade digitization are now falling in place.
Speaker: Legislation is being adopted in numerous countries.
Speaker: Standards are being put in place.
Speaker: Reliable systems are now being developed and just remains for the players in the industry to adopt these systems and start acting upon the data that will be available on these systems.
Speaker: AI models are evolving and as data becomes more accessible through both trade digitization and e-commerce, we will see an automation of more activities, which will change the way decisions are made and the pace of decision making, both in trade and in trade finance and in supply chain.
Speaker: Yes, that's a lot of trends that you've covered.
Speaker: Florence, do you have anything to add?
Speaker: Brutus has already mentioned a lot.
Speaker: Does that mirror what you're experiencing as well?
Speaker: Yes, Jane, I would very well align with what Prigo has shared in terms of his five observations.
Speaker: I think maybe just to add on to some of the points, especially in the area of trade digitization, I think what we are seeing is an acceleration.
Speaker: right of digitization, especially since the pandemic, you know, as corporates try to optimize, you know, their working capital in order for them to monetize, right, their working capital as soon as possible to support these situations of uncertainties.
Speaker: Given all these trends, what does this mean for treasurers then Florence?
Speaker: Yeah.
Speaker: So I guess what this means is, you know, the world of global trade is changing, you know, customers' expectations are also changing.
Speaker: There is now a lot more demand for advisory services, right?
Speaker: I guess what we are seeing is, you know, customers not just expecting their banking partners to provide them with products, but more in terms of advisory of solutions.
Speaker: And why do I say that?
Speaker: So the world, as you know, Prigou has shared earlier on, is becoming more unpredictable.
Speaker: Businesses actually need more support to navigate change.
Speaker: So he touched on one very, you know, important point upfront, which is,
Speaker: What's overarching in customers' minds is how do then they prepare for the future?
Speaker: So future models are also evolving, you know, considering all this disruption and new sectors.
Speaker: And one of the key implications would be the increasing need to build supply chain resilience.
Speaker: And to a certain extent, you know, sustainability, especially in this part of the world, has come in.
Speaker: So working capital has become a very important level for our customers to pull in
Speaker: you know, the optimization of the shareholders values.
Speaker: And when we talk about advisory, it actually comes in all forms, you know, throughout the working capital cycle of our corporate customers.
Speaker: It can be supply chain and supply chain can come in different forms.
Speaker: It's not just, you know, the conventional post shipment supply chain program that most of the organizations can do.
Speaker: Customers are also demanding for more support to their suppliers.
Speaker: You know, it can come in the form of pre-shipment supply chain financing program, what we call integrated working capital.
Speaker: Of course, we have sustainable supply chain as well.
Speaker: And most importantly, you know, different ways of financing their counterparties, maybe on the payables or even on the resealable side.
Speaker: So we've actually seen also more demand for various resealable finance kind of solutions.
Speaker: And as customers change the way they operate, the way they buy, the way they sell, we have also seen new solutions or new ideas of solutions coming up.
Speaker: For example, you know, the use of marketplace to transact basically means there will be more opportunities for
Speaker: new solutions such as embedded finance, you know, for point-of-sale financing.
Speaker: Even to a certain extent, you know, customers are looking to monetize their inventory as well, to monetize their working capital requirement.
Speaker: So I think it's been a really, I would say, you know, exciting period that we are experiencing and we are really happy to be providing more advisory services to our customers.
Speaker: Okay, brilliant.
Speaker: So, Briku, I'm going to do a bit of a dump of lots of questions on you at one time.
Speaker: Okay, are you ready?
Speaker: So, my first question is, do you have anything to add to what Florence just said?
Speaker: And then can you sort of outline to me what the supply chain challenges are that you're seeing?
Speaker: Like, what are companies doing?
Speaker: Let me start off with the implications of these trends on treasurers.
Speaker: So geopolitical tensions are reshaping supply chains.
Speaker: Supply chains evolved for decades with almost singular objective of minimizing costs.
Speaker: Now this objective has been met, but at the expense of resilience.
Speaker: COVID exposed a lot of these weaknesses in company supply chains, and the geopolitical tensions are only exacerbating them.
Speaker: So we are seeing global businesses are reshaping their supply chains.
Speaker: There are several examples.
Speaker: You've seen rental rates in industrial parks in Mexico skyrocket.
Speaker: We saw computer exports from Vietnam increasing by a billion, but imports of computer components in Vietnam increasing by $800 million.
Speaker: Supply chain shocks will result in fluctuating order cycles that require companies to be agile in how they manage their working capital.
Speaker: So in order to optimize working capital, businesses historically just reduced inventory levels to just in time.
Speaker: Now with these supply chain disruptions, they need to hold inventory levels to just in case.
Speaker: And there's always going to be a trade-off between working capital optimization and supply chain resilience, which will result in these fluctuating order cycles and will require companies to operate with agility.
Speaker: Sustainability is not a nice to have, it's a must have.
Speaker: You either lead the change or you'll be forced to make changes in other people's terms.
Speaker: The average business doesn't even know who's in their supply chain, leave alone being able to prove it.
Speaker: So you're going to have to be able to know who is in your supply chain, assess those risks, take appropriate mitigating actions.
Speaker: There are new laws being passed by several countries around supply chain due diligence.
Speaker: Companies are going to be required to attest to the absence of forced labor anywhere in their supply chain.
Speaker: So that's, again, going to require a review of supply chains and perhaps a reshaping of supply chains.
Speaker: The changing business models that we talked about is going to create lots of opportunities.
Speaker: So the B2B e-commerce is creating a fundamental shift in who we buy from and who we sell to.
Speaker: Trust has been the currency of strong business relationships and trust has historically been built over decades through repeated transactions.
Speaker: With commerce moving to electronic means and a proliferation of data, you have other ways of evaluating your counterparties.
Speaker: It becomes easier for companies to evaluate who's in their supply chain, assess their risk, and this has a huge implication for everybody in the trading ecosystem.
Speaker: Winners will be able to access new markets, find a broader range of suppliers, secure financing earlier in the production process, all because of the sort of changing business models.
Speaker: And again, data and AI and digitalization of trade will again help companies manage these risks in a more proactive and a sort of a different way.
Speaker: This is how the trends that I articulated are really impacting supply chains.
Speaker: Now, what can companies do about this?
Speaker: I guess three things, really.
Speaker: So first and foremost, what are companies doing to sort of address these changes and implications on their supply chains?
Speaker: I guess the first thing that they've got to do is look at their supply chain and the risks associated with them holistically.
Speaker: The first step is to know who is in your supply chain, not just your tier one suppliers, but those who are deeper in the supply chain.
Speaker: They need to know not just who they are, but they need to know them well enough to be able to assess the risks associated with them.
Speaker: The second step really is to evaluate these risks.
Speaker: So which suppliers are going to get impacted by tariffs?
Speaker: Is there something you need to do about sort of moving these suppliers to a different location to be able to sort of not get impacted by such tariffs?
Speaker: Where are the suppliers coming from?
Speaker: Which ones are susceptible to supply chain disruptions?
Speaker: The technologies that they use and the emissions associated with them, do they have a viable path to transitioning to net zero?
Speaker: Are the suppliers able to demonstrate compliance with new regulations on supply chain due diligence?
Speaker: Do they have forced labor?
Speaker: What new materials are likely to be required in your own companies transitioning to sort of net zero?
Speaker: Or what new supply chain implications are there from changing business models?
Speaker: So understanding who is in a supply chain and then evaluating your risk is the second thing.
Speaker: And then finally,
Speaker: identifying potential mitigating actions.
Speaker: So these could be reshaping supply chains, you're finding different suppliers or near-shoring suppliers.
Speaker: It could be increasing inventory levels to be able to sort of respond to the supply chain shocks.
Speaker: It could be putting in transition plans for your supply chain.
Speaker: Some of your suppliers may need help in this transition to a net zero economy.
Speaker: What could you do to be able to assist these suppliers in being able to sort of transition more effectively?
Speaker: In the case of new or critical sort of raw materials, what steps can you actually take to be able to secure these raw materials proactively and be able to sort of take a sealer march over your competition?
Speaker: So that's the steps that different companies are taking in evaluating their supply chains and then putting in place mitigating actions where again, HSBC can help them in several ways.
Speaker: Okay, brilliant.
Speaker: So Florence, I have a question about the fundamentals and principles that stay the same.
Speaker: But before I do that, do you have anything to add to what Prigo just said?
Speaker: Yeah, I'd probably like to share some examples of what we are seeing in relation to what Prigo has just said, right, in two particular points.
Speaker: I mean, Prigo mentioned about seeing the increasing need to nearshore.
Speaker: So we're actually seeing quite a lot of corporates, you know, diversifying the supply chain by
Speaker: near shoring, closer to the consumers.
Speaker: So from a Europe perspective, you know, we have been also growing quite a fair bit of what we call Pan-European Supply Chain Program, right, which has given us a lot of opportunities to do more with our clients, international clients.
Speaker: The other trend that we are seeing that's been, you know, really opportunistic is the changes that was brought about in global investment.
Speaker: And that also means a lot more inbound financing opportunities, you know, for us.
Speaker: Yeah, so we've talked about the trends and we've talked about the shocks and there's trends like protectionism and the disruption and things like the Panama Canal and the massive impact that can have.
Speaker: And I imagine people listening to this, there's so many things that are going on.
Speaker: Okay, so despite that, what would you say are the fundamentals and the principles that remain no matter what happens in the news cycle?
Speaker: Thanks, Jean.
Speaker: I think that's a very relevant observation that you have raised.
Speaker: And there's always this Chinese saying, right, Wei Zi, which basically means that any changes or in fact challenges that's being faced will bring about a lot of opportunities.
Speaker: And I think what we are experiencing, you know, right now is, you know, like I just shared the multiple examples that we just gave are opportunities that we have been embracing, right?
Speaker: So, you know, may it be geopolitical, you know, kind of development causing changes, right, in business development or, you know, hearing our customers telling us that they have different supply chain, you know, kind of pain points.
Speaker: I think, you know, HSBC is really well positioned, you know, to support them.
Speaker: And why do I say so?
Speaker: I think fundamentally, you know, it's not just about us positioning ourselves as the world's leading, you know, trade bank, you know, world's leading international bank, you know, but trade remains to be at the heart of what we do.
Speaker: And, you know, we actually do trade bigger and better than, you know, a lot of any other banks in the world.
Speaker: And, you know, our skill actually reflects our capability, you know, and most importantly, you know, our network, you know, gives us significant competitive edge.
Speaker: And this is not just us, you know, sharing our competitive edge ourselves, you know, but we have been recognized by our clients through ERO Money Survey that who has voted us to be the best global trade bank for the last, you know, seven years.
Speaker: So that's been really encouraging.
Speaker: And most importantly, from a Europe perspective, you know, I think one of the key
Speaker: factor of success is that we have been operating as one team across the whole of Europe.
Speaker: As you can imagine, it's quite a complex profile.
Speaker: So we are out there to support our customers, may it be in their needs for the supply chain or for digitization, or most importantly, in assessing their working capital to optimize and monetize it.
Speaker: We are here with the right kind of products and most importantly, with the right kind of expertise in the form of our people to provide them with bespoke solutions.
Speaker: If I could just end my sharing in three key points, if I could leave with anyone, it's about how we are positioning ourselves through our international network as global connectors.
Speaker: We want to be our customer strategic partners, regardless of their size and also the stage of their journey.
Speaker: And most importantly, we want to be seen as innovative problem solvers, as advisors to their trade facilities requirements.
Speaker: Okay, so we'll have to wrap up soon.
Speaker: Brigid, do you have anything to add before we start to close?
Speaker: No, I guess just the world of trade is changing rapidly and our clients need us more than ever before.
Speaker: They will need new models and capabilities to compete and HSBC will be their partner in helping them deliver these solutions to respond to the changing trends in world trade.
Speaker: Okay, and Florence, any final thoughts or comments from you?
Speaker: Maybe just a few final thoughts is to, you know, share with the audience that our capabilities is now products and our ability to come up with a bespoke solution.
Speaker: Most importantly, I think our international network, you know, has been evidence to be able to help our customers navigate right through these challenges that's happening around the world.
Speaker: So really happy to support our customers where they need us to.
Speaker: Okay, and final thought from you, Brigham.
Speaker: Yes, the world of trade is changing and the pace of change will only accelerate.
Speaker: These changes will impact supply chains in several ways.
Speaker: Companies need to look at the risk associated with the supply chain holistically.
Speaker: To do this, they need to understand their supply chains and know who's in their supply chains.
Speaker: assess the various risks associated in their supply chains, then evaluate appropriate mitigating actions to address these risks.
Speaker: HSBC is here to support companies as they sort of transition their supply chains.
Speaker: We are global connectors who will help them both explore new markets as well as
Speaker: sourced from new markets.
Speaker: So as their supply chains reshape, we will help them as global connectors.
Speaker: We are innovative problem solvers.
Speaker: We have deep local, global and industrial knowledge.
Speaker: Means we understand current and emerging industry trends that can impact their business.
Speaker: And we are their strategic partners who will be there in good times and bad.
Speaker: Brilliant.
Speaker: Well, thank you both for joining.
Speaker: Thank you, Brigou.
Speaker: And thank you, Florence.
Speaker: So we'll have to leave it there.
Speaker: And trade and supply chains is something that we love to cover at TMI.
Speaker: So for any listeners, you can find out more if you go to our website at www.treasury-management.com.
Speaker: Thank you for joining us at HSBC Global Viewpoint.
Speaker: We hope you enjoyed the discussion.
Speaker: Make sure you're subscribed to stay up to date with new episodes.
