Supply Chain Finance

Considerations to take your supply chain global

In today’s interconnected world, businesses are increasingly turning to global supply chains to stay competitive and meet consumer demands. The expansion of supply chains across borders offers numerous advantages, from accessing new markets to cost efficiencies. However, the journey from local to global supply chains has its own challenges. This article explores key considerations for businesses venturing to take their supply chains global. 

Unforeseen forces impacting global supply chains

Global supply chains are subject to a wide range of unforeseen forces that can disrupt operations and pose significant challenges. These forces extend beyond traditional business risks and demand careful consideration:

1. The Rising Cost of Living

Skyrocketing inflation has sent shockwaves through households, impacting consumer spending habits. Predicting consumer demand has become even more challenging since 2022, making accurate supply chain planning a daunting task. This uncertainty can lead to disruptions in the availability and pricing of products during crucial seasons like the holiday shopping period. In fact, according to recent reports, inflation has seen households hit hard by rising food costs, with expectations that consumers may have to severely cut back on expenditures, further complicating supply chain forecasts.

2. Labour Unrest

Economic pressures stemming from the rising cost of living have led to labour unrest, including strikes and wage demands. These disruptions have a direct impact on supply chains, as witnessed in instances like the striking truckers in South Korea and railway strikes in the UK. Ongoing labour shortages in various sectors add further strain, affecting supply chain operations and customer satisfaction.

3. Energy Shortages

Inflation isn’t limited to food prices; energy costs have also surged. Rising gas prices and supply disruptions have forced companies to explore alternative energy sources. Recent statistics indicate that 16% of Germany’s companies expect to either scale back production or partially discontinue business operations due to rising energy costs and supply constraints. Such disruptions have significant consequences for businesses, especially those heavily reliant on exports.

4. Extreme Weather

Climate change presents a long-term challenge to supply chains. Droughts and low water levels around the world are impacting major shipping routes. Recent statistics show that parts of China’s Yangtze river, responsible for 45% of the country’s economic output, have been closed to ships due to water levels being more than 50% below normal. Such climate-induced disruptions have far-reaching consequences for global supply chains.

5. Taxation & Sustainability

Consumers and investors increasingly demand sustainable products and practices. Many nations are adopting a two-pronged approach to sustainability, offering incentives like funding, grants, credits, and rebates while imposing penalties for activities with negative environmental externalities. Recent statistics from a survey reveal that 68% of respondents foresee a medium or high impact of ESG (Environmental, Social, and Governance) and sustainability policies on their approach to transfer pricing. Additionally, 74% believe supply chain changes will similarly have a medium or high impact. Such recent statistics emphasize the need for alignment between tax departments and supply chain executives to ensure compliance and manage potential increased costs.

The Impact of the global trade finance gap in supply chains

In recent years, the trade finance gap, the difference between requested and approved financing for imports and exports, has surged to a record $2.5 trillion. Factors such as rising interest rates, economic uncertainties, inflation, and geopolitical volatility have contributed to this alarming trend. Statistics underscore the significance of trade finance and this widening trade finance gap threatens the timely movement of goods, causing delays and increasing financing costs.

Another key reason for this unmet demand for trade finance is that processes are so complex which either take a lot of time or discourage the exporters and importers consider availing trade finance. The reluctance of the ecosystem to digitise the processes has taken a toll on the global trade involving significant manual paperwork, human dependencies eventually increasing the operational costs. These challenges are more so for the MSMEs that play an increasingly important role in global trade. 

Vayana TradeXchange (VTX), an International Trade Financing Services (ITFS) platform, came into existence with a mission to address these key challenges the industry is going through. VTX platform is an end-to-end automated digital marketplace for global trade finance, brings together the domain expertise, data, processes and participants (exporters, importers and financiers), enabling trade finance seamlessly, securely, transparently, creating value for all involved.

So, a brassware exporter from Moradabad, in India, can now access affordable Trade Finance from a MNC bank in New York, because their offer was the best. And every financier can operate in markets that they hadn’t explored before!

A balanced approach for building resilient supply chains.

In a VUCA world, the path to global supply chain success requires a delicate balance between efficiency and security. Businesses must navigate unforeseen forces, evolving tax policies, and the challenges posed by the trade finance gap. By embracing well-rounded outlooks to global expansions, companies can build resilient systems that weather disruptions and continue to deliver value to customers and shareholders.

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