Navigate Global Trade in 2020 and Beyond

Digitisation, automation, and the shifting state of global trade are the three macro-trends predicted to affect Procurement and Finance the most over the next few years.

According to ourworldindata.org, global exports today are 40 times larger than 100 years ago. Much of this due to long-term relentless focus on developing free trade – across the world, but especially between the three powerful nations or nation groups: The European Union (EU), The United States of America, and China.

Albeit with the global commerce climate changing daily, there are growing concerns, as highlighted by a recent report from the Economist Intelligence Unit (EIU) that explores why geopolitical issues are dominating.

Free trade is the heart of modern business

The free market has thrived for decades. So much so that the young generation of business professionals haven’t experienced the closed alternative. But due to shifting trade dynamics, the free market we have grown accustomed to may be threatened, and not everyone is prepared.

According to the survey report from the EIU, only 35 per cent of respondents are confident in their organisation’s ability to adapt to global trade trends and have secured alternative market sources or suppliers.

Anyone in Procurement and Finance would agree that a free market and mutually advantageous regulations have made business easier. Cross-border shipping, VAT handling, cross-border invoicing—all of which are more straightforward when governments cooperate with one another. All that mundane work and those non-productive tasks required to move money, people, and goods between countries is decreasing.

As a result, businesses can:

• source materials where they are the most accessible,
• produce goods and services where it’s most economical,
• and sell final products in the markets where the profit can be maximised.

An European Strategy and Policy Analysis System (ESPAS) report has estimated that by 2030, the amount of trade between USA and China will grow by 80 per cent, and over 85 per cent between EU and China.

Given these numbers, free trade must surely be part of the recipe for growth. Or will it?

EIU highlights global trade concerns

In the recent EIU report sponsored by Basware, we interviewed over 400 supply chain and finance professionals to find out how they’re preparing for the future.

Almost one in four of the respondents believe that the post-Brexit climate of trade will have the greatest effect on global commerce. 21 per cent believe that the impending US-China trade war will pack the biggest punch to global trade dynamics.

Overall, survey respondents revealed that they’re generally quite concerned. The most common impacts expected from these changes are:

• An increase in procurement costs (35 per cent);
• Greater supply-chain complexity (29 per cent); and
• A decrease in business opportunities (22 per cent).

And these professionals are justified in their worries.

Questions regarding international trade post-Brexit and the customs introduced between the USA and its trading counterparts make even the most experienced supply chain experts raise questions.

Discussions of the current and future geopolitical landscape have become a permanent agenda point in board meetings. The competitive nature of businesses is no longer merely determined by the typical factors of economies of scale, product differentiation, switching costs, or access to distribution channels. Instead, it’s also determined by businesses’ abilities to manage ever-increasingly fragmented supply chain for goods and services and respond to changes outside of their control.

According to Ernst & Young Global Limited (EY), one in five executives say that there is “too much uncertainty” to predict the full effects of the trade actions instated this year by the US government.

As products and services become more and more dependent on tangled interdependencies of businesses and therefore subject to trade restrictions, the chances of non-compliance increase. As the probability that these sanctions hit your supply chain increase, so does your business risk.

Steps to prep for the future of trade

How can procurement and finance professionals embrace change to make sure that they are a part of the solution and not the problem?

Participants in the EIU report state that reviewing internal controls and procedures, forecasting costs through simulations, and developing end-to-end supply chain visibility measures are all ways they are prepping.

Here are three steps you can follow, to future-proof your organisation’s global trade strategy:

1. Move to digital flow of information

Move away from paper and email-based orders and invoices and adopt electronic commerce to take advantage of digital financial supply chain and its economies.

2. Consolidate financial and supply chain information to identify risks

Combine information regarding your supply chain from different sources to learn more about your supply chain. Develop alternative sourcing options to diversify supply chain risk.

3. Automate where possible

Automation is required in order to move people around from transactional duties into business advisory and forecasting. Develop and train staff to adapt to change.

It may seem like a lot of work. But, it’s worth it. In fact, many companies may not be able to face the consequences of not doing it. In 2014, The US Department of Justice fined more than $1.5 billion in violations of US rules and regulations collectively.

But in 2019, just a single sanction for a non-compliant company exceeded $1.1 billion. Businesses must apply increased internal controls and procedures to continuously monitor their compliance and the compliance of their supply chains.

Make a plan for your team

Following the three steps (digitising, consolidating, and automating) are three overarching concepts that will future-proof your organisation amidst global change. But there’s more to it and it’s covered in depth in the EIU report, ‘What’s now and next for finance and procurement‘.

Learn more about automation, digitisation and the future of the global trade, and download the EIU report, sponsored by Basware, now. Learn how finance and procurement executives are preparing their organisations – and get additional tips on how you can do the same.

Questions? Contact Basware – we’re here to help you simplify your operations and spend smarter.