Why Banks Need to Get Faster to Deal With Trade

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By Liam Casey

The supply chain industry enables global commerce, and we all know the world of global commerce is changing rapidly.

When we started our business, shipping a finished product from China to the customer took around two to three months. Today, using a best-in-class supply chain partner, the entire supply chain model is leaner and faster. Time-to-market has shortened dramatically. Raw materials from an Asian country might arrive in China on a Sunday evening, reach the production lines on Monday morning, go for packout on Tuesday, are ready for fulfillment on Wednesday night, taken by international courier to the US and delivered to the customer's hands at their home on a Saturday morning.  In other words, a finished product can reach the customer in only two to three days.

Yet, most banks still push antiquated trade finance products -- most notably, letters of credit. This instrument is based on an old supply chain model that was risky and involved huge amounts of money and long delivery times.  Financial institutions had to extend a line of credit against raw materials inventory or decide when to make payments to sellers on behalf of buyers.

Today's supply chain transaction times are much shorter and transaction amounts are much smaller. Information, product and cash flows are all interconnected. Controlling the flow of information allows you to control the flow of products, which in turn leads to a controlled flow of cash. Such short supply chain cycles make financing much easier.  It reduces the working capital required to make a product, and with no inventory stocks, fast transit times and the best inventory visibility in the industry, risk is dramatically reduced. The impact of this new model on global commerce is huge, facilitating more and more startups to get into business with less capital and less risk.

Adapting to change and staying flexible is how businesses stay relevant - especially in the supply chain and technology sector. Chinese mainland banks are well positioned to take advantage of opportunities in trade finance because they understand China, they understand commerce and the supply chain, and they know where to look for risk in the pre-shipment stage of the supply chain. With regards to the post-shipment side of the business, where the Western banks are comfortable, Chinese banks such as China Merchants Bank are rapidly learning global business systems and developing their expertise.  Western banks need to move fast to catch up. They need to develop new trade finance products to stay relevant and adapt in today's market.
 
Liam Casey (@liamcasey) is the Founder and CEO of PCH International, a global supply chain solutions company headquartered in Ireland with operations in Shenzhen, China.

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James Fallows is a national correspondent for The Atlantic and has written for the magazine since the late 1970s. He has reported extensively from outside the United States and once worked as President Carter's chief speechwriter. His latest book is China Airborne. More

James Fallows is based in Washington as a national correspondent for The Atlantic. He has worked for the magazine for nearly 30 years and in that time has also lived in Seattle, Berkeley, Austin, Tokyo, Kuala Lumpur, Shanghai, and Beijing. He was raised in Redlands, California, received his undergraduate degree in American history and literature from Harvard, and received a graduate degree in economics from Oxford as a Rhodes scholar. In addition to working for The Atlantic, he has spent two years as chief White House speechwriter for Jimmy Carter, two years as the editor of US News & World Report, and six months as a program designer at Microsoft. He is an instrument-rated private pilot. He is also now the chair in U.S. media at the U.S. Studies Centre at the University of Sydney, in Australia.

Fallows has been a finalist for the National Magazine Award five times and has won once; he has also won the American Book Award for nonfiction and a N.Y. Emmy award for the documentary series Doing Business in China. He was the founding chairman of the New America Foundation. His recent books Blind Into Baghdad (2006) and Postcards From Tomorrow Square (2009) are based on his writings for The Atlantic. His latest book is China Airborne. He is married to Deborah Fallows, author of the recent book Dreaming in Chinese. They have two married sons.

Fallows welcomes and frequently quotes from reader mail sent via the "Email" button below. Unless you specify otherwise, we consider any incoming mail available for possible quotation -- but not with the sender's real name unless you explicitly state that it may be used. If you are wondering why Fallows does not use a "Comments" field below his posts, please see previous explanations here and here.
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