The underlying dynamics however are more complicated, since the expected gains for other Asian countries are partially due to companies shifting from China to new markets – such as Thailand and Vietnam. The explanation for this shift can explained by wages, as some Southeast Asian countries have a more attractive cost of labour than China, while there is also a trend of companies diversifying into a wider range of markets to reduce their reliance on a single country. China however, remains the top choice for a wide range of mid to high-end industries where it is the centre of excellence.
The structure of supply chains will also evolve, as businesses are clearly looking to de-risk by cutting the number of companies that they deal with. This means closer relationships with strategic partners, such as end suppliers, and a move away from a reliance on intermediaries.
Financing the chain
Adequate financing is essential to ensure that each link of the supply chain connects smoothly with the next – all the way from raw materials to the end consumer. As a result, there is a growing realisation that treasury should be involved in the strategic decisions relating to supply chain decision making, with more than half of the survey respondents saying that treasurers play a leading role.
By far the most popular funding programmes for supply chains are pre-existing working capital and traditional trade finance. The problem with using working capital in the current challenging environment is that it has become a strategic resource that companies want to protect. Companies are therefore looking for alternative supply chain funding such as inventory financing, pre-shipment financing, receivables and payables financing.
Receivables financing for example, is a popular supply chain finance product that allows the company to borrow money against an expected payment. Purchase order finance provides funding for businesses with purchase orders to pay their suppliers and smooth out cash flow. While distributor finance is when a treasurer is able to extend finance to local distributors to cover the liquidity gap that arises after goods are sold and receivables are not yet paid.
All of these products are well-suited to the current environment, as they are forms of finance that provide the necessary funding to ensure that each link in the supply chain smoothly proceeds to the next. And they all do so in way that does not negatively affect cash reserves, which have taken an extra level of importance during the pandemic.
A global bank with a long history financing global trade is able to offer these specialist supply chain services, because it will understand the specific needs of treasurers who are managing complex supply chains that spread across multiple geographies. Industry knowledge like this means that banking is more than about financing, it also a way for a treasurer to get actionable information that informs their choices.
New priorities gaining ground
Another way we can see the broadening scope of banking is how it relates to priorities that are growing among treasurers. The survey found that both digitisation and sustainability are no longer optional considerations, but rather mission critical for the future of supply chain management.
Treasurers expressed that they need support from their banks in their digitisation journey. In particular, they are looking for systems integration – ensuring that third party platforms merge seamlessly with their own. There is also demand for tools that automate supply chain management.