Danske Bank's Christina Fris Bjørling shines a light on the possibilities presented by the latest supply chain financing trends
International trade is growing. Large multinationals have been conducting cross border business for years, whereas more recently, small and medium sized corporates (SMEs) have become increasingly active internationally - a trend which is expected to further expand in the years to come. Fuelling this tendency is geopolitical change; a growing world economy, particularly in emerging markets, and trade liberalisation.
Furthermore, commercial activity is increasingly being digitised. Payments may now take place close to real-time and paper documents are being replaced by digital solutions. This allows not only for reducing the time and cost of documents and process workflows handling, but also enhances transparency across businesses, leading to the possibility of better understanding and controlling the internal financial infrastructure and adding new potential to more efficiently managing the entire supply chain.
The supply chain challenge
In a global world of liberalised trade, corporates want services and solutions regardless of geography while considering parameters such as capability, quality, price and consistency of supply. For instance, big multinationals increasingly rely on components from external providers around the world.
Consequently, considerations on supply chain risks - how to safeguard that they receive their goods on time and securing payments in markets that differ substantially - have come to play a more pivotal role in their daily business.
Similarly, SMEs need to mitigate risk. And when dealing with large corporates, they might be more vulnerable in terms of liquidity as their big trading counterparts commonly have long payment terms. On top of this, many companies are looking to better align their policies and procedures across the physical value chain. Often this is the first step towards optimising the financial value chain.
Possibilities for the industry
This altogether represents substantial business potential for financial services providers who can help counter risk and optimising working capital. But when aspiring to help customers, whatever their challenge, not even the largest provider can cater for all needs of all customers across all geographies, says Dr. Sebastian Schneider, partner in consultancy company McKinsey.
"Given the complexity of global trade with vast differences in financing patterns, infrastructure and digitalisation amongst countries and regions, advising corporates to a sufficient level requires in-depth understanding of not only their sector and value drivers, but also profound knowledge of the geographical markets in which they operate," he notes.
Think like the customer
To stand strong against the competition - nowadays counting banks as well as fintechs - you must be capable of essentially understanding the mind of the CFO and the environment in which the company operates, assesses global head of transaction banking at Danske Bank, Lars Sjögren.
"The better our skill set to think like our customers, addressing all aspects from sourcing and logistics to payment and liquidity, the better we are equipped to seamlessly serve our customers. The question is: how far should we go given the vast amount of resources required? This leads us to continually consider not only our own offering but also embracing discussions on how strategic partnerships may help us best service our customers going forward," he observes.
The current Danske Bank business strategy specifically focuses on getting closer to the customers by moving away from what you might call traditional financing solutions to include procurement, risk management and supply chain efficiency considerations. Lars Sjögren elaborates:
"Nowadays, we take a more holistic customer view. This is a relatively new advisory approach, where we step in much earlier in the process to aid our customers' clarification processes and help them draft what will best suit their needs."
"In this process, we offer data driven analysis by utilising the data readily available to us. On the solutions side, we furthermore continue to integrate a number of well-established solutions and services, developed around the supply chain, cash management, liquidity and dynamic discounting to find a suitable match. This obviously takes place in close customer collaboration."
He adds, "This also requires readiness on the part of our customers. It takes resources on their part, too, to define and set up solutions specifically to fit their needs".
More to come
Since - as mentioned - investments are substantial, Danske Bank is carefully considering its approach.
"At the end of the day, our relevance all comes down to helping our customers improve and grow their businesses. Hence, this is a road we must continue to pursue. We have a unique and robust technology platform to build upon. Going forward we will see many more solutions aiming at unlocking cash at customers or their trading counterparts and countering risks," Lars Sjögren foresees.
"Our experience is that an increasing number of treasurers are now ready to discuss how they may better utilise the potential available to them to optimise their cash flows and working capital. Our job is to offer relevant advisory and solutions to match their needs," he concludes.
Danske Bank will host a community session "Efficient Working Capital in a global and real-time world" at the 2016 SIBOS conference. Panellists will include corporate, consultancy and industry representatives who will discuss what is trending and how to boost working capital efficiency and transparency across the corporate supply chain in a real time payments world.
The session is scheduled for Tuesday 27th September from 12.45pm to 1.45pm in the Conference Room 4 (CR4). You may also find Danske Bank at stand D37 for further discussion.
Christina Fris Bjørling is a senior communications consultant at Danske Bank