Executive Briefings

Supply Chain Finance for Emerging Markets

Analyst Insight: The awareness of supply chain finance (SCF) in emerging markets is growing. Most recently, foreign importers of goods manufactured in emerging markets, procure-to-pay software providers and financial institutions have been driving increased activity globally. Companies in emerging markets, especially in the small and medium-sized segment, stand to achieve business gains with better understanding of their end-to-end financial supply chains and proper application of available SCF strategies and solutions. - Viktoria Sadlovska, managing director and CRO, Prameya Research

Understanding and awareness of supply chain finance  globally has reached a level where procurement organizations of many large retailers, manufacturers and distributors in the U.S. and European companies with global supply chains have at least heard about it and often investigated available solutions. Some of these organizations have embarked on SCF programs with their global supply base. At the same time, most financial institutions traditionally active in global trade and trade finance, have begun to view SCF as a new way of bringing value to corporate supply chain transactions.

However, challenges in this area persist, with most emerging market firms not fully realizing the business benefits from careful end-to-end optimization of their financial supply chains. When it comes to implementing the recently popular buyer-driven SCF programs, which usually rely on the use of a procure-to-pay software and third-party (e.g., bank) financing, challenges are often country-specific and range from difficulties in structuring relevant legal agreements between buyers, suppliers and participating banks, lack of clarity on accounting implications of programs, bureaucracy, to difficulty in on-boarding emerging market suppliers on the procure-to-pay software platforms.

Significant credit in furthering the awareness and adoption of the electronically-enabled supply chain finance (e-SCF) should be given to SCF software technology providers, which have been among the most active evangelists of this idea over the recent years, spending much effort on educating the market about the opportunities that can be unlocked through e-SCF. Herein lies the key to the recent explosion of interest in this topic: without electronic enablement and supply chain visibility it provides, today's buyer-driven SCF programs would have been close to impossible to implement. Today, having a transparent view of the flow of global shipments, invoices and payments between a buyer and its suppliers makes it possible to create a business case for leveraging this process visibility to improve access to working capital financing.

Interest in SCF has recently increased in emerging markets, which can be illustrated by the fact that a number of regional and local banks, such as the State Bank of India, have launched their own SCF offerings. In addition, the global financial services community has begun a serious push for standardizing some of the applicable regulations and launching efforts aimed to facilitate SCF and similar transactions:

• In 2011, SWIFT collaborated with the Banking Commission of the International Chamber of Commerce in an effort to develop an agreement that would enable industry-wide adoption of the Bank Payment Obligation, a development aimed at facilitating trade finance in an environment increasingly relying on open-account transactions

• The World Bank's International Finance Corporation has recognized potential positive economic impact of SCF on emerging market suppliers, by launching in 2010 its own $500m global trade supplier financing facility aimed at "helping to address a huge shortfall in supply chain finance" among small and medium-sized emerging market suppliers.

                                     The Outlook

Interest in SCF in emerging markets is likely to grow over time, not only among the exporters but also within the domestic local supply chains. It can be a useful instrument for improving working capital throughout the supply chain, thus improving financial viability of emerging market companies. SCF should be considered in the context of continuous end-to-end financial supply chain optimization. This approach can help emerging market firms become more flexible in managing their working capital needs in a fast changing business environment.

Keywords: SC Finance & Revenue Mgmt., Technology, Business Strategy Alignment, Supply Chain Analysis & Consulting, Global Supply Chain Management, Electronically-Enabled Supply Chain Finance, e-SCF, financial supply chains, World Bank, SWIFT, Banking Commission of the International Chamber of Commerce, International Finance Corporation

Understanding and awareness of supply chain finance  globally has reached a level where procurement organizations of many large retailers, manufacturers and distributors in the U.S. and European companies with global supply chains have at least heard about it and often investigated available solutions. Some of these organizations have embarked on SCF programs with their global supply base. At the same time, most financial institutions traditionally active in global trade and trade finance, have begun to view SCF as a new way of bringing value to corporate supply chain transactions.

However, challenges in this area persist, with most emerging market firms not fully realizing the business benefits from careful end-to-end optimization of their financial supply chains. When it comes to implementing the recently popular buyer-driven SCF programs, which usually rely on the use of a procure-to-pay software and third-party (e.g., bank) financing, challenges are often country-specific and range from difficulties in structuring relevant legal agreements between buyers, suppliers and participating banks, lack of clarity on accounting implications of programs, bureaucracy, to difficulty in on-boarding emerging market suppliers on the procure-to-pay software platforms.

Significant credit in furthering the awareness and adoption of the electronically-enabled supply chain finance (e-SCF) should be given to SCF software technology providers, which have been among the most active evangelists of this idea over the recent years, spending much effort on educating the market about the opportunities that can be unlocked through e-SCF. Herein lies the key to the recent explosion of interest in this topic: without electronic enablement and supply chain visibility it provides, today's buyer-driven SCF programs would have been close to impossible to implement. Today, having a transparent view of the flow of global shipments, invoices and payments between a buyer and its suppliers makes it possible to create a business case for leveraging this process visibility to improve access to working capital financing.

Interest in SCF has recently increased in emerging markets, which can be illustrated by the fact that a number of regional and local banks, such as the State Bank of India, have launched their own SCF offerings. In addition, the global financial services community has begun a serious push for standardizing some of the applicable regulations and launching efforts aimed to facilitate SCF and similar transactions:

• In 2011, SWIFT collaborated with the Banking Commission of the International Chamber of Commerce in an effort to develop an agreement that would enable industry-wide adoption of the Bank Payment Obligation, a development aimed at facilitating trade finance in an environment increasingly relying on open-account transactions

• The World Bank's International Finance Corporation has recognized potential positive economic impact of SCF on emerging market suppliers, by launching in 2010 its own $500m global trade supplier financing facility aimed at "helping to address a huge shortfall in supply chain finance" among small and medium-sized emerging market suppliers.

                                     The Outlook

Interest in SCF in emerging markets is likely to grow over time, not only among the exporters but also within the domestic local supply chains. It can be a useful instrument for improving working capital throughout the supply chain, thus improving financial viability of emerging market companies. SCF should be considered in the context of continuous end-to-end financial supply chain optimization. This approach can help emerging market firms become more flexible in managing their working capital needs in a fast changing business environment.

Keywords: SC Finance & Revenue Mgmt., Technology, Business Strategy Alignment, Supply Chain Analysis & Consulting, Global Supply Chain Management, Electronically-Enabled Supply Chain Finance, e-SCF, financial supply chains, World Bank, SWIFT, Banking Commission of the International Chamber of Commerce, International Finance Corporation