With a background as an electrical engineer, it’s not surprising that W. Edwards Deming repurposed the ideas of connections and electric circuits as he became a business consultant.

One of his well-known theories is the “System of Profound Knowledge”, a concept that defines an organization as nothing more than a holistic system, connecting not only internal resources, but also interlinking with external stakeholders. For managing the system, four pillars are relevant: Appreciation of a system, knowledge of variation, theory of knowledge, and psychology.[1]

Deming published this concept back in 1993. But despite being almost three decades old, the philosophy sounds more modern than ever. Thanks to digital twins – virtual replicas of physical devices – his philosophy can now be practically implemented, not only in production facilities but also the office environment.

The new workforce is ready to take on AI systems

Believe it or not, Generation Z (born 1997 and later)[2] is now in the process of entering the  workforce. These employees not only grew up with the internet, but also have extensive experience with voice assistants and other forms of artificial intelligence. Accordingly, they appreciate the technology and are comfortable interacting with AI to achieve the required results. With Generation Z, the future workforce is skilled in system-thinking.

The concept of smart contracts was first defined one year after the “System of Profound Knowledge”, not by a lawyer, but the computer scientist Nick Szabo:

“A smart contract is a computerized transaction protocol that executes the terms of a contract. The general objectives of smart contract design are to satisfy common contractual conditions (such as payment terms, liens, confidentiality, and even enforcement), minimize exceptions both malicious and accidental, and minimize the need for trusted intermediaries. Related economic goals include lowering fraud loss, arbitration and enforcement costs, and other transaction costs.”[3]

As a mathematician, his definition of a legally biding document is nothing more than a rules-based algorithm.

Smart contracts can keep your company sustainable and secure

With extraterritorial laws such as the U.S. Foreign Corrupt Practices Act or the UK Modern Slavery Act 2015, companies can be held responsible for their vendors, sales agents and other partners. As a consequence, they must elaborate a code of conduct for vendors, and in parallel conduct background checks and request evidence.

The electronic signature on a contract is based on conditions. If a vendor stops complying with one or more of them, much like the effect of an electric circuit getting interrupted, the validity of the contract is disrupted.

For example, a company may require its vendors to upload an annual statement that their products are free of conflict minerals. Based on this condition, the agreement was signed. If the vendor does not comply with the deadline of the rule, the smart contract gets automatically abrogated until the issue gets resolved or the company decides to terminate the agreement.

Smart contracts can be combined with continuous monitoring, where an algorithm connects  automatically with various databases to check if a used vendor gets listed or delisted from a governmental sanction-list, is involved in a lawsuit, or negatively mentioned in the news which could lead to reputational risk.

Human interaction is still needed to execute smart contracts properly

The ideal collaboration of AI with humans is that the machine is responsible for the level 1-tasks, freeing up the human expert to focus on the level 2-priorities. Regarding smart contracts, this means that the algorithm can continuously monitor that all defined rules are still valid. The moment the AI perceives that this is no longer the case, it interrupts the smart contract and alerts the employee to analyze the situation.

The human stays in charge, and accordingly must make final decisions to confirm or dismiss the computer alert.

This requires not only that the human understands the system, but also that they are capable of critical thinking to avoid falling prey to automation bias or a general over-trust of the AI. This has become increasingly important in the current environment, where a host of disruptions have been deemed “force majeure” due to the COVID-19 pandemic.

Deming’s focus on human psychology inside the system is imperative. He says a contract is “a voluntary, deliberate, and legally binding agreement between two or more competent parties. Contracts are usually written but may be spoken or implied, and generally have to do with employment, sale or lease, or tenancy.”[4]

This broad definition should also apply to smart contracts. The province of Alberta published the “Electronic Transactions Act” in 2001. The law defines the validity of electronic contracts, including the option of “the interaction of an electronic agent and a person or by the interaction of electronic agents.” Today the wording “electronic agent” has become outdated, replaced by as the terms “automated” or “autonomous software”.

As the demands of all included parties must be ensured, it’s crucial that smart contracts need to be auditable at any time.

Blockchain technology adds an extra layer of security and transparency

Modern definitions align smart contracts with blockchain:

“A smart contract is a self-executing contract with the terms of the agreement between buyer and seller being directly written into lines of code. The code and the agreements contained therein exist across a distributed, decentralized blockchain network. The code controls the execution, and transactions are trackable and irreversible.”[5]

The blockchain technology promises enhanced cyber-protection for smart contracts, as the information does not get stored on just one server, but is encrypted and decentralized on numerous servers. The different machines validate each other, and any deviating information (such as a manipulated contract),  would be automatically overwritten with the correct authorized information stored on the other servers.

As expressed by “chain”, no information gets deleted, but all changes are registered with the date and time. If the smart contract is enabled to connect automatically with other databases where certifications are stored in blockchain, the contract would add those. If not, it could connect to an internal server, where vendors manually upload such documents.

In times of global anti-corruption enforcement and rising stakeholder activism, companies want to ensure that their partners continuously comply with the law and defined human rights-initiatives. As a result, more documentation and statements are required. Smart contracts are a possible solution to achieve transparency, and automatically control the needed certifications. In the spirit of W. Edwards Deming, they can act as a bridge to connect two crucial organizational systems.

[1] Deming, W. Edwards (1993): “The New Economics for Industry, Government, Education”

[2] Dimock, Michael (2019): “Defining generations: Where Millennials end and Generation Z begins”

[3] Szabo, Nick (1994): “Smart Contracts”

[4] BusinessDictionary (fetched 04.04.2020): “contract”

[5] Frankenfield, Jake (2019): “What is a Smart Contract?”

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In the current international business environment, heightened customer expectations impact every part of the supply chain. At the same time, next-generation delivery and logistics management solutions are making global supply chains smarter, faster, more customer centric, and sustainable. Here are six trends to pay attention to in the world of global supply chain management for 2020 and beyond.

1. Using green logistics to cut costs and win customers

Logistics companies are integrating sustainability efforts into their overall strategy, motivated by keeping the environment “Green” and eliminating pollution. The trend is often referred to as “Green Logistics”. This will not only help the environment, but also it will enhance corporate reputations, lower supply chain costs and most importantly increase customer loyalty.

2. Supply chain integration an increasing focus for large companies

The enhancement and improvement of technology has played a major role in changing supply chain processes. Recently, top ocean carriers have started trying to move increasing numbers of documents through online processes, with the goal of streamlining the entire supply chain.

Maersk and DAMCO are two of the world’s leaders in moving containers, and their idea is to double down on the logistics processes with higher integration of inland services. This will help shippers to route their transportation at reduced cost, as the two companies have planned to connect sea and land, beyond the port of call. Alongside that initiative, digitization plays a huge role for them as it helps them to access to real-time data and information, create more agile and efficient processes and operations and more importantly, develop a more flexible “Elastic Logistics” strategy.

3. Is TradeLens technology the tool of the future?

A lack of visibility and transparency affects end to end supply chains negatively. Professionals are now trying to minimize risk and get the results for the whole process in one go!

TradeLens is a new software powered by blockchain technology, which will support global trade as a possible single platform to track the end-to-end shipping journey, making the entire process more transparent. Carriers, major shipping lines, ports, 3PLs, freight forwarders and other shipping and logistics players would all share and use the one single portal to update their customer.

Though it’s going to help for tracking freight, continued access to and use of the information is crucial. While streamlining the inventory management and improving the asset utilization is important factor for logistics, it’s important to keep an eye out for any downsides for customers and the industry as a whole from continued adoption and usage of this tool.

4. The hidden costs of taking humans out of the equation

While many companies are moving to an increasingly digital workflow to reduce costs, in my opinion going digital is itself a big cost as investing in technology would be. While it will be beneficial at some point, investing in infrastructure and training humans will help to increase the productivity of supply chain and eliminate the additional cost of maintenance.

This lack of infrastructure and service can lead to rising costs. Several carrier charges double the money for a simple local delivery, and include high fuel rates and excessive bunker charges. All 3PL try to minimize the cost and work efficiently, but due to high amount of load and issues, even 3PL are helpless and clueless when it comes to booking the carrier for the load. They tend to charge high and here company tries to utilize its all the resources book the lowest carrier on time.

Investing in infrastructure and delivery options will ease this, and is leading to exploration of alternatives to traditional delivery. For instance, drones have started playing a huge role in the supply chain industry. This would highly impact the trucking industry, as drones could be the future for delivering goods.

5. Increasing numbers of partnerships to reduce logistics costs

The aim of any company’s logistics strategy is to minimize the freight cost and provide highly efficient service. Partnerships will often not only help to reduce the costs, but also minimize the risks associated with shipping cargo. In some cases, an effective partnership can also decrease delays in delivery and enhance customer value and satisfaction.

In international markets, companies are trying to find partners that use innovative digital solutions which will help them to seek new opportunities. Increasing forecast accuracy, reducing inventories by using JIT (just in time) system, gaining new, more accurate delivery ETA estimates and decreasing the amount of required administrative work are a few of the crucial areas businesses aim to address through partnerships.

6. Will tariffs reduce business competition?

New trade disputes are impacting operations as well. Due to Trump’s new tariff policies, B2B and B2C supply chains alike are greatly affected. Retailers are worried about the how rising tariffs will escalate prices and reduce consumer demand. In some instances, this could leave fewer businesses still able to compete and may even result in a monopoly in particular industries.

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After years of skepticism about their security, value, and staying power, it seems that cryptocurrencies like Bitcoin are ready to take on the world markets. There’s serious speculation that central banks will begin to hold cryptocurrencies in 2018. Investment firms such as Goldman Sachs have released information to clients about investing in Bitcoin, and CBOE Holdings has begun to sell Bitcoin futures.

This means the time has come for those in international business to look at how Bitcoin and other cryptocurrencies will affect global finance.

Cryptocurrencies are now predicted to disrupt the way people do business, and those buying and selling across borders stand to benefit.

The basics of cryptocurrency

Put simply, cryptocurrency is a digital financial exchange for goods and services, but cryptocurrencies like Bitcoin are so much more complex.

Bitcoin can be purchased as a basic money exchange and then used as currency. Every time money is exchanged through Bitcoin or a similar cryptocurrency, that transaction is recorded in a detailed public ledger. The ledger forms a long chain of verified transactions in chronological ordered. These ledgers are referred to as blockchains, and the blockchains are a big part of what excites people about the possibilities opened up by cryptocurrencies.

The benefits of cryptocurrency for international trade

For those buying and selling goods and services across borders, cryptocurrency offers a host of benefits. Some of the cryptocurrency and blockchain technology are poised to disrupt trade finance include:

• A lack of exchange rate. If you’re dealing with many international suppliers and buyers in a variety of countries, you have to deal with a myriad of exchange rates. If everyone is using Bitcoin, however, you’re all dealing in the same currency with the same value, without the constant hassle of monetary exchange.
• Fast money movement. Cryptocurrency transactions are near instantaneous. The transfer itself posts immediately, and it takes only about 10 minutes for payments to be validated in the blockchain.
• Secured payments. The money you receive when you take a Bitcoin payment is also secure. Users need to have the money available upfront, so there’s no chance of payments bouncing or credit transactions being canceled.
• Lower taxes and fees. Because cryptocurrency is a peer-to-peer monetary system, there are no taxes that govern them, and transaction fees are almost nonexistent.
• Detailed records. The blockchains created from cryptocurrency transactions create clear, secure records that can be tracked and verified. There’s talk of tying contracts and shipments to transactions within the blockchain to make business and logistics easier to track. With blockchain technology backed by cryptocurrency, processes could become more efficient, easier, and transparent. In fact, companies are so interested in the possibilities of blockchain technology that Danish shipper Maersk has partneredwith IBM to pilot a blockchain shipment-tracking system.

The drawbacks of cryptocurrencies

Of course, there are drawbacks to cryptocurrency that have slowed its adoption. First and foremost, the future of cryptocurrencies remains uncertain. While a single Bitcoin is now more valuable than an ounce of gold, economist and financial heads warn that cryptocurrency is another trend that will result in a burst bubble. From a daily user standpoint, there are problems with cryptocurrency as well. Bitcoin isn’t legal in all countries, and therefore can’t be used everywhere. And because users must have the cash on hand to make purchases, buying on credit — which businesses often do — isn’t yet a possibility.

The future of Bitcoin in international trade

While many are debating the future of Bitcoin as a tech bubble versus a viable long-term currency, it’s likely at least some of the technology created by Bitcoin is here to stay. From quick transfers to the thorough records created by blockchains, businesses and institutions are looking at how they can use cryptocurrency and related technologies to make doing business easier and cheaper.

Regardless of how the future pans out for cryptocurrencies, it’s clear that savvy business owners should be exploring cryptocurrency and blockchain technologies to see how they could benefit and make a move to capitalize on the technology.

The post How Bitcoin could shake up international trade appeared first on Trade Ready.

What should you look out for or expect in the international business world in 2018? Let’s take a look and see what could be dominating the headlines you read over the next twelve months.

1. The CPTPP

Though President Trump withdrew the U.S. from the TPP in January, the remaining 11 countries are working to resurrect the deal as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). This deal, if signed, would eliminate approximately 95% of tariffs on trade between these countries, who have a combined GDP of over $10 trillion USD.

In November, Canada surprised the other 10 countries by declining to sign the agreement, to the surprise of the negotiators and the Canadian international trade community. However, amid efforts to diversify exports beyond the American market, it seems unlikely that Canada will continue to drag its heels on an opportunity to gain preferential access to the Japanese market in particular. Expect any final issues to be resolved and the CPTPP to be signed sometime in 2018.

2. Ongoing, contentious Brexit talks

By December 2017, the UK has completed the first phase of Brexit negotiations with the EU, covering issues such as the Irish border, citizens’ rights and financial settlements. The second phase of negotiations will cover the UK’s transition period after formally leaving the EU in March 2019. Discussions over the long-term relationship between the UK and EU will be included in phase three.

This process was complicated on December 13, when several Conservative British MPs joined the opposition to vote for an amendment requiring British Parliament to debate and vote on any final deal with the EU before it can be approved.

The second phase of Brexit negotiations are planned for 2018, and are expected to present few greater challenges than the first phase. The final phase on the long-term relationship between the UK and EU, however, presents several important questions about economic integration and free trade that Britain’s politicians and citizens have not yet agreed upon.

With two sets of challenging negotiations, and the extra hurdle of parliamentary approval, the odds that talks will drag into the final three months before the UK leaves the EU on March 29, 2019 remain high.

3. Sustainable, cleantech exports

If you’re involved in the clean tech and sustainability sector, 2018 should be a strong year for you. Despite the U.S. withdrawal from the Paris Agreement, global regulations are still trending towards stricter environmental and emissions regulations, requiring businesses to invest in cleaner technology in order to meet those standards. According to EDC President and CEO Benoit Daignault, total global investment in cleantech has now exceeded $1 trillion and will reach $2.5 trillion by 2020.

Canada in particular is placing great emphasis on this industry. The Canadian government promised $1 billion towards clean tech in its 2017 budget for R&D. The Trade Commissioner Service is also hiring 15 new Trade Commissioners to focus specifically on cleantech.

4. India, Brazil, and New Zealand – the rising stars of global trade

If you’re looking for new markets over the next 12 months, Morgan Stanley recommends you take a hard look at India. They argue the country’s increased digitization, new tax laws and younger demographics present a bright future, and predict 7.5% GDP growth in 2018. Morgan Stanley also predicts that India will be the world’s fastest growing economy over the coming decade.

Brazil will also see a quick recession recovery, growing an expected by 3.1% in 2018, according to the Brazilian government.

If you’re more interested in fully developed markets, Forbes ranked New Zealand second on its 2018 Best Countries for Doing Business rankings, citing its 3.6% economic growth in 2017, among other factors. The country also ranked highly in several categories for ease of doing business, including first in IP rights, bureaucracy/red tape levels surrounding business, and Transparency International’s Corruption Perception Index.

5. Meaningful action to reduce oil dependency

As Venezuela continues to suffer through the collapse of its oil-dependent economy, and the U.S. plans to become a net exporter of oil within 10 years, several oil-dependent economies are taking steps to diversify their economies.

In Russia, Putin’s approval levels are dropping as the economy struggles through lower oil revenues. Despite making fiscal changes to reduce the national budget’s dependence on oil revenues, he may push for new measures to improve his chances in the country’s 2018 presidential elections.

Saudi Arabia has plans to sell about 5% of Saudi Aramco, the state-owned oil company, through an IPO in 2018 and expects to generate up to $100 billion for the country’s Vision 2030 program, designed to shift the Saudi economy away from oil dependency towards tech and entertainment services.

Nigeria and Angola, meanwhile, are looking to agriculture to reduce their oil dependency issues. Nigeria, dependent on oil for 70% of government revenues, has launched a new program to increase yam exports to Europe and the U.S., as the country produces 60% of the world’s yams. Angola are instead focused on a broader approach to tap into their agricultural potential, which includes producing more cereals, milk, chicken, cassava, and other products.

6. Banks taking on blockchain

It is practically impossible these days to tune into the business or financial news and not hear a story about the latest blockchain or cryptocurrency development. Blockchain technology, allowing multiple players to have access to a live, unalterable digital ledger, offers game-changing possibilities for international trade finance. In 2018 this buzzworthy fintech is moving beyond Silicon Valley start-ups, into the mainstream world of global financial institutions.

In March, 2017, we reported on how banks were working to bring the advantages of blockchain technology to their corporate clients. In May, the R3 Consortium, made up of of 70 of the world’s biggest financial institutions and created to research and develop blockchain adoption, announced it had secured its largest ever investment. Then in October 2017, seven major banks partnered with R3 and Finastra to develop a blockchain-based marketplace for syndicated loans. On December 6, Amazon joined the blockchain party, announcing a partnership with R3 to allow the Corda platform to be the first distributed ledger technology to operate on the Amazon Web Services Platform.

What will we see in 2018? Swiss global financial company UBS has led an initiative to create a “utility settlement coin” that would represent each major national currency. If this coin is launched, the Corda platform could be adapted to facilitate its use.

IBM is working on launching their own blockchain platform that would allow banks to rapidly clear global payment transactions. There are also several start-ups working on digitizing the bill of lading process.

2018 could be the year some of the blockchain-based payment initiatives move from development to adoption.

7. Adoption of futuristic supply chain technology

Machine learning, automation and robotics, self-driving vehicles, new tracking technology – all of these futuristic supply chain tools will see major developments and implementation in 2018.

The past year was a big one for self-driving vehicles, culminating with the reveal of Tesla’s new fully electric semi, gaining pre-orders from big players such as PepsiCo, UPS and Walmart. Companies invested over $1 billion into self-driving and other trucking technologies in 2017.

Speaking of investing in supply chain technology, over $4 billion was invested in AI by U.S. venture capitalists in the past year. One application that has seen immediate return for companies adopting machine learning capable AI is Multi-Echelon Inventory Optimization (MEIO), which has been shown to reduce inventories by 30% while maintaining or improving customer fill rates.

Robots will also continue to play more of a role in warehouses in 2018. While some are increasingly capable of working independently, replacing human workers on the floor, others are working alongside humans, or being controlled by humans using VR applications. There’s no doubt that the demand for the skills needed to work with robotics will continue to rise in the year ahead.

8. Planning for the possibility of a world without NAFTA

The sixth round of NAFTA talks is set to kick off in Montreal January 23. But as the negotiations near, there doesn’t seem to be a lot of positivity. The first five rounds reportedly saw very little progress, putting even more pressure on this next round.

What’s the problem? The U.S. is seemingly immovable on five issues that pose major problems for the agreement’s other two member countries, Canada and Mexico.

The five issues include:

• Removal of reciprocity in government procurement at the sub-national level
• Changes to the rules of origin in the auto sector
• Elimination of the independent dispute resolution clause
• End of Canadian supply management of the dairy, eggs and poultry industries
• Addition of a “sunset clause” on NAFTA itself

“NAFTA, by itself, will not collapse,” said Mexico’s Economy Minister ldefonso Guajardo in October, but even if Mr. Guajardo is right, it may change drastically from what we have in place today.

If this really does spell the end of NAFTA, the Canadian auto, pulp and paper, chemicals, mining, aerospace and oil and gas industries are likely to be most affected, according to BMO chief economist Douglas Porter.

Even without NAFTA, trade between the three nations is inevitable. Supply chains between Canada and Mexico criss-cross the U.S. How businesses adapt to the realities of a new – or non-existent – NAFTA, is something we’ll be watching closely in 2018.

9. Cyber threats and IP risks

As technology gets more sophisticated and ingrained in our work and personal lives, so too does the threat of cyber security breaches, which in turn compromises our intellectual property. Sixty-four percent of companies surveyed reported some experience of web-based attacks in the past year. Companies of all sizes are targeted and face the risk of cyber threats from simply being connected to the internet. And the costs are large – the average cost of a data breach in Canada is a jaw-dropping $6.03M.

So what types of threats are growing in 2018? Phishing, social engineering attacks, malicious code, botnets, denial of service attacks and ransomeware are all on the rise.

Ransomware in particular is growing in frequency, attacks rose an alarming 50% in 2016. Demonstrative of the damage a ransomeware attack can cause was the aftermath of the WannaCry attack in May 2017. Hundreds of thousands of individuals lost access to their data, compromising intellectual property, private customer information, and disrupting commercial processes.

As a business, it has never been more crucial to include cybersecurity programs directly in your strategy, and engage IT professionals to help cover all aspects of your web-based properties.

10. Demand for global trade skills higher than ever

Despite continuing turmoil and uncertainty on the global political stage, Canadian businesses still hold an optimistic outlook about their export opportunities. According to Export Development Canada’s Fall 2017 Survey, the majority of respondents believe that export sales will increase in 2018, citing new opportunities, growing demand, and expansion into new markets as stimulating factors.

As more businesses of all sizes get involved in international markets, the demand for talent skilled in global trade processes, is also growing.

“We hear from exporters all the time that knowledge is one of the most important tools for building international success,” said EDC Senior VP, Business Development Mairead Lavery.

In 2017, the FITTskills international trade training program underwent a major update, including the addition of 60% new content to reflect the changes we’ve seen in technology, ecommerce, trade agreements and more. In October, FITT also partnered with EDC to expand access to the available resources for businesses of all sizes looking to take advantage of international opportunities.

There’s no doubt that we all face an exciting year ahead, full of innovation, an ever-shifting global political environment, and risks, alongside ample new opportunities for business growth.

What trends will you be watching in 2018?

The post 10 global trade trends we’ll be watching in 2018 appeared first on Trade Ready.

Despite increasing regulatory challenges, banks are collaborating to help bridge Asia’s trade finance gap.

Asia is set to contribute 60% of the world’s economic growth in 2017, driven by growing external demand as well as domestic reforms. Yet, a recent Asian Development Bank (ADB) survey estimates that approximately US$600 billion worth of trade in the region is failing to secure the financing it needs – out of a total US$1.5 trillion of unmet demand worldwide.

This “trade finance gap” is partly due to the increased regulatory requirements introduced in the wake of the global financial crisis, which have forced many banks to withdraw or reduce business in certain countries and sectors due to compliance costs. This de-risking has disproportionately hit small and medium-sized enterprises (SMEs) in emerging markets.

It has been estimated that globally, 74% of trade finance requests by SMEs and midcap firms are rejected. Moreover, Asia and the Pacific has the highest rejection rate with 39% of global rejections.

So whilst Asia needs increased liquidity to support its burgeoning trade, banks are decreasing the amount of liquidity available. Yet, through support from multilateral lenders, the application of new technology, and local-global bank collaboration, banks can help to address the trade finance gap. They can work to ensure businesses in Asia can access the support they need to seize the trade opportunities available.

Increase in compliance checks providing obstacles to trade finance

One of the most pressing constraints on trade finance is increasing compliance checks which inflate the costs, time and labor required to on-board new clients. Know-Your-Customer (KYC) requirements compel banks to gather increased data and information on each customer, including validating primary documents and identification.

According to an ADB survey, 90% of banks cite anti-money laundering and KYC requirements as a hindrance to their ability to offer trade finance.

Moreover, available liquidity is often misplaced against what is perceived to be “high risk”, from both a financial and compliance perspective.

One example of an initiative aiming to rectify this is The ADB’s Trade Finance Program (TFP). Through the provision of guarantees and loans from partner banks, the program has supported over 9,200 SMEs and US$25.6 billion worth of trade since 2009.

This type of program can back a range of transactions – facilitating the flow of everything from consumer goods to commodities and with quick response times of as little as 24 hours. Trade finance specialists are also available to support companies in the region by providing advice on how to engage in import and export activities.

For partner banks, this type of program allows increased country credit lines, capital relief, and expanded relationships with regional correspondent banks. Such a partnership helps banks build upon their longstanding provision of Asian trade services, and bring their services to a wider range of customers across the region.

Digitalization can help

Financial technology, or “fintech”, can also help bridge the trade finance gap. Blockchain, the emerging distributed ledger technology, could potentially enable cross-border transactions to be digitized, and hence verified and recorded in a matter of minutes, rather than the current processing time of up to several days. The technology holds substantial potential to help streamline the trade process, prevent fraud and accommodate KYC requirements by providing increased transparency and efficiency when it comes to verifying parties involved in a transaction, and processing a cross-border payment.

For their part, the SMEs and companies that have access to blockchain can pinpoint where a payment is and know exactly when it will be delivered. This has the potential to increase efficiency within supply-chain processes, provide greater assurance to companies and minimize payments disruptions.

Awareness of digital solutions and their potential to improve the trade process remains lower in developing countries. But this is something many global banks are working to address.

Increased collaboration between international, local and regional banks through correspondent banking partnerships is perhaps the most important element to bridge the trade finance gap.

Not only can partnerships between local and global banks help to kick-start a renewed buoyancy in trade, they are a powerful means for banks to share expertise and capabilities in order to provide the very best for clients and their trade experiences.

Local banks often lack the investment necessary to access new technologies that global banks can offer. In turn, local banks can provide a deep understanding of regional markets, as well as the unique challenges that customers face. Through partnerships and collaboration, local and global banks can bring to bear what the other lacks. Indeed, many global banks are deeply committed to working with local banks and their clients to help support the region’s trade needs.

With the Asia-Pacific predicted to continue as the fastest-growing economic region of 2017, it is crucial that banks are able to support the needs of local businesses and global trade. Establishing partnerships to combine local experience, global connections, a breadth of knowledge, and sophisticated technology can help ensure trade opportunities are accessible.

The post Banks working together to help bridge Asia’s trade finance gap appeared first on Trade Ready.

Blockchain is on everyone’s lips these days – nowhere more so than in the trade finance world. This technology has the potential to clamp down on fraud, streamline supply chains, and enhance companies’ liquidity. As the prime facilitators of trade, banks are as eager as any to bring the benefits to their corporate clients.

Making blockchain a reality, however, will take time and require a practical approach. Banks will have to identify targeted “use cases” – determining exactly how and where blockchain can bring improvements.

Strong collaboration between financial institutions and technology firms will be needed to bridge technical gaps, while success will depend on agreeing common standards and frameworks.

Back to basics: how blockchain works

Blockchain technology relies on a “distributed ledger” – a cache of digital information to which all users of a certain computer network have shared access.

As stages 1 & 2 of the diagram show, any addition to this record – created by a new trade or transaction – is logged as a “block” of data. All members of the network are notified of this action (stage 3), and at least one of the members must accept the change as valid (stage 4).  Once verified, this new block is “chained” to the previous blocks of data (stage 5).

Bulking up security in trade

This authenticated data chain results in high degrees of transparency and security most welcome in the trade industry. The ledger is visible and accessible (i.e. “distributed”) to all counterparties involved in trade – whether banks, buyers, sellers, shipping companies, insurers, forwarders, customs officers, inspection bureaus or regulators. Should a new transaction be attempted, this entire network must first accept any modification to the chain as legitimate.

Blockchain could thus form a key ally for banks in their fight against fraud. Banks must always be on the lookout for the risk of “double-financing”, for example – the chance that another bank has already been allocated the trade’s receivable, or that another transaction is already using the invoice presented for financing as collateral. The permanent and essentially tamper-proof record offered by blockchain would mitigate this threat.

Blockchain facilitates automation and risk mitigation

Yet the advantages do not stop there.

The distributed ledger would offer a bank comprehensive and real-time insights into its corporate customer’s entire supply chain – from the initial order of purchase, to assembly, inventory, payment and final delivery.

Without having to spend time and resources on manually processing and matching data, the bank could more efficiently identify positions in the supply chain where risk mitigation and financing are needed. Funds could be released in a timelier manner, and the risk of non-payment would be eliminated, enhancing  with the company’s liquidity as a result.

“Smart contracts” represent another exciting prospect of blockchain. These contracts are designed to carry out pre-defined actions automatically when set off by a particular event in the supply chain. For example, once the delivery of goods to an importer has been effected, a smart contract would ensure that funds are automatically released to the exporter.

At Commerzbank, we’ve already used the underlying concept of the smart contract when facilitating trade with the Bank Payment Obligation (BPO). The BPO is a new trade finance instrument positioned between open account and the letter of credit. It provides payment assurance on the automatic exchange and matching of digital trade data – without presentation of paper documents – to complete a transaction.

The journey to blockchain is far from straightforward

The application of the smart contract idea is certainly an important step towards realising the full potential of blockchain in trade. But a range of challenges will be met along the way.

For a start, banks must establish exactly how distributed ledgers can enhance their corporate customers’ trade. Whether they want to speed up provision of financing, improve a customer’s working capital, or mitigate payment risk, banks will need to identify the right use cases for blockchain, and find exactly where new solutions are needed. This will be much more productive than merely attempting to replace tried-and-tested trade solutions, such as the letter of credit or guarantee, with an alternative based on the distributed ledger.

There will also be technical challenges to overcome. Banks and companies will need to invest resources into developing blockchain’s digital interfaces, spend time getting to grips with the technology, and ensure that data security in their blockchain systems is up to scratch. They will also have to agree to standards that can ensure that the software underpinning new blockchain processes will work with legacy systems.

Meanwhile, the trade finance industry will require crucial harmonisation when it comes to offering and using blockchain platforms.

The standout advantage of blockchain is its interconnectivity. This would be wasted if different trade finance parties used various distributed ledger technologies, underpinned by incompatible systems.

Collaboration will be the key to integration

Progress, therefore, will rely on the banks, technology providers and all other stakeholders in the complex trade finance ecosystem being able to work together. They must not only agree to set standards, but also to share insights and useful experiences.

It is for this reason that the R3 consortium, a group of more than 70 financial institutions including Commerzbank, are committed to the research and development of distributed ledger technology. The Euro Banking Authority Working Group for Cryptotechnology for Trade Finance is another group which seeks to explore use cases for blockchain for corporate customers.

Blockchain has the true potential to enrich companies’ trade – but success will take time, collaboration, and hard work from the banks.

The post Can the banks come together to bring the benefits of blockchain to their clients? appeared first on Trade Ready.

High tech is here

Same-day delivery is here. Drone delivery is here. Today’s consumer demands instant gratification, and the idea of searching on a mobile phone for a product from anywhere, buying it with the touch of a button, and having it delivered to you that very same day is inching closer to the new normal.

Online shopping for countless products could now become even simpler than (and almost as fast as) ordering a pizza for delivery.

Revolutionary logistics management

Retailers like Amazon are leading the way in this revolution of e-commerce logistics. But you don’t have to have a billion dollar revenue scheme and an army of drones to take advantage of this e-commerce trend. We are also seeing other alternative logistics management strategies, such as using small showrooms allowing customers to interact with a product before buying it online, and designated drop-off points. These smaller stores also help large chains expand their reach by making their products more easily accessible to a larger consumer population.

Some e-commerce businesses are even partnering with rideshare services such as Uber instead of relying on traditional package delivery companies. And, of course, there are the drone deliveries, which are being tested in select locations this year.

In the following infographic we can observe that to buy different types of products online it is important that the delivery process is carried out immediately for users in the United States, China, and Germany.

Blockchain technology for online payments

Blockchain is still on the cutting edge – so much so that many people are only hearing this buzz-term for the first time in 2017. But there are signs that this will be the year that blockchain technology becomes more widely implemented for e-commerce online payments.

You may be familiar with the cryptocurrency Bitcoin which is traded through blockchain, essentially a cheat-proof ledger that authenticates and monitors financial transactions. People who have adopted this cryptocurrency appreciate the fact that the blockchain creates a secure and decentralized control system. The blockchain record is traceable and permanent, making it more transparent than traditional payment systems. Each unit of Bitcoin currency has a digital paper trail that follows it for its entire life through the blockchain.

More and more e-commerce websites are choosing to accept Bitcoin currency as a form of payment, and the trend is even expanding its reach into brick-and-mortar stores through Bitcoin enabled POS terminals. For businesses whose brand image centers around social responsibility, using a blockchain system could allow customers to track the product they are about to buy, from source materials to the e-commerce store.

Advances in virtual reality and augmented reality

Artificial intelligence isn’t the only technological development that is shaping e-commerce. Virtual reality and augmented reality will be playing an increasingly important role in 2017. These technologies are already taking the gaming world by storm (e.g. the Pokémon Go phenomenon), but there is absolutely no reason for VR and AR to be limited to a single industry like gaming.

Believe it or not, it may soon be possible to shop online using virtual reality. For example, a store based in VR, where customers just have to move their head in order to buy an item. Customers would get the in-store shopping experience without having to leave home, with the benefits of feeling as if they are able to see, touch and interact with products in real life. This is likely to be a reality by the end of 2017.

Augmented reality, on the other hand, promises to give customers greater confidence when shopping online by allowing them to virtually try the product before purchasing it. Imagine Pokémon Go, everyone’s favorite AR game that lets you see fictional creatures in your real-life environment, and extend that to any experience where you would want to see how something looks in real-life surroundings.

This chart illustrates the market size of AR / VR prediction software for different sectors in 2025.

What does 2017 have in store for e-commerce?

It’s almost impossible to say with certainty where technology will take us by the end of this year. We don’t have any historical precedents for what is happening with e-commerce and the digital revolution to be able to make any sure-fire predictions. The positive feedback loop between consumers and e-commerce technology appears to be following in the footsteps of technology itself, developing at an exponentially faster pace as time goes by.

Already, we are seeing changes that would have been right at home in a science fiction novel just five years ago.

Packages delivered by drones the same day you order them online? Walking through a store while sitting at home on your couch with a virtual reality headset on? All of these new e-commerce developments are impressive enough in their own right, and even more so when you consider that online shopping has only been mainstream for less than 20 years.

Whatever the trends may be this year, or next year, there seems to be an inevitable destination: the merging of the digital and physical realms, giving consumers the best of both worlds.

Catch part 1 and 2 of this series to view all 10 trends revolutionizing e-commerce in 2017.

The post The future is here! How e-commerce will continue to revolutionize retail in 2017 (Part 3) appeared first on Trade Ready.

A new year means three things: lots of people are going to sign up for gym memberships they won’t use in three months, others will keep writing the wrong year on all their correspondence, and of course there are a plethora of new trends and predictions to look out for in the year ahead.

We’re going to focus on the last of the three.

What should you look out for or expect in the international business world in 2017? Let’s take a look and see what could be dominating the headlines you read over the next twelve months.

1. The future of the EU

The outlook for the EU is grim for 2017. UK Prime Minister Theresa May is expected to trigger Article 50 to begin the formal process to leave the EU, and Italy’s recent referendum has brought the country’s support for the union into question.

France and Germany also both face elections in 2017, which could result in new anti-EU governments who may want to follow the UK’s example.

If the UK, Italy, France and Germany are all led by Euro-skeptics by the end of 2017, the entire future of the EU will come into question.

2. U.S. trade under Trump

During the 2016 election, Donald Trump’s claims for his presidency ranged from refusing to sign the TPP and leaving NAFTA, to setting prohibitive tariffs on imports from China and Mexico.

While many have speculated that some of his proposals, most notably the sizable tariffs on China and Mexico, would be illegal according to WTO rules, it remains to be seen how closely his rhetoric will match his actions on trade.

Whatever he does, positive or negative, will affect countless American and international businesses.

3. Technical innovations in agile manufacturing and last-mile delivery

The ability to create manufacturing parts or entire products with nothing more than a computer and a 3D printer gives companies far greater agility in their manufacturing efforts, and offers opportunities for rapid innovation.

Drones are offering the possibility of rapid delivery to customers. While most tests have been focused on home delivery, some have even experimented with using GPS tracking to deliver directly to people based on their phone location, wherever they may be at the time.

Both technologies, as well as several others, are still in their infancy, so 2017 could be a year of major breakthroughs.

4. Big mergers between major trade companies

While 2016 did not match 2015’s extraordinary number of massive mergers and acquisitions (three mergers and acquisitions deals worth over $100 billion USD were completed in 2015), there were still several notable deals. These included chemical company Bayer’s purchase of Monsanto for $66 billion USD, pharmaceutical specialists Shire buying Baxalta, and Microsoft’s recent $28B purchase of LinkedIn.

2017 is expected to match 2016’s rate of M&As, with pharmaceutical/healthcare, telecoms and finance among the industries that are most likely to see big deals. Will any of them affect your business or your industry competitors?

5. Blockchain in trade finance

Blockchain could be a true game changer in the world of international trade, allowing buyers and suppliers to make online transactions accurately and securely without involving middlemen.

While it has so far been used mainly for Bitcoin transactions, it has the potential to transform supply chains, and revolutionize trade finance.

If corporations begin to use the technology more frequently throughout 2017, it could be the beginning of a new era of global trade transactions.

6. Thinking smaller

Micro-targeting in marketing efforts, product adaptation, and market entry has been an increasingly hot trend over the past couple of years, empowered by the collection, analysis and optimization of oodles of data.

Thinking small comes from a customer-centric approach to business, focusing on building experiences for customers that are as personalized and responsive as possible. These efforts can really pay off in client satisfaction, leading to repeat business and brand loyalty, and can increase purchasing frequency.

As analytics, customer management software and automation get more sophisticated, we will see this trend grow into 2017.

7. The future (or lack thereof) of free trade agreements

2016 was a big year for free trade agreements, with major developments in deals that have been in negotiations for years.

The Trans Pacific Partnership (TPP): The 12 member deal, officially signed by all parties on February 4, 2016 will go into force once ratified by all signatories by February 2018. However, incoming U.S. President Donald Trump has said he will not ratify the TPP and has also threatened to tear up or renegotiate NAFTA, throwing the future of both FTAs into question in 2017.

The Transatlantic Trade and Investment Partnership (TTIP): In negotiations for almost a decade, this FTA between the U.S. and EU has met fierce opposition from American and European citizens. The U.S. considers the deal a companion to the TPP, and with President-Elect Trump coming into power early in the new year, and the EU going through some major upheaval, this deal is also being thrown into question.

Comprehensive Economic and Trade Agreement (CETA): Canada’s Minister for International Trade, Chrystia Freeland made headlines in October 2016 after she arrived in Belgium to sign the Canada-EU treaty, only to be informed that the EU could not sign due to opposition from the region of Wallonia. The intra-Belgian disagreement was quickly resolved and the agreement was signed on October 20, 2016. CETA is now awaiting ratification from all parties over and could begin to be implemented early in the new year.

WTO Trade Facilitation Agreement: The TFA contains provisions for expediting the movement, release and clearance of goods, sets out measures for effective cooperation between customs and other authorities on trade facilitation compliance issues and contains provisions for technical assistance and capacity building among signatory nations. Negotiations concluded on the WTO TFA in 2013 and 103 nations have now signed on to the agreement, most recently Canada on December 16, 2016. With only seven more nations needed to ratify the agreement before it is officially implemented, we could see some new developments in 2017.

8. The growing world of e-commerce and drop shipping

According to analysts, online sales will increase from $335 billion in 2015 to over $523 billion in 2020, a rise of almost 10% per year, though the current annual growth rate is actually closer to 14%.

Brick and mortar retailers’ worlds have been rocked by the skyrocketing success of online shopping. E-commerce leaders are making strides in optimizing their strategies and will continue to do so into 2017. Many are predicting the end of frenzied buying on traditional shopping holidays such as Black Friday and Cyber Monday, as an increased focus on real-time customization takes over.

We’ll have our eye on the blossoming arts of predictive data analysis, the Uber-ization of shipping and an increase in the use of artificial intelligence in this area into 2017.

9. Future of ocean shipping

More than 90% of internationally traded commodities are transported over an ocean. In 2017, we expect to see strides being made in the use of automated “smart ship” technology, major increases in port capacity and changes to global shipping routes.

2016 has been a year of turmoil and challenges for the shipping world, with mergers, bankruptcies (Hanjin is still fresh in of our memories), port strikes and trouble filling ships to capacity. But into next year opportunities abound for innovative shipping companies.

10. The importance of professional certification

The trend of increasingly competitive job markets is one that won’t be going away in the year ahead. It will continue to be important to stand out from the crowd of applicants seeking work in 2017. According to Credforce, studies show that 94% of HR professionals will make some form of professional certification for specialized personnel, making skills validation through designations more than just an asset next year.

In the past year we have seen an increase in employers and government departments increasing funding available for employees to gain certification and this is a trend we see sticking around.

The post 10 global trade trends we’ll be watching in 2017 appeared first on Trade Ready.

If corporations start working on blockchain projects, it will be for mission-critical (i.e., niche) applications, while waiting for the “big thing” to occur. Banks, in fact, may not have any role to play in their future plans for the technology.

Why are corporations showing little interest in blockchain?

Corporations are late to take on the blockchain debate, and their lack of awareness may be the symptom of a simple lack of interest. After all, banks are all over blockchain because bitcoin shook them up and made them keep their eyes wide open.

Another possible explanation for such slow corporate uptake is that one of blockchain technology’s value propositions, if not the main one, is that buyers and suppliers can connect directly and form online networks, removing the need for middlemen.

Smart contracts running on the blockchain should automatically detect trigger events along the trade value chain and instruct parties on actions to take to comply with contractual obligations. This sets the blockchain as the enemy of all intermediary operators in a business-to-business (B2B) environment.

A B2B relationship is made of a sequence of buyer and supplier pairs (Figure 1), with a relatively high level of trust between the two.

Figure 1: B2B Supply Chain Pairs

Source: Aite Group

While there can be very little trust between an exporter and an importer at the edges of the B2B value chain, this is certainly not the case between the paired parties. So if each pair on the B2B value chain intrinsically trusts each other, what additional contribution could a blockchain bring?

Furthermore, there is a clear shift to trade on open account terms, and open account business is increasing in market share. Open account occurs when a seller ships the goods and all the necessary shipping and commercial documents directly to a buyer, who agrees to pay the seller’s invoice at a future date.

Open account is typically used between established and trusted traders. That has compelled the banking industry to seek to re-engage with buyers and suppliers. They are doing this by developing a blockchain-based value proposition aimed at meeting the needs of traders operating on these open account terms.

But, if open account transactions are founded on trust and keep banks out of the picture, why should corporate trade partners want to get them back with a blockchain? Since open account transactions are based on the principle of trust between parties, why the need for a trust-free distributed ledger technology?

Challenges ahead of full blockchain implementation

Additional challenges present the need to examine prior use evidence before B2B partners can fully adopt blockchain applications:

• Nobody runs totally digital flows end to end. How does one manage the transition of ownership between data encrypted in a block in the chain and paper-based documents?
• Companies (e.g., logistics service providers) are making money on paper-based trade, so why should they change to digital?
• Trade finance is frequently referred to as the domain that would most benefit from blockchain applications. But trade finance partnerships are already established on trust, so why the need to change?
• Freight forwarders are taking care of paper-intensive customs business on behalf of their clients. The service allows the client to outsource a significant portion of logistics clearance and controls activities, making it a highly profitable business to the service provider. Since all parties are enjoying the benefits of a de facto situation, why should they replace that service with paperless blockchain applications?

Is secrecy the enemy of blockchain?

To summarize, the blockchain is presented today as the enemy of all intermediary business, as it eliminates the need to have a central controlling entity responsible for safekeeping trading records.

If there was to be industry-wide adoption of blockchain, the role of this controlling entity would be replaced by a decentralized ledger that no one single party owns or controls. This apparent advantage may backfire and be counterproductive to corporations.

The untold truth is that the last thing corporations may want is to give total visibility of their trade transactions. The existence of a publicly distributed ledger may not represent the best commercial interest for B2B partners.

There is the problem of revealing too much information: A company does not want its competitors to know where it’s getting goods. Commercial confidentiality is the most important element to preserve.

Blockchain adoption dependent on a wait and see approach

Innovation happens in bursts. When the Internet became popular, two “asteroids” hit the consumer world: email and the Web browser. Such a disruptive effect from blockchains has not yet occurred in the corporate world.

While the bitcoin has been the killer app (i.e., the asteroid) for banks, there is nothing for corporations with the same mass adoption scale as bitcoins – yet. If this is the case, then little or no demand for blockchain-based applications can be expected by corporate users.

Maybe those most aware of the technology within corporations are financial directors and corporate treasurers, for the simple reason that they are frequently exposed to banks and therefore absorb the inherent dynamics. These corporate representatives expect changes in payments, securities trade, and bank clearing.

All have concerns that the blockchain discussion is moving too fast, however. The corporate side of the equation needs to first see a consolidation of the different players that populate the crowded space of blockchain applications. The need for standards and regulation is the next call.

The post Blockchain for trade: Not all that glitters is gold appeared first on Trade Ready.