Supply chains are a major talking point in the business world at the moment. Ongoing pressures on international trade, from struggling Brexit negotiations to the Trump-China trade war, have shone a spotlight on supply chain practices, particularly amongst smaller businesses who are more likely to feel the squeeze.

On a smaller scale, many businesses are re-evaluating how they trade internationally as a result of these macroeconomic pressures. Despite the challenges, businesses shouldn’t be discouraged. Organizations can aim to reduce friction within their own supply chains to deal with the impacts of new tariffs or customs regulations.

Certain types of businesses will place a focus on introducing leaner logistical practices. An efficient supply chain should pull, not push, and leaner logistics often goes hand-in-hand with reducing waste. These businesses will therefore look to manufacture only what is in demand or what has been ordered by customers, in order to avoid excessive stock build-up.

Others businesses might look at integrating different business units to improve overall performance – for example, a UK logistics specialist integrating with a European partner to ensure access to the wider European Union.

Assess international payments

All businesses will have a need to tighten up the way they pay international suppliers, disperse funds to foreign operations and repatriate their profits from overseas sales.

On the surface, disruptive new tariffs look like they spell trouble. But the incremental savings businesses can accumulate by getting their international payments and reducing the rates they pay for transactions overseas can mitigate impacts from a hike in tariffs.

In other words, a thorough assessment of their international payments will be crucial.

Removing barriers to global market entry

Cross-border businesses are starting to turn away from traditional payment providers and towards specialist fintech companies.

While these fintech companies are younger, they have spent years developing and investing in technology and practices to refine the process of moving money across borders in a frictionless manner. While challenging the incumbents in the payments sector simply used to mean running cheaper, quicker and easier operations, progress continues to be made.

Undoubtedly, the end goal is to make trading abroad smooth and easy for businesses of all sizes. But more recently, the focus switched from offering a price-centric proposition to eradicating the barriers to entry for overseas expansion.

Improving international payments

In the previous couple of years, there have been two main innovations in the payments sector that have been designed to improve the speed and efficiency of international payments.

In sectors such as shipping, there has been a lot of noise about the potential of blockchain technology. Its immutability and decentralised system would allow manufacturers, shipping agents, the end consumer and customs agents to use the same database to track goods across the world.

While the jury is still out on how effective it will prove in changing the process of moving money overseas, steps are being made to make the system more reliable. A payments network built on distributed ledger technology which is decentralised and impenetrable against fraud would provide all parties in a transaction with an incorruptible record of said transaction.

This would have significant impact on the payments sector moving forward, but in reality, a complete switch to blockchain would take years and would require a complete shift in the status quo of the industry.

Multi-currency platforms for smaller business

Another innovation that has come to the fore are multi-currency accounts. Historically, these were only available to large multinational companies with an international network and were subject to high monthly management fees.

However, fintech companies have been developing multi-currency platforms which serve as a viable option for smaller businesses. These platforms enable them to trade, invest and grow like a local company in a foreign country, without the need to pay for a significant number of boots on the ground.

Previously, businesses would have to use banks and maintain a presence abroad in order to open a foreign bank account. This was both time consuming and expensive for business owners. But a multi-currency platform allows a small business owner to open a bank account in different currencies, for example, USD and AUD, through a single platform.

Using a multi-currency platform, business owners don’t have to provide proof of residency or evidence of a local company entity. There’s no need for bricks and mortar headquarters, and no need to hire in-country staff to satisfy and manage the required market presence. A business’ presence in a country can now remain wholly digital.

Without these physical shackles, businesses can move their money from country’s currency to another for just a fraction of the price and hassle than under the archaic international banking stipulations of the past.

Seamless international payments

Ultimately, creating a trading environment where companies have access to their payment history across their supply chain through one platform will provide business owners with improved visibility.

International payments should be frictionless and not operate like a game of Mouse Trap. All parties would benefit from the seamless movement of money, as opposed to a convoluted mechanism reliant on idiosyncratic systems.

If anything positive came out of last decade’s financial crisis, it was the desire to develop new technology to create solutions that enable businesses to operate on a higher level than ever before. It was this desire that led to the establishment of a fully-fledged fintech industry.

For businesses that trade internationally and come under pressure from the decisions taken by those at the top, a focus on improving international payments can make a vital difference.

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After nearly 20 years of allowing facilitation payments, the Canadian government has repealed a section of its anti-corruption laws to eliminate the exception for facilitation payments. The revised law protects employees by making it clear that all forms of bribery are prohibited and will be sanctioned.

According to the finance and investing portal Investopedia, facilitation payments are made, generally to low-level government officials, “to smooth the progress of a service to which the payer is legally entitled, without making this payment.”

Under the 1998 Canadian Corruption of Foreign Public Officials Act, these payments were legal.

This regulation was similar to one included in the US Foreign Corrupt Practices Act of 1977, which excludes facilitation payments. But companies operate in a gray area here.

Most routine public processes do not automatically lead to the desired result, but include some kind of control. If the request for required documentation is not complete or does not comply with the process, for example, the approval is denied. This is a stumbling block, as countries with a higher perceived level of corruption often  have an inefficient bureaucracy.

A comparison of the 2014 World Bank’s Ease of Doing Business Index with the Transparency International Corruption Perception Index from the same year presented a correlation coefficient of 0.79, a strong statistical relationship. As a corrupt government official has no interest in making the process transparent, it is nearly impossible for the individual to understand whether a potentially missing document is based on process or has been invented by the official to provoke a payment.

Arm employees to handle bribe requests in high-risk areas

Employees traveling from countries with a lower corruption risk, such as Canada, to those with a higher risk are particularly vulnerable because they do not have experience handling such requests. This includes understanding how to avoid risky situations and how best, based on local culture, to decline the request.

If corruption has not played a role in the individual’s life, it may be difficult to connect their existing inner values such as integrity or honesty with the attitude “do not bribe.”

Business travel only offers limited opportunities to meet local employees or other citizens, especially when there is a language barrier. Clichés like “corruption is part of the culture” or “locals are happy with it” can be easily assumed. Corruption becomes perceived as a faceless crime, and the employee’s positive self-image is not challenged by this cognitive dissonance.

In most countries, facilitation payments are defined as classic bribery and a deviation to local laws. If an organization wants to be a good global corporate citizen, these payments must be forbidden.

Corrupt government officials often take advantage of gaps in knowledge and time pressure. Uninvolved employees who are unaware of the human cost of corruption, such as lack of infrastructure, inefficient public schools, restricted access to healthcare and legal impunity, are easily persuaded to pay the bribe. Companies are responsible for their employees. If they send them to places with public safety or health risks or corruption, they must be prepared for the potential risk scenarios.

Eliminating the gray areas

To ensure adequate behavior, companies not only have to inform employees about law, culture and business behavior, but their Ethics & Compliance Officers have to go a step further and motivate employees by explaining which regulations apply, and why.  This means detailing the relationship between bribery, slowed growth and poverty to develop empathy for the victims of corruption. Facilitation payments can speed up a process, which means the process for someone who does not make an additional payment becomes slower. An advantage for one always means a disadvantage for someone else.

Laws, like corporate guidelines, fulfill an important task. Based on government’s opinion and its role representing the population, laws define adequate behavior and how to sanction violations. It is imperative that laws be as strong as necessary to protect individual rights, and as non-bureaucratic as possible. Efficient laws draw thin red lines that separate the adequate from the non-adequate and eliminate gray areas. Individuals can act and live safely inside this space. Less efficient laws enlarge gray areas and limit the individual’s safe space. Based on these premises, efficient laws (and corporate guidelines) are ethically justified.

On October 30, 2017, the Canadian government eliminated the gray area in its anti-corruption law and drew this type of red line when it repealed the exception for facilitation payments.

The change is more of a protection than a limitation for employees. No longer do they have to interpret potential mixed signals from management to understand what is expected of them because all forms of bribery are forbidden and sanctionable. If they are faced with a situation in which a government official requests such a payment, they can refer to the law and decline the payment while keeping the discussion short.

Overnight changes will challenge organizations

After nearly 20 years, the law’s repeal is a sudden, but relevant change. For a company that did not sanction facilitation payments in the past and allowed them as an option for their employees, this creates a risk, because human behavior is difficult to change overnight. Experience has shown that not all individuals are willing to adapt or are capable of adapting to major change. The organization has to accept that certain employees will have to be dismissed and some will leave on their own. To accomplish the change as smoothly as possible, the company will have to educate its employees through planned communication and interactive workshops.

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