What role can the financial system play in improving post pandemic global supply chains?
The pandemic has distorted and disrupted global supply chains. Shelves stand empty and inventory to sales ratios plummet. Manufacturing, construction, retail and wholesale trade are especially hit. Business activity is likely to reduce and prices are increasing in lumber, in consumer goods and other sectors. Scarcity in semiconductors and the auto sector is now very evident.
I have been dabbling off and on trying to properly frame and then answer a perplexing question : What role can the financial system, and in particular global banks, play in improving post pandemic global supply chains? I conclude that the biggest opportunity lies in capital structuring opportunities.
To support my conclusion I explain how i went about it.
UNCTAD has excellent reports and statistics on global and regional trade flows which provided a wonderful sense of magnitude and context. I also examined literature suggesting that supply chains have become global, fragile and sophisticated ever since China joined the WTO. The basic economics literature and bargaining theory outlines conflicts of interest in trade.
With this background, I now am able to demonstrate that there is a huge opportunity for capital structuring & cost of capital arbitrage within international trade. I explain this with a customer view and financing cost of supply chain perspective and then conjecture on the value-add a global bank (or financing institution) can bring. This value-add can be through participating in supply chain financing cost of capital arbitrage, providing as yet undiscovered financial solutions, creating new mechanisms for driving working capital, driving down cost of goods sold, as well as providing the lubricant to immunize supply chains – which in turn will drive more sales and promote global trade growth.