This guest article was written by William Laraque who is the Managing Director of US-International Trade Services.
Of all the developments affecting the ‘fourth industrial revolution’, the most momentous and influential is arguably e-commerce. One of the fundamental reasons that e-commerce and e-commerce platforms are so tectonic is the fact that they provide the opportunity for small businesses and micro-entrepreneurs to scale globally. The result of the effective use of digital commerce is as follows:
- While the ‘sharing economy’ is based on software developers and the creation of relatively few jobs, the global scaling of e-commerce and e-commerce platforms in reciprocal trade arrangements brings wealth to a broad diversity of people as well as employment and economic growth.
- The creation of ‘gig’ workers, a class of workers also called the ‘precariat’ for their lack of access to a social safety net of benefits and insurances, places an onus on e-commerce platforms to provide that portion of the social contract, to workers and to entrepreneurs.
- The coordination of some 33 support services necessary to the processing of global trade through e-commerce platforms ensures the employment of those skilled in these disciplines.
- E-commerce provides for the diffusion of wealth among all participants.
- It provides an alternative to the current system of global trade finance, a system that is not only elitist but is aristocratic in terminology and in the concentration of wealth, and is confined increasingly to banks that are withdrawing from wholesale areas of the globe because of regulation, the inability to make a profit and the lack of collaboration in what is of necessity a multi-faceted enterprise.
- Global trade is subject to shifts in the value of currency that are in no way related to how knowledgeable or astute a business manager is.
- Global trade is subject to changes in political and commercial risk that can come about rapidly and that require the sophisticated mitigation of risk.
- The Chinese market and that of Southeast Asia are proof that even such sophisticated players as Amazon and Uber can be defeated by more locally appropriate players who coordinate and provide services which the local customer finds more appealing.
- India is representative of the fact that technology and its spread can be defeated by culture. Only 30% of Indian women use cell phones and the internet despite their increasing accessibility and availability in the Indian market.
Recent investments in e-commerce have raised concerns about whether the global scaling of digital commerce will continue to be diffusive of wealth and equality.
Regional e-commerce platforms
The investment in e-commerce by the Saudi sovereign wealth fund and UAE interests, in a product call ‘Noon’, establishes an important trend in e-commerce. Lazada in Singapore, Didi Chuxing in China, Grab (Taxi) in Southeast Asia establish the fact that culturally-appropriate platforms may trump the scaling of Amazon and other major players.
The flexibility and multiple offerings of WeChat in combination with Alibaba and Didi Chuxing in China are instructive.
Convenience and cultural appropriateness achieved by a combination of platform-related functions may determine the scaling of platforms. Consumers who prefer to pay cash have gravitated toward Grab (taxi) instead of Uber in Southeast Asia because the multiple offerings of WeChat in combination with Alibaba provide a greater level of financial and product accessibility than does Amazon. The local Chinese consumer has preferred to use Alibaba instead of Amazon. The difference in China is also a matter of logistics.
Amazon’s strategy is now directed at India. India does not have either a logistics or internet infrastructure of China. Alibaba, through its affiliate Cainaio, is able to deliver to 180,000 express delivery points that include the 200 lesser cities of China, a logistical capability that Amazon could not match.
India’s less developed internet and logistics infrastructure offers Amazon a tempting opportunity. This opportunity in India cannot be realized however without the parallel development of its physical and digital infrastructure.
Access to Capital Markets
Another important function in the growth of e-commerce platforms is access to funding. Alibaba launched the largest IPO ever in US capital markets, raising $25 billion for use in expanding Alibaba’s reach in the US and Europe.
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Cainaio, an Alibaba-backed logistics company, was able to raise $1.54 billion at a valuation of $7.7 billion from Temasek Holdings and GIC in Singapore, Malaysia’s Khazanah National and China-based Primavera Capital.
The lesson to be learned from the global scaling of Alibaba is that this could not have been accomplished without the parallel development of infrastructure in communications, logistics, full-function e-commerce platforms and access to funding, IPOs or capital markets.
Insuring Global Growth
There is a parallel development to the growth of e-commerce and e-commerce platforms and the withdrawal of trade finance banks from wholesale markets and from such traditional means of financing trade as letters of credit.
It is the automated match of purchase orders to invoices and the financing of insured export receivables by banks in conjunction with insurance companies.
Since 1979, it has been feasible to extract the purchase orders from the corporate Enterprise Reporting Programs (ERP) of buyers and to match them automatically with orders and invoices from the ERP systems of cross-border sellers. These matches of orders and invoices are insured against non-payment, then financed by using several techniques.
If the financial condition of the seller is relatively weak, the export receivables are factored or purchased outright for a fee and the net proceeds remitted to the account of the seller/exporter. If the seller is financially stronger, it is possible to use forfaiting (discounting without recourse to the seller/exporter) with or without export credit insurance.
This collaboration of insurance companies, commercial banks, the use of factoring, forfaiting and credit information on buyers, buyers’ markets, sellers and sellers’ markets started with World Trade Center Associates, evolved to TradeCard, merged with GTNexus and was purchased by Infor. Infor is a cloud-based global e-commerce platform.
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It was recently revealed that Koch Industries through Koch Equity Development or KED, has agreed to invest over $2 billion in Infor. The Infor Global Commerce Network – Infor ION, is a next generation middleware platform that is far simpler and more open than traditional middleware, leverages the open source Apache ESB and a simple XML-based publish-and-subscribe model using OAGIS standards.
The ability to quickly integrate Infor and non-Infor applications led to ION becoming one of Infor’s fastest growing products. Infor is the only business applications provider with a direct commerce network. The company’s GT Nexus network connects over 28,000 businesses, banks, logistics providers, brokers, and carriers to process transactions and enable collaboration and visibility among these trading partners.
When banks consider BPO and other SWIFT-related alternatives to service their large commodity and multinational corporate clients, they might also consider that Infor and such e-commerce providers as Amazon Web Services (AWS) supported by the political and economic risk mitigation of insurance companies provide an opportunity for collaboration that they ignore at their peril.