Trade Finance Roundtable

Finance Asia and Citibank hosted a round table in Hong Kong on March 14 to examine the issues surrounding trade finance and the internet. Nick Lord, editor, Financeasia.com, chaired the discussion.

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Nick Lord: How do we think that e-commerce will impact traditional trade financing activities?

Michael Klausner: We hope e-commerce will help make trade faster and easier. The traditional way trade is done today is difficult and complex. We believe e-commerce is here to stay and that it should be taken seriously.

What we are working towards is using electronic data transfers to reduce errors and make the overall process more efficient. We think it's one of the big things. We're trying to make it fast, easy, less expensive and very secure.

Raymond Tan: I'm interested because I'm in the fashion business, where you have weather change, colour change, fashion change. Because of these, obviously my industry is always looking at ways to increase speed and links from the customers all the way through to the manufacturing and even material suppliers.

However, while the mission is good, when it comes to implementation, especially in our industry, it is lacking. We have old management, and a lot of staff who don't want to change. With my industry, there is a huge supply chain. I think it's good for people to talk about this, but it narrows down to, "can we implement it or not?" If you can't implement, then it's going to take a while before you can realize the gains.

Elsa Leung: We have been helping a lot of companies, particularly US companies and their trade partners in different parts of the world in e-commerce.

NL: So it's integration of the whole supply chain where the real challenge lies. That is, rather than just financing the trade itself?

Naresh Kumar: Our view is that we start with the customers and focus on the full supply chain. How do we improve the efficiency with which customers and sellers source each other and other intermediaries? Portals, exchanges, and communities enable you to deal with new customers and service providers you deal with.

The second benefit of e-commerce is that it is improving the efficiency of structuring transactions after the participants have decided to interact. These sites allow you to customize deals with various options. The third benefit is in the way it helps you to seamlessly execute these transactions end-to-end through enabling technologies like XML, etc.

Cynthia Chin: Risk is a concern on the web. When dealing with new customers, you may not have any background information on them. Clients should be more risk conscious, and try to obtain more information on their new customers.

Apart from the above, I think the dominance of e-commerce can help us to obtain information at a much faster pace and lower cost. In the past, we have to wait for the information on your overseas buyers for days or weeks. But now, if the information of your buyers is available on the web, you may obtain almost real-time information within a few minutes.

Philip Chin: We are providing supply chain management technology. Our customers have the ability to manage the entire supply chain directly from its origin all the way to the final destination. We can provide to our customers all that transparency.

The one piece that is missing right now is the financing. There isn't a global solution where you can conduct electronic transfer over the internet. It's new technology.

William Gee: In the past, banks were the ones that organized financing solutions to their customers. But with the growth of e-commerce and the internet, companies that are not in the traditional banking sector are developing capabilities in offering financing solutions and other services, such as payment gateways. So what e-commerce is doing is blurring the boundary between industries.

MK: That's very good. I think a lot of what you are saying is what TradeCard does.

Andrew Chuang: The current bottleneck is electronic payment via the web. The critical question is when the banks provide this. There is a great deal of pressure from the business community due to e-commerce requirements. I hope this will happen soon.

WG: Banks had been concentrating on Y2K problems for the past year or two, which certainly slowed the overall pace of development. But now they are moving forward, and the pace of change is certainly picking up. What I am concerned with is not so much on the progress, but on the availability of skilled IT professionals.

Two years ago people hardly talked about e-commerce, but now every company wants to develop their own internet business. What I would like to know is where they are getting the people with the right skills to support these activities, when IT skills had been limited in Hong Kong.

With all these "e" activities we are seeing a sharp increase in demand for IT specialists with programming, and internet experience, etc. So where are we finding the skills to develop our IT solutions? How do you expect to develop the solutions without such skills? I am not being cynical, just being realistic.

Yes, we can look to the US. But to import such skills and pay for them, that is probably a limited option. We all want progress in e-commerce, but in truth we probably don't have the people here.

NL: Can't people learn?

WG: Yes, but not within one or two months. And it's not just learning the IT skills, but also changing the mental attitude of management. A lot of people are saying, "I want to web-enable my business". But setting up a website and putting some content onto it isn't enough. What you are really looking at doing is changing the old business mould.

Start with the customers, start with what customers need, and then develop your e-business model. Very few people actually take that approach. A lot of them are saying, "Get me a website, and let's do an IPO." In the long run, this approach is not going to work.

NL: Going back to the bank financing side, is it not true that banks have got the most to lose if e-commerce takes off and someone other than banks does the financing? Trade has always been financed on the basis of credit. Is there any other way to finance it?

NK: Banks have to define the value they create for the customers. And it is no longer just about providing the finance. Traditionally, banks have used the trust placed in them and their knowledge of risk to communicate solutions via transactions. Just implementing things via the internet does not get rid of the risk of dealing with parties that you haven't dealt with before. Banks must make people understand the risks.

Henri Kirsten: If you look at the development of the internet, it grew out of a desire (by academia) to find an inexpensive way to exchange information. I believe that the banking industry missed out on a wonderful opportunity to link there.

Clients communicate up through an "internet" system using broad width capability (with its much higher speed than internet) to exchange information and more importantly to create the environment for e-business. If banks were prepared to take this bold step we could have been many years further down the e-business path today.

On the exchange of the financial information front, banks would have been in a position to create a massive database for their clients' financial position, which could have been used by business partners to assess risk of prospective ongoing relationships. Sound business would probably have no problem supporting and subscribing to such a system. A huge amount of time and money is spent today to obtain accurate financial information on business and the banks could have greatly improved the situation.

The opportunity is still there - they just need to take the initiative (which has been lacking to date) and create the environment.

Citibank already has their electronic global cash management system - this is the starting point. Other banks need to join the party!

NL: So how are your trade activities still traditionally financed and would you like them to be financed in a different manner?

HK: Traditional financing tools are still very much in use, despite new trends such as securitization. But at the end of the day the risk still firmly resides with us. Although somebody did say that there needs to be a lot more trust between companies, the trouble is that companies do go under, and someone will lose money. Maybe there should be more trust from the export insurers to share information with us, so we can know exactly what has happened.

Then we could have a global rating system of businesses as soon as they reach a certain size. Banks could then come more to the fore to say if a company is credit-worthy or not and not just jump in at the end when a company is already bankrupt.

NL: This is moving them away from their core competency isn't it?

HK: Maybe the core competency of 10 years ago will not be the core competency of 10 years hence. I think Citibank does understand this and is moving more in the right direction.

NL: I like your idea of global business rating. That's a great idea.

MK: I agree with you that banks have to destroy their businesses and reinvent themselves if they want to stay in this business. We're working on internet time, while the banks seem to be stuck in banking time.

When we started our new model we wanted to work with the banks because banks traditionally supply credit so buyers can finance themselves. But when the banks realized what we were trying to do, they were afraid. They thought it would cannibalize their business.

EL: We need cooperation. One company cannot be one and all things by itself. You need to be cooperative and share information. I think the banks can take a more proactive role and be more open in respect to e-commerce.

NL: How much more can all of us do to increase the development, acceptance and use of e-commerce in the region?

WG: We are talking about a global business place, not individual companies any more. But still, it is not realistic to think that all the problems we have discussed today will be resolved in a short space of time just because the internet is there. It will take a long time for the integration to take place and for the necessary support services to be there. To really get it up and running we will have to rely on communities of interest getting together and pulling down the barriers and working with each other. To achieve that we need the support from the people at the top - the governments, industry bodies, the CEOs - in order to make the whole thing work.

The participants:
Nick Lord, editor, FinanceAsia.com
Naresh Kumar, vice-president, director, e-commerce sales and strategic alliances, Citibank
Michael Klausner, vice-president, marketing, TradeCard
Raymond Tan, executive vice-president, Luen Thai Direct Investment
William Gee, senior manager, KPMG Consulting
Andrew Chuang, executive director, corporate development, Gold Peak Industries
Henri Kirsten, financial director, Sappi Trading
Elsa Leung, general manager, GE ECXpress
Phillip Chin, director, electronic commerce, APL
Cynthia Chin, senior manager, Hong Kong Export Credit Insurance Corporation