Covid-19, trade war uncertainties spark supply chain innovation
Chinese companies step up digitization, launch private online finance platforms to aid SMEs, look to diversify offshore
The recent market uncertainty caused by the US-China trade war and the Covid-19 outbreak have accelerated the enhancement of the supply chains of many of Asia’s multinational corporations (MNCs) and local large corporates (LLCs), particularly those operating in China.
Shenzhen Comix Group, the largest stationary wholesaler in China, for example, leveraged its cloud-based supply chain platform to speed up its shipping process to its customers. The platform identifies the location of the supplier and buyers and automatically matches them. The company has also tapped its partner bank’s supply chain finance platform to lower the financing costs for its suppliers.
Since supporting small and medium-sized enterprises (SMEs) has become a national policy in China, large Chinese companies are responding by launching their own online supply chain finance platforms. Suning Finance, a fintech arm under Suning, has worked with China Merchants Bank to provide a 1 billion yuan factoring facility to SME suppliers affected by the outbreak of the coronavirus Covid-19.
As well, Contemporary Amperex Technology, a major battery supplier to Tesla, has created its own online supply chain finance programme to provide financial assistance to its suppliers.
On the distribution side, companies that rely heavily on distributors for their sales, like Huawei, have continued to migrate their downstream counterparties onto their online distributor finance programmes, enabling SME buyers to obtain working capital at lower costs without physically visiting banks.
“In these difficult times, technology plays a key role in empowering 'contact-free' banking while ensuring that life goes on with as little disruption as possible,” says Tan Su Shan, DBS’s group head of institutional banking. “This way, they can continue to run their business smoothly while safeguarding their health.”
Outside of the Covid-19 pandemic, the recent US-China trade tensions have already pushed the region’s MNCs and LLCs to start preparing for a potential shift in the global supply chain.
“We have seen the shift in the global supply chain over the past few years, which was not triggered by the coronavirus," says a transaction banking head working in China at an international bank, “MNCs and Chinese large companies are looking to diversify offshore, but if you have a large domestic market like China, you may choose to do a local-for-local model.”
Several years ago, leading Chinese technology companies like Inspur set up production overseas. Inspur, the third-largest server producer globally, built a factory in California in 2015. Its local US supply chain helped it avoid the tariff costs incurred by most Chinese firms exporting to the US during the recent trade war.
However, leaving China entirely is not a realistic option for many MNCs. TPK Holdings, a Taiwanese MNC with large production facilities in China, and one of the largest touch panel producers in the world, is unlikely to move out of China.
“It is very difficult for us to shift production to Southeast Asia,” says a TPK finance manager in an interview with The Asset. “We have a huge investment in both factories and devices in China.”
20 Mar 2020