Supply Chain Financing: Flavour of the Year?

by Axel Pierron, August 15, 2011
Industry Trends
Global, Asia-Pacific, EMEA, Latin America, North America

Abstract

Supply chain financing is gradually gaining importance in monetizing open account transactions, thus ensuring an end-to-end financing solution for customers’ supply chains and enabling better visibility and activity management.

A constant increase in open account trading has put a lot of pressure on trade finance banks. The growth of open account trading has not only snatched the market away from banks, but has also hindered the visibility in customer’s trade activity management. This report, Supply Chain Financing: Flavour of the Year?, discusses the evolution of international trade patterns and trade finance business, shedding light on various approaches to supply chain finance (SCF) and the key role of financial institutions. The report aims to provide an understanding of market opportunities, revenue split, and technological evolution.

Asia is a clear growth area for SCF programs. Increasing growth in south-to-south transactions. The high level of intraregional trade within Asia will accelerate the growth of SCF programs in the region. SCF programs in Asia are expected to undergo an 18% increase in the next three years. SMEs that act as suppliers to global industralised nations will see an increased need for buyer-centric SCF programs against other industries looking for supplier-centric SCF programs.

“Implementing the right SCF model is key for avoiding future disappointments,” says Axel Pierron, Celent Senior Vice President and coauthor of the report. “Local and regional banks should carefully consider their SCF platform development strategy by evaluating the target market/s, type of industries to finance, and SCF programs to adopt. Local and regional banks have a clear role to play in supplier finance programs (receivables), where they can leverage their knowledge of local markets.”

“Increasing export volumes have prompted supplier demand for early financing in order to sustain growing business orders,” Prathima Rajan, Celent Analyst and coauthor of the report. “While receivables discounting and SCF have proved efficient for exporters working capital requirements, longer production and distribution cycles demand even earlier access to trade finance.”

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary

3

Introduction

6

International Trade Overview

8

 

World Economy and Trade

8

 

Open Account Is Still the Dominant Means of Payment

10

 

Trade Finance Market Participants

11

Supply Chain Finance Overview and Trends

14

 

Definition

14

 

Supply Chain Finance Program Segmentation

17

 

SCF Market Value

19

 

The Role of Banks in SCF Programs

20

Opportunities and Challenges in Supply Chain Finance

27

 

Opportunities

27

 

Barriers to Growth

32

Conclusion

35

Leveraging Celent’s Expertise

37

 

Support for Financial Institutions

37

 

Support for Vendors

37

Related Celent Research

38

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