Citi GPS: Supply Chain Financing – Building Resilience as the New Definition of "Global" Emerges
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Insights
The recently released Citi GPS report underscores a pivotal shift in global trade dynamics, highlighting the transition from efficiency-driven supply chain models to those prioritizing resilience. This shift is particularly relevant in the context of recent global disruptions, such as the pandemic and geopolitical tensions, which have exposed vulnerabilities in the just-in-time inventory system. The focus on building new trade corridors and diversifying supply chain partners is a strategic move to mitigate risks associated with over-reliance on single sources and to enhance the robustness of supply networks.
Companies are increasingly adopting a 'China Plus One' strategy, which involves identifying alternative manufacturing hubs alongside China to avoid concentration risk. This trend is significant for businesses and investors as it may lead to increased operational costs in the short term due to the establishment of new supply lines and partnerships. However, in the long run, it can provide greater supply security and potentially open up new markets and opportunities for growth.
The report's insights into supply chain financing solutions are critical for understanding the financial implications of the ongoing transformation in global trade. For SMEs and companies in emerging markets, the adaptation of supply chain financing is a crucial enabler for participating in global trade. Enhanced access to capital, facilitated by technological innovations such as artificial intelligence and blockchain, can lead to more efficient cash flow management and reduced costs of doing business.
Investors should note the potential for increased demand for services that provide transparency and risk mitigation in trade finance. Companies that can leverage technology to offer such services may see growth in market share. Moreover, the shift towards resilience may also result in changes in consumer prices and the profitability of companies as they adjust to new supply chain configurations.
The integration of advanced technologies like artificial intelligence and blockchain in trade finance is a noteworthy development. These technologies have the potential to revolutionize supply chain management by enhancing operational efficiency, reducing costs and increasing transparency. For stakeholders, the adoption of these innovations signals a move towards more sophisticated and secure supply chain operations.
From an investment perspective, there is a clear indication that companies investing in these technologies may gain a competitive edge. This could translate into long-term value creation as supply chains become more resilient and efficient. However, the initial investment in such technologies and the training required for their implementation should be carefully weighed against the expected benefits.
The report provides industry insights from Citi’s proprietary Global Supply Chain Pressure Index, which covers trade flows and survey responses from multinational corporations and small- and medium-sized enterprises (SMEs). More recently, shipping costs have been boosted by disruptions in major canal routes, including conflict in the Red Sea. While it is unclear how long these disruptions will last, the Index shows shipping costs are still far below levels reached during the pandemic and are not far removed from typical pre-COVID-19 levels. The Index also indicates that while corporates looked to move back towards just-in-time inventory practices, they strategically held larger inventories for components that are hard to source. Corporates continued to diversify their supply chain resources by utilizing suppliers and nearshoring, as well as creating new trade corridors.
In her foreword to this year’s Report Jane Fraser, CEO of Citi noted:
“Today, amidst the backdrop of transformative technological innovations, increasing resilience is the clear and resounding call. We see nearly every country and company focused on security — be it food, water, energy, cyber, financial, or operational security. And consequently, they’re reconfiguring supply chains to meet the demands of customers and other stakeholders. This heightened focus on resilience has given birth to a new era of diversification, and as businesses and countries adapt to this era, we’re starting to see clear benefits in economic growth.”
For the first time, Citi asked respondents if they were considering adopting a China Plus One strategy as a way to diversify their supply chains. Over half of global respondents indicated that they already had, or were considering, adopting such a strategy, with
Chris Cox, Global Head of Trade and Working Capital Solutions at Citi, said:
“Technology is at the heart of many new developments in trade finance. Innovations such as artificial intelligence and blockchain can enhance corporate operational efficiency, cut costs, reduce fraud, and augment transparency throughout supply chains. Transparency and mitigation of risk should help improve access to efficient capital for corporates around the world.”
The digital copy of the report is available: here.
About Citi Global Perspectives & Solutions (Citi GPS)
As our premier thought-leadership product, Citi Global Perspectives & Solutions (Citi GPS) is designed to help readers navigate the most demanding challenges and greatest opportunities of the 21st century. We access the leading elements of our global conversation with senior Citi senior professionals, academics, and corporate leaders to anticipate themes and trends in today’s fast-changing and interconnected world.
About Citi
Citi is a preeminent banking partner for institutions with cross-border needs, a global leader in wealth management and a valued personal bank in its home market of
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View source version on businesswire.com: https://www.businesswire.com/news/home/20240122191183/en/
Victoria Ifan
+1 212 816 6149
victoria.ifan@citi.com
Source: Citi
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