In November, ICC Academy will be launching a brand-new online training programme, the Certificate in Digital Trade Strategy (CDTS). Jointly produced with the ICC Digital Standards Initiative, this unique course will give you a complete, end-to-end picture of what is needed to digitise your trade and supply chain processes. The new certificate brings together insights from a well curated panel of more than 20 industry champions, legal experts, innovative trailblazers and public policy officials.
This is the first in a series of posts where we will speak to each of those 20 course authors to get some wider context on the importance of digitising supply chains, learn about some potential obstacles to doing so and get a taste of the content from their lesson within the CDTS.
First up is Tat Yeen Yap, Managing Director, Asia Pacific for the fintech, MonetaGo, which provides fraud and duplicate financing prevention technology in trade finance. Tat Yeen authors part of Lesson 1 in the course; the Architecture of International Trade and Supply Chains, specifically related to banks internal and external interactions.
Why should an organisation make digitising their trade and supply chains a priority?
Tat Yeen Yap (TY): If we understand digitisation to be the application of technologies to digitise information and processes, this means that many of the recurring administrative tasks such as inventory monitoring and management, procurement, payment, order fulfilment and invoicing can be recorded and processed digitally, harnessing the power of data.
What are the biggest potential benefits in your opinion?
TY: Some of the biggest potential benefits of digitisation are efficiency and cost savings. They arise from reduction of manual administrative tasks, time savings, and elimination of human error for automated processes.
What are the costs, both financially and operationally, of not doing so?
TY: The costs of not digitising include limitations on operational scalability, labour cost inflation, and human error in manual processes.
What do you see as the biggest obstacles to trade and supply chain digitisation? What are some common pitfalls?
TY: I see the biggest obstacles to digitisation to be resistance to change within organisations and lack of coordinated industry initiatives to digitalise.
Common pitfalls include hype that is detached from reality, and lack of interoperability between different digitisation projects.
How can a business successfully navigate these?
TY: A business ought to learn and assess how it may benefit from digitisation, and be open to transform itself to realise such benefits. Skills training of employees and management is an important success factor for effective transformation.
It is important to recognise that digitisation is not the goal but is a means to achieve business objectives. By knowing clearly what the business objectives are, and how digitisation fits into them and acts as an enabler, an organisation is better able to navigate pitfalls and overcome barriers.
What are your hopes for the new Certificate in Digital Trade Strategy (CDTS)? What impact would you like it to have?
TY: It was a privilege for me to have participated in the creation of the CDTS. Candidates will understand and be able to articulate the benefits of a common, standards-based approach that minimises costs and complexities of digital integration. It is hoped that candidates would acquire knowledge that would provide a strong foundation upon which they can be change agents for the digitisation of trade in their respective organisations or industries, to realise the advantages of digital trade.
Moving on specifically to the lesson you have contributed to in the course – the Architecture of International Trade and Supply Chains - what role do banks and financial institutions play in supporting the physical flow of goods?
TY: Banks and financial institutions provide confidence and assurance to the trade parties to enter into transactions, fulfil orders and ship goods. They do so in a variety of ways, such as by issuing payment undertakings like letters of credit and providing credit insurance cover to mitigate the risks that sellers take for shipping goods prior to payment. Through undertakings such as demand guarantees for advance payment and performance, financial institutions also mitigate the risks taken by buyers or sellers. Trade finance plays a crucial role in supporting trade, by helping trade counterparties manage their risks and fund their working capital requirements.
Why are international trade rules needed and what are some examples of public and private sector rules?
TY: International trade involves undertakings and actions by parties in different jurisdictions which are subject to laws and regulations that differ across borders. This makes international trade more complex than local trade where the parties are within the same jurisdiction. For this reason, foundational standards, rules and practices for trade and its financing across borders are important. A body of international rules exist. The applicable rules are issued by various international organisations, representing both the public sector and the private sector.
Public sector rules include World Trade Organization agreements, and bilateral and regional free trade agreements. Digital economy agreements between governments are a new form of international agreement that foster standards and interoperability for cross border digital transactions.
Private sector rules include rules published by the International Chamber of Commerce such as Incoterms® 2020, UCP 600, URC 522, URDG 758, ISP98 and URF 800. The ICC has also published rules for digital trade; they include the eUCP, eURC and URDTT. The most recent set of rules to be published is ITFA’s Uniform Rules for Transferable Electronic Payment Obligations (URTEPO).
Finally, what is the difference between documentary and open-account trade financing?
TY: The key element that differentiates documentary and open account trade financing is the payment method of the underlying trade transaction.
Payment in a documentary trade transaction is typically made by a bank or financial institution that has issued a payment undertaking or acts as an intermediary between the buyer and seller. Payment undertakings include letters of credit (documentary credits), demand guarantees and standby letters of credit. Payment by the issuer of the undertaking is usually subject to a complying presentation of documents by the beneficiary. The issuer or another financial institution may finance or prepay the payment undertaking.
In open account trade, documents are sent directly from the seller to the buyer for payment. There is a whole slew of supply chain finance techniques to finance open account trade. They include loan-based financing such as lending against receivables or inventory or purchase orders, and receivables purchase methods such as receivables discounting, factoring and payables finance. Credit insurers may provide cover to the sellers and their financiers for the risk of the buyers.
The Certificate in Digital Trade Strategy will be released in early November 2022. To stay up to date with the launch and be notified of early-bird pricing discounts, sign up to our mailing list here.