The New Face Of Global Trade
According to the World Economic Forum, we are currently in the fourth industrial revolution as a direct result of the quickening technological advancements brought on by the invention of the internet. Consumer culture has since switched to more instant gratification, causing all service and product provider strategies to accommodate the changing market.
The Macro Market
This citizen-based economy as required companies to think on a global level, stocking supply chains and building their products as efficiently and effectively as possible.
Global trade requires a balance of industry and government to ensure its viability and success for both parties. This has put a lot of focus on tariffs and quotas which can affect the immediate cost of international trade between nations and for the companies involved. When done well, cost is significantly reduced and geo-political tensions ease.
Recently, however, the focus has shifted towards less visible aspects of the trade industry. Administrative formalities such as procedure and paperwork have been found to reduce cost just as much as tariffs and quotas when removed, negotiated, or worked around.
This shift in focus resulted in TFA- the Trade Facilitation Agreement, signed by more than 160 countries and enforced February 22, 2017.
The Cost Of Trade
According to recent annual industry reports, technology has been named a top impact on global trade. When used to reduce cost, its achievement results in an increase in global trade. This is especially true for small and medium-sized enterprises and business to consumer, a market value that cannot normally absorb the cost the way a large corporation could.
Technology can reduce trade costs by 30 percent while increasing trade finance markets by 20. With world trade currently being valued at $100 trillion, that is a lot of potential money and expansive growth. A decrease in cost of just 16-18% alone could result in an increase of 0.6%.
Elements Of Trade
Movement, documentation, and funds entirely define the possibility of trade. All micro elements take place under these three. Many strive to be the best in one part or another but there is always room for improvement.
Improvements are most easily accomplished at a higher level, changing or improving regulations and other wide sweeping elements has an effect on everything below it. The TFA accomplishes that by digitizing all processes and documents, creating efficiency and speed while simultaneously being safer for the consumer and governments. This could lead to a transparency that consumers have been asking for, gaining their trust and allowing for new stimulation in growth.
Blockchain fits into this perfectly as the solution to digitizing all financial aspects without third party gate-keeping. With peer-to-peer, it allows for complete transparency and safety for the company, assuming they are doing nothing illegal.
This could establish the trust needed for organizations to create partnerships resulting in new business models and liquidity pools. Initial projects into blockchain have so far resulted in operational efficiency for the organizations involved and across their whole supply chains. It has also resulted in companies that previously competed with each other in creating cooperation while still competing for business.
If implemented across markets, it would create a new global trade environment- one centered on consumer trust and creating vastly more potential for value.
A perfect example is we.trade. They collaborated with IBM and created a new, lower-priced financial services to small and medium businesses on a global scale. All participating banks (of which there are 12 in Britain) are offered incremental good growth and protection from bad growth as a result.
Phase two would be connecting finance networks to each other, connecting clients in any block with people from other blocks. This has already started in the collaboration between we.trade and eTradeConnect in Hong Kong.
A New Era
With invisible barriers to trade beginning to fold, we can all usher in a new era of growth in a trading system relying on less friction, more cooperation, and higher levels of transparency and trust with consumers.