The U.S., China and Saudi Arabia's Great e-Hope

The U.S., China and Saudi Arabia's Great e-Hope

William Laraque

Managing Director at US-International Trade Services

Views 678

The U.S., China and Saudi Arabia's Great e-Hope

04.04.2016 07:15 am
Saudi Arabia is organizing to create a $2 trillion Public Fund in order to diversify its economy from its oil dependency. At the same time, China has come to the realization through Jack Ma, that small business engagement in global trade via e-commerce, is the way to go. Alibaba dwarfs Amazon, PayPal and e-Bay in every dimension including sales and profitability. 
 
In March 2016, Alibaba reached 3 trillion yuan or USD 464 billion in transaction volume, a 23% growth in GMV or gross merchandise volume from last year. GMV refers to the total value of third-party sellers' transactions on Alibaba's platforms and differs from Alibaba's revenue. GMV is an indication to investors and analysts of how fast an e-commerce company is growing compared to its competitors. The 3 trillion yuan figure represents a tripling of the e-commerce company's GMV since 2012 and a doubling since 2013. Alibaba hopes to hit 6 trillion yuan in transaction volume by 2020. 
 
Alibaba has demonstrated logistical sophistication by using 200 Boeing transport aircraft to ship goods to China that resulted in $13.5 billion in sales on Singles Day, last Nov. 11th.
 
What Jack Ma has demonstrated conclusively is that e-commerce has come of age. It now represents a great hope for Chinese, Saudi, U.S. and European economic revival and job creation.
 
e-WTP
 
To Jack Ma's credit as a visionary, he has foreseen the need to revise WTO rules in order to facilitate, empower and finance engagement by small business in the global economy. WTO rules with regard to country of origin, as just one example, are hopelessly obsolete. I have pointed this out in detail in other articles. Ma is quite right that we need to encourage entrepreneurial and small business engagement in global trade. This will require a deconstruction of the current global trade regime and its reconstitution into a much more practical and workable structure. 
 
The Triffin Dilemna
 
There are several problems in creating a new global trade structure and an e-WTP, an e-commerce World Trade Platform as suggested by Jack Ma. The first involves reserve currencies and the Triffin Dilemna. In the mid-20th Century, the economist Robert Triffin explained that the provider of the global reserve currency would need to run perpetual trade deficits to keep the world financial system operating smoothly; acting as  a kind of WD-40 (lubricant) for the global financial system. This global reserve currency is the USD of course, which poses a dilemma for the U.S. in fueling booms and busts, according to Triffin. The requirement for other countries to create USD-denominated foreign currency reserves tends to appreciate the value of the USD, making USD-denominated goods relatively expensive and unattractive in global markets. Ever since Bretton Woods, the USD is the world's reserve currency. Merchandise balance of trade deficits are therefore a function of U.S. global financial leadership, not the silly role to which the wall-builders and trade-barrier erectors would relegate the USD, the U.S. and its global financial leadership. The Triffin Dilemna also affects China. How can China create a viable and sustainable e-WTP if the global reserve currency is the USD and not the yuan or renminbi?
 
The other problems are the continuing use of Alibaba's platforms by counterfeiters and the general lack of trust and confidence that counterfeiting and closely related cybercrimes are bound to create vis a vis Alibaba et alia.
 
Cybercrime and e-Platforms 
 
The sine qua non of financial institutions and systems is a fundamental trust and confidence. If the Chinese PLA is suspected of conducting widespread industrial espionage, it is not likely that Alibaba will be entrusted with creating a secure platform whereby all parties to a trade transaction can buy and sell goods, make investments, etc. All the compliance, financial, logistical and legal services will have to be provided as well. The fairness and integrity of such a system must be sacrosanct and uncompromised. 
 
Accounting
 
 There is a fundamental accounting issue involving GMV. The volume processed as Global Merchandise Volume is subject to payment and returns. The proceeds cannot therefore be recorded before taking payment and returns into consideration.

Latest blogs

N/A ReliaMax

College Dreams? Here’s How to Get Accepted

Higher education in the United States is not just about getting accepted, it is about where you get accepted. Sure, there are options, there are seemingly endless options - from community colleges to Ivy League schools and everything in between. The Read more »

Bobby Gill GCWealth

Bobby Gill: 3 Ways Fintech is Helping Small Businesses During the Pandemic

Image Source: Pixabay. Back in April, the US oil prices sank to a 20-year low. In the UK, road traffic levels hit a 70-year low. Worldwide, due to lockdown, retail, travel, and restaurant bookings have dropped by 85%. More than 430 million Read more »

Christa Ardley Bitstocks

Bitcoin and blockchain without the b******t

An industry once viewed by the general populace as a haven for criminals and online scammers, and still somewhat marred by fractious in-fighting, Bitcoin and blockchain are gradually casting off their outdated negative reputation; as the focus Read more »

Otabek Nuritdinov Safenetpay

Beyond Payments Services

    Why it really matters for small for medium-sized enterprise (SMEs) to choose the right payments services provider. Strategic planners in the financial services sector often define their business in terms of products that Read more »

Chak Kolli DXC Technology

How Can Insurers Realise the True Value of AI?

As Artificial Intelligence (AI) and digital transformation find their way into every aspect of our daily lives, we are gradually seeing changes taking place in different sectors. Progressively, AI is permeating the insurance value chain and it is Read more »

Related Blogs

Tristan Chiappini PPRO

Tigers versus Dragons - Asia’s booming e-commerce market and the challenge to China’s regional dominance

E-commerce is one of the greatest business success stories of the last decade. It has created jobs, injected new dynamism into our economies, created countless ‘unicorns’ and given people, who wouldn’t otherwise have had it, access to goods and Read more »

André Stoorvogel Rambus

5 Reasons Why E-commerce Sites Need a Token Gateway

Card-on-file (the process of collecting and storing payment card credentials) is fundamental to the card-not-present (CNP) ecosystem, facilitating the delivery of popular payment methods such as one-click ordering and recurring payments. Growing CNP Read more »

Ralf Ohlhausen PPRO Group

Western Europe: a Great E-commerce Opportunity for Ambitious UK Merchants?

Western Europe is thriving, thanks to the region’s highly developed banking infrastructure and the growing maturity of the market.  It’s home to 19 different countries that boast an average annual income of around $55,000 (compared to a world Read more »

PPRO PPRO

Getting the Ball Rolling Again! England vs Russia

Once again, the UEFA European Championship is just a round the corner, and Europe will spend four weeks going football crazy as each team  takes  its turn on the international pitch. A UEFA European Championship, of course, means an entire month of Read more »

William Laraque US-International Trade Services

E-Commerce as an Economic Development Tool -II

E-commerce can be an extraordinary job and economic development tool. Regrettably, the initial cross-border forays of Amazon and Alibaba have been debacles but they provide valuable tactical and strategic lessons in "how to do it right."  The 50 Read more »

Magazine
ALL
Free Newsletter Sign-up
+44 (0) 208 819 32 53 +44 (0) 173 261 71 47
Download Our Mobile App
Financial It Youtube channel