• William Laraque, Managing Director at US-International Trade Services


• 26.11.2015 12:00 am
undisclosed

TXF Magazine and Insurance Times announced the following: 

 AIG and PrimeRevenue boost mid-market SCF

http://www.txfnews.com/Ticker/Redirect/c46874b7-c289-48aa-a388-c49754776167

Suddenly it's all about the SME. Suddenly it's all about entrepreneurship. The World Economic Forum recognizes that the SME is critical to both economic growth and job creation in any economy. On a more micro and practical level, Supply Chain Finance (SCF) is being democratized so that the PrimeRevenue version of SCF, the discounting and dynamic discounting of multinational payables to their vendors is now linked to credit insurance via AIG. TradeCard and GT Nexus (now Infor) have been applying these concepts to international trade for years. Previously the PrimeRevenues only processed the huge volumes of multinationals, ignoring the SME. Jack Ma has shown that with the Internet, we can incorporate everything and profitably. The Internet has made throughput king. In the process it has dethroned size.

The prize for foresight goes to Jack Ma and Alibaba. Mr. Ma envisioned that the Internet could be used as an advertising, marketing, sales, financing and logistics medium to enable the SME to engage in the huge global flows in trade in goods, services and investment. Alibaba’s profits dwarf those of Amazon, Paypal and their ilk.

The West has a momentary advantage. Because of the German-grown Raiffeisen and the Victorian-bred concept of credit unions, export credit insurance and working capital guaranties provided by virtue of the full faith and obligation guaranties of Western governments, the transition of the entrepreneur to the multinational is facilitated in the West to a greater degree than it is in China presently.

The West has reacted thus far by poopooing Alibaba and indicating that the e-commerce phenomenon depends on counterfeit goods for its success (See the current edition of Forbes Magazine). When faced with a similar dilemma involving theft of intellectual property or counterfeiting of goods in various markets, Western multinational corporations adapted by making local distributors part owners. So will Alibaba. Unfortunately, as Yahoo is proving, not everyone shares Ma's vision. Not everyone is visionary.

Free enterprise has brought unparalleled prosperity to the West. I am including in the West theU.S., all of Europe, Australia, New Zealand and South America. China and India are effectively the non-West players in my analogy. If these ideas are provocative, they are intentionally so.

I propose that there are two competing Supply Chain Finance or SCF models. The first is an elitist and paternalistic European model. This model features suppliers or vendors to a multinational corporation who are dependent on the largesse of the large corporate for financing and crucially, for participation in exports, in global trade flows. Such processes as reverse factoring, dynamic discounting, et alia, have been created so that the SME can benefit from the superior credit-worthiness of the larger corporation it supplies. The vendor or supplier becomes an indirect exporter by virtue of its relationship with the multinational. The disruptive concept is that the entrepreneur, the SME itself can become a multinational. The caterpillar can become a butterfly.

SWIFT has embraced the need to adapt SCF with its KYC  (Know Your Customer) and trade settlement functionalities, by creating the BPO (Bank Payment Obligation) and the TSU (Trade Services Utility). SWIFT is the creature of large banks and insurance companies and so the concept of a democratic participation in its processes by SMEs is only slowly being envisioned and acted upon. In the meantime Alibaba is proving in market after market its disruptive concept.

A full engagement in global trade flows by the entrepreneur and SME in its transformation to a multinational will determine the success of economies. Success is defined by economic growth, an improvement in the quality of life and in job creation. What none of the other models of global economic development has done is to provide national economies with a native, organic entrepreneurship and financing which transforms the entrepreneur, the mom-and-pop, into a multinational, a global player.

As Buckminster Fuller wrote; “There is nothing in the caterpillar which indicates that it will become a butterfly.”