Digital commercial supply chains and trade Unlocking the full potential of trade and commerce for Digital India

April 6, 2017

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Global business model

Nature of globalization is challenging conventional

trade and pushing global digital integration

Digital integration, physical

decentralisation

Global political model

Economic nationalism; Reduced cross-border

arbitrage (cyber security, tax)

Global economic model

Multi polar, fragmented growth; low trade

multiplier; increasing divergence

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Expansion in trade is vital for India's growth

India's aggregate trade value is sizeable

1. 2015 Figures includes only merchandise trade (C+F form) 2. Apr 15-Mar 16 figures. Note: 1 USD = Rs 65 assumed to convert GDP value in $ Bn. Source: India Budget, Press Information Bureau, Economic Survey, Bank for International Settlements.

Total Goods Trade / GDP (%)

2,009 (96%)

1,128 (54%)

641 (31%)

240 (12%)

$ Bn % of GDP

Trade Value

85

%

INDIA

104

%

E

U

109

%

US

A

119

%

CHIN

A

Indian trade has significant potential to grow further

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GST will present opportune time to pick up

overall Trade Digitization agenda

Trade will get a push: both domestic and

foreign

Source: NCAER, Finance Commission, Financial Express.

3-6% Gain in

Exports

Commercial supply chain will get digitized

Trade efficiencies will improve

10%

efficiency

gain = $5B

in logistics

costs

5-8% Gain in

Exports

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Ease of trade a key driver of ease of doing business –

India lagging behind with large margin

Trading across borders rank

Ease of doing business rank 55 1

2

3

4

5

6

7

8

17

40 78

123

130

41 1

42

32

22

28

35

38

140

96

149

143

1. Trade across borders rank is representative of time and cost associated with trade. Note: Trading across borders is one of the ten components of Ease of doing business rankings. Source: World Bank Ease of Doing Business.

New Zealand

Singapore

Denmark

Hong Kong

Korea, Rep

Norway

United Kingdom

United States

-

Germany

Russia

China

Brazil

India

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Gaps in turnaround time and operating costs

associated with trade

Source: World Bank Ease of Doing Business.

OECD (High Income) OECD (High Income) INDIA

144

15

INDIA

$

505 $

186

OECD (High Income) OECD (High Income) INDIA

344

13

INDIA

$

709 $

141

Time to export (hours)

9.6x Cost to export (USD)

2.7x

Time to import (hours)

26.5x Cost to import (USD)

5x

Border compliance

Documentary

compliance

Border compliance

Documentary

compliance

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Corporates highlight several pain points in current

transaction platforms offered by banks (I)

1. BCG Case experience. Source: Survey conducted across 80+ companies.

Top 5 challenges faced by corporate customers in current trade finance processes

(Percentage of respondents)

100% Limited visibility

of the status

100% Difficulty in reconciliation

63% Long lead times

50% Multiple follow-ups with

different stakeholders

50% High operational costs

0 25 50 75 100

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Corporates highlight several pain points in current

transaction platforms offered by banks (II)

“FX transaction needs to have a trade

underlying – current experience is

disjointed.”

“For remittances I have to book rates

through Fx website, then feed those details

on portal.”

“Bank gets a major share of our LCs

because of their trade portal. The LC

application process has been simplified

...has made our lives much more

convenient.”

“Multiple locations need to apply for LCs.

Final confirmation given by HO... need a

mechanism for plants to raise requests

themselves online”

Large Telecom Player Large Importer

Large Infrastructure Player Large Infrastructure Player

“We spend more time managing internal

customers than external. Most important

thing is the turn around time and

responsiveness. We expect a 3-6 Hr TAT.”

“Documentation is too complex and

cubersome. We prefer banks who

understand business, are more flexible in

documentation & responsive to business needs.”

“Why do banks ask us to submit the same

documents multiple times? It should be

retrieved from earlier transactions.”

“Our work doesn't stop at LC issuance –

we have to take to remittance to BoE to

Recon – the full view for that PO/

customer”

Large Indian Conglomerate Large Power Generation & Distribution Co.

Large Infrastructure Player Large Indian Company

Integrated

Offering and

Digitization

Operational

processes (high

TAT / complex

documentation)

Source: Survey conducted across 80+ companies.

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Digital trade finance platforms offered by banks are limited

to application requests given ecosystem challenges

21

Source: Survey conducted across banks.

Top 3 challenges faced by banks

(Percentage of respondents)

80 Integration with manual/

paper channels

60 Current ecosystem non-digital

(e.g. Stamp duty payment and paper)

60 Development of IT tools

and platforms

0 20 40 60 80

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Customer journey approach to digitization of bank trade

and transaction platforms needed

End to end customer journey for trade

Illustrative journey for Imports

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PO creation LC

issuance

Bills

acceptance

Credit

availment Remittance

Bill

of Entry

Track &

Reconcile

Integrated offerings for

trade and forex

Single sign on for all products &

solutions

Bulk upload of trade

transactions

End to end coverage of transaction

Digital management of

Bills of entry

Digitally enhanced solutions possible at every stage

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Big opportunity: Industry specific value added supply

chain solutions

F&B industry illustrative Intermediate

producer, Trader Retailer

Finished Goods producer

Wholesaler & distributor

Customer experience

Superior on-boarding and customer

experience

Core product

Customization to specific industry

Credit

Non-credit

Innovative offerings Value added services

Complex on-boarding process including documentation requirements Digital, paperless on-boarding faster than competition

Lack of digital self-service options and dependence on branch processes E-self service option to apply for LCs and processing in <3 hrs

Administrative effort involved in tax reconciliation Digital solutions to manage auto-reconciliations and improve efficiency

Supply seasonality and volatility in commodity price Commodity price indexed working capital limits

Perishability of F&B inventory Inventory financing using low shelf life inventory as collateral

Poor working capital terms (smaller firms) Cash flow based supply chain financing

Limited expertise and connections to expand overseas into new markets Access to digital market places - e.g. securing supply, geographic expansion for new clients

Increasing costs and lack of differentiation Advisory services to improve downstream support

Large number of small suppliers across the country Customized inland Letter of Credit offerings

Export of perishable F&B inventory Integrated trade and FX offerings

Working capital and trade issues

Bundled products – cash mgmt.,

warehouse, trade financing etc.

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1

3

F&B industry example

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Several countries have launched Single Window

systems for trade

SINGAPORE

Single window data entry for

multiple transactions

THE NETHERLANDS

Industrywide logistics

integration, e-messaging

CZECH REPUBLIC

Secure interoperable and

integrated platform

SWEDEN

Electronic Customs

declarations / application

MALAYSIA

Single window, re-use of data,

seamless processing

Source: BCG Research, World Bank, APEC, CrimsonLogic, Government of Singapore

Singapore Example

Controllin

g Agency

Import

Bank

Insuranc

e Compan

y

Buyer

Supplier Warehouse 3PL

Shipplin

g Line

Exporter

Freight

Forwarder

Controllin

g Agency

Controllin

g Agency

27-30 Different Parties

40 Documents 200 Data Element

Re-keying of 60-70 of data at least once

Controllin

g Agency

Controllin

g Agency

Freight Forwarders

Air Cargo Agents

Shipping Agents

Traders

TradeNet

TDB

Customs CIAS/SATS Chambers of Commerce

Controlling Agencies

PSA, Jurong port

CAAS

Integrated across 35 agencies; digital forms; faster tat and improved costs

Significant manual processing; physical document; error prone; high cost of

transactions

Singapore's trade finance system was very complex earlier

Post TradeNet, efficiency improved

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Singapore experienced tremendous improvement after

launching its single window system

Before Single Window System After Single Window System

1 eForm/ eDoc 4-35 documents per transaction

Submit and retrieve electronically All handled manually via dispatch clerks/ couriers

Integrates controlling units’ requirements across 35 agencies

Required multiple agencies’ endorsement

24*7 availability Available only within office hours

Over 90% processed in under 10 minutes Took 2-7 days to process a permit

Automatic bank account deduction Customs duty collection by cheque

Source: BCG Research, World Bank, APEC, CrimsonLogic, Government of Singapore.

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Promising new technological advances in trade

Source: Survey conducted covering 80+ companies, BCG research.

Trade Finance Emerging Technology

(Percentage of respondents agreeing on potential to disrupt)

77 Blockchain

93 SWIFT for Corporates

100 e-Bill of Lading

0 25 50 75 100

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A potential way forward for India

NATIONAL TRADE

PROCESSING

CORPORATION

OF INDIA

Single end to end

digital infrastructure for foreign trade

End to end digital

platform for domestic trade

• Border trade agencies • Warehouse / Forwarders • Customs House Agents • Banks • Insurance agencies

Create a National Trade Processing Corporation of India to act as a single coordinating body across all multiple stakeholders with a mandate to build digital trade platform and single window

• Airlines • Air Cargo Terminals • Railways / Road

transport

• Customs agencies • Container Terminals • Shipping services • Port Community

System (e-Ports)

• Importers / Exporters • Trade promotion

portal • Regulatory bodies /

Controlling agencies

Single Window for Trade

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A potential way forward for India

Platform to provide a single point of data entry

(single window) for customers

Leverage digital documents and digital

approvals and signatures

Seamlessly integrate with current systems e.g.,

EDPMS, IDPMS, eBRC

Establish a single end to end digital infrastructure for foreign trade

eDocument platform supporting digital

presentation and exchange for domestic LCs

Digital platform for BG enabled by including

eStamp duty, eStamp papers

Improved turn-around time and reduced risk of

fraudulent transactions.

End to end digital platform for domestic trade

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Source: BCG case experience, Interviews with banks, CII Report.

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