4 key issues affecting supply chains in emerging markets
What are the key issues affecting global supply chains today?
All the products we consume daily are moved through the world’s supply chains. Despite major technological and logistical advancements and improvements in the industry, supply chains today continue to be overwhelmed by key issues that limit their development and growth.
RedCloud’s extensive research and conversations with FMCGs across the globe have led us to identify four key challenges that both supply chains and macro-economies face today.
The Cash Problem
Studies have found that the average manufacturing business in an emerging economy loses 10%-17% of its annual revenue due to inefficient cash transactions.
In 2018, more cash was in circulation than at any point in history. Small businesses suffer from this the most acutely as they are forced to transact in cash. This leads to payment settlement issues, drops in sales as new e-commerce incumbents control the digital supply chain, and many more. The consequences ripple throughout entire B2B supply chains, affecting manufacturers, distributors and small retailers alike.
“Cash costs are borne disproportionately by small merchants and corner shops, many of which operate in underdeveloped neighborhoods and rural areas. These cash-dependent small businesses cannot afford sophisticated security and cash transportation services.” (RedCloud)
The $19 trillion of non-digital payments made every year affects the entire supply chain, but the biggest players acutely, as they spend extremely long periods of time reconciling and are obliged to absorb high insurance costs and risks.
Moreover, a study by PWC revealed that, “distributors and manufacturers lose out on efficiency gains of 4.1 % annually, as well as a potential revenue boost of 2.9% by not digitizing.”
Financial Disempowerment: it’s real
According to the World Bank “more than 90% of the enterprises that lack access to financial services are formal micro-enterprises or informal MSMEs.” (World Bank)
Banks have abdicated all responsibility over the ever-growing black market, which reveals the extent to which they are disconnected from today’s reality in which 450 million businesses are excluded. But the fact that more cash is moved today than in any time in history has created a more disconnected financial dynamic, in which SMEs, who should be viable candidates for lending and investment, are overlooked.
“In cash-dependent emerging markets, people and businesses at every level face the same challenges.” (Harvard Business Review)
Digitisation: a supply chain and data issue
FMCGs are going to incredible lengths to digitize their operations and business processes.
Moe than a third of 2000 PwC respondents reported that “their companies have started to digitize their supply chains, and fully 72 percent expect to have done so five years from now.”
FMCGs are notably affected by the status quo due to the excessive operational costs and risk they are compelled to absorb for literally every member of the supply chain. They often have very limited means by which to communicate and coordinate with their customers, which strains their relationships.
A lack of communication and coordination leads to:
Complications on reconciliating last minute order updates and cancellations
Delayed and sometimes inaccurate payment settlement processes
According to Forrester, “by 2020, insights-driven businesses will steal $1.2 trillion per annum from their less-informed peers.”
The Shadow Economy: the imminent threat
The global shadow has become one of the world’s largest economies.
As a percentage of GDP, the shadow economy accounts for 25–60% in South America, 13–50% in Asia and approximately 40% in Sub-Saharan Africa. (World Bank)
Indeed, in emerging markets “cash accounts for at least 80% of transactions, a significant amount of which is completely unaccounted for.” (McKinsey)
Its adverse consequences are wide-ranging and affect individuals, businesses and governments alike. Ramifications include:
A reduced tax base due to underreporting
A lower quantity of public goods, which are also often of lower quality, as a result of an insufficient tax base
Distortions to healthy market competition
A degradation of economic and social institutions
Lower levels of economic growth due to stagnation at every level
Usurious interest rates that punish those that can least afford it
RedCloud has identified the following issues as being central to building and maintaining efficient, seamless and profitable supply chains that fuel national and global economies.
We have invested thousands of engineering man-hours to build a groundbreaking platform that fully addresses the issue of cost of cash, financial disempowerment, the fragmented nature of supply chains and the shadow economy. Core to our solution are some of the world’s most cutting edge technologies ranging from Cloud to AI & Machine Learning.
Interested in our platform, which through its complete network of financial services providers, allows each and every participant to exploit new revenue lines, access vital capital, and accelerate overall growth?