First lessons learned when entering new markets with SCF offerings
Discovering the uncharted territories in SCF
On November 21st, 2019, Capital Chains attended the 7th edition of the SCF Forum Europe at Beurs van Berlage, Amsterdam. Our CEO, Steven van der Hooft, joined a panel discussion on Supply Chain Finance (SCF) supporting the growth of companies in complex countries.
Even in more mature markets, it can be a challenging process to implement new SCF products or services for both SCF providers and adopters. Formulating a sound SCF strategy and creating internal alignment for a smooth roll-out, requires effort and stamina. This is even more true in a market that has limited awareness, a difficult regulatory setup, and little to no experience in offering/running automated finance products across the scale. These markets were the core focus of the panel and there all together referred to as “complex countries”.
When it comes to “complex countries” we would typically refer to these as the uncharted territories in SCF. How and where to start when entering an uncharted territory? Desk research on absent market data is not going to help you answer these questions, and therefore it is crucial for all parties interested in exploring these opportunities to invest in local presence. Go out there and speak to local banks, platform providers, corporates and other stakeholders who might possess valuable market intelligence. At Capital Chains we have successfully completed client assignments in various parts around the world where the SCF markets were far from mature. Recent projects contained extensive market discoveries for multiple African countries. At the SCF Forum Europe, Steven shared some of the key challenges for the African market and how both SCF providers and prospective adopters could cope with these challenges maximizing the value of the SCF program when entering the local market.
Panel session on complex countries
While Capital Chains focused on the African context, other panelists from Stenn and BBVA reflected on their SCF experiences going into complex countries in regions such as Asia and Latin America. Demica on the other hand elaborated on FCIreverse, which is aimed at offering a technology solution for SCF providers in these regions.
With a global trade finance gap that requires urgent attention, we are delighted to see that SCF is gaining ground within these uncharted markets, providing new and sustainable opportunities and improved access to finance for SMEs. Although potentially hard(er) to reach, these markets represent a significant opportunity and SCF would add real value to the local economies. More and more, we see SCF being used to support upstream suppliers in meeting sustainability standards, enabling them to get access to cheaper finance when they meet sustainability goals set by downstream supply chain partners.
Capital Chains: “The main challenge for new entrants into these markets is in the formulation of a sound SCF strategy and a clear go-to-market roadmap”
For those keen to enter these uncharted territories as an SCF provider of choice, one would require the use of an integral approach. Starting off with an analysis on macro-economics and current political affairs, funneling into the main (fastest-growing) industries, going all the way to the individual corporate landscape and its supplier/distributor network. The next step is to validate the assumptions based on this analysis, by conducting a market sounding by meeting and speaking to a significant number of key local market players.
For the continent of Africa, we have identified the need for SCF providers to have access to ‘cheap’ local currency funding. Most corporates in Africa will either deal with large(r) international suppliers or buyers with the ability to access financing at favorable home country rates, or local small(er) entities who invoice in the local currency. The main challenge for any SCF provider is to overcome the initial knowledge gap that exists in these markets, as awareness and trust levels are generally low when it comes to technology-based solutions. Having feet on the ground therefore proves to be essential to the viability of the business case as is the use of proven technology that allows to scale these programs afterwards. Especially in countries where the current processes and procedures are typically paper based and involve a lot of manual interventions, SCF really provides an opportunity to both large and SME companies to accelerate the growth.
The main challenge for new entrants into these markets is in the formulation of a sound SCF strategy and clear go-to market roadmap. At Capital Chains, we provide the required expertise to support you in the design, setup and roll-out of your solution as our mission is to accelerate the provision and adoption of sustainable SCF solutions to ultimately close the trade finance gap for SMEs.
Another writeup on this session has also been published on SCFbriefing.com: http://www.scfbriefing.com/local-presence-key-as-scf-enters-complex-countries/