Can data provide the trust to rewrite the terms of trade?

Authors

Shaun Crawford

EY Global Vice Chair – Industry

Driving solutions designed to reshape global markets and industry through convergence and disruption.

Dai Bedford

EY Global Banking & Capital Markets Advisory Leader

Transformation leader. Talent developer. Family man. Welsh rugby fan.

9 minute read 9 Oct 2019

For the global economy to prosper, we need trade to flow easily. How can we put trust back into a breaking system?

The global economy prospers when trade flows easily. But tariff wars, protectionist policies and regulatory uncertainty have pushed global trade into crisis. Established business models and relationships are breaking down. Systemic problems that have slowed the flow of trade for decades are making the situation worse, and it is harder for organizations to respond. We believe it’s time for trade to transform.

Better data and smarter technologies have revolutionized just about every corner of organizational life, yet when it comes to global trade, that’s not the case. From finance, to shipping to logistics, too much still depends on remarkably primitive processes despite the huge flows of money and goods involved.

Sometimes that's because the organization’s own systems are not sufficiently automated. Other times it's because they’re participating in a network of trade relationships where key players have not invested in better technology.

As a consequence, organizations are forced to work with data around trade that is often incomplete and unreliable. It comes from multiple sources and is frequently contradictory, or plain wrong. Mistakes occur. Governments don’t collect the right amount of tax. Companies don't take full advantage of free-trade agreements that are meant to benefit them and encourage commerce.

More fundamentally, when data can't be trusted, it can't be used to drive better business decisions. This is painfully frustrating for leaders. They want to set a strategic direction for their organization, but they are too often forced into actions that are rushed and tactical because they don’t have a comprehensive and reliable view of what’s really going on.

This lack of trust spreads like a virus. It creates friction, cost and risk across connected trade networks. It discourages collaboration and innovation. It creates acute economic uncertainty. And it slows progress toward better ways of working.

Trade has reached a tipping point

For some time now, inefficiencies in trade networks have been accepted as a cost of trading globally. But they are fast becoming unacceptable.

Take the example of an auto manufacturer that ships engines made in Spain to South Africa for assembly. It should take two days for a consignment to make the journey. However, the business adds a half-day buffer because delays in transit are common. Perhaps on arrival at port the bill of lading is incomplete, the customs declaration is wrong or the country of origin can't be established properly.

The buffer to accommodate delay adds cost, but the alternative — stopping the assembly line because the engines haven't arrived — is unthinkable.

This way of working can cost a typical auto manufacturer billions of dollars a year. At a time when tariffs, regulations, trade deals and political relationships are relatively static, it’s a cost that could be absorbed. But in a time of crisis, when a government can change its established trade policy in the blink of an eye, the stakes are far higher. The cost, risk and uncertainties created by the way trade works today have become intolerable.

 

Where is the technology revolution?

It’s a sad irony that we are facing a trade crisis now, as we ought to be entering an exciting new era of global trade.

Across industries and sectors, innovations such as advanced data analytics, blockchain and artificial intelligence are creating new opportunities and transforming what’s possible. As a result, leaders are challenging core assumptions about what they do, how they do it and why their organization even exists.

We should be as disruptive and innovative when we think about technology for trade. The impact of technologies that enable people to trust and act on data could — and should — be as revolutionary as the introduction of the shipping container.

This isn't simply about removing cost and delay, or improving financial performance. When organizations trust their trade data, they can use it to transform their operations and unlock value more widely.

For example, they could meet their obligations in relation to climate change more effectively, play a constructive role in combating problems such as human trafficking and create sustained, long-term value for all their stakeholders.

 

How do we move forward?

Looking to the future, trusted data will only become more important. We believe that the way organizations create value is changing. Whatever industry or sector you are in, your ability to succeed will be shaped by your ability to play in collaborative ecosystems that generate value for all their participants. Trusted data isn't just the price of admission; it's the glue that holds these ecosystems together and enables them to flourish.

So how can we move forward? A new approach to trade will help organizations respond better to the crisis we face today while enabling them to take their place in an exciting future.

At EY, our NextWave Global Trade initiative is bringing together organizations from multiple sectors and public bodies from multiple jurisdictions in a concerted drive to shape this future.

We’re also working with individual manufacturers, banks, insurers, shippers, and logistics providers that are transforming at a structural level — pioneering innovative business models or new forms of supply chain.

There are immediate actions that any organization can take now:

1. Build an integrated perspective on trade

Trade issues typically fall into organizational silos, so there is rarely an individual or team setting strategic direction or taking overall responsibility. The result is increased cost and risk. This has to change.

If you bring together the key people with a stake trade — from compliance and supply chain to finance and tax — and give them data insights they trust, they can start to form a comprehensive view on the way dynamic regulations and other market changes are impacting their business.

2. Shape a coherent response to changing global tariffs and trading relationships

With a comprehensive and data-informed overview of what’s going on, this group can move away from tactical, reactive actions and begin shaping a proactive trade strategy.

This will include a more coherent response to a dynamic global regulatory environment, as the team will be able to identify the potential impact of changing conditions and requirements and respond faster.

Silos will break down as people feel empowered to make decisions based on a data-informed view of what will create or protect value.

3. Remove cost and delay from your trade network

With an integrated perspective, organizations can anticipate supply chain problems, identify their root causes and drive ongoing efficiencies across their trade network.

They can respond to change quickly, eliminate costs, accelerate their speed to market, become more competitive and develop more agile business models — without jeopardizing regulatory compliance.

4. Drive smarter use of better data

As better data starts to drive smarter decisions, organizations see the value of building robust data management systems. These need to extend beyond functional silos and allow full participation in wider, data-driven trade networks.

Such systems will enable organizations to gather, cleanse and consolidate all the trade data they need. They will have access to data analytics that provide key trade insights. And they will convert those insights into comprehensive, up-to-date business intelligence. Leadership can then make informed decisions that improve the business today and position it for success tomorrow.

5. Commit to disruptive technology with confidence

With a more holistic perspective on trade, organizations will have a much clearer view of which disruptive technologies will help them achieve their long-term strategic goals. They can then invest in the technology innovations that will drive competitive advantage and integrate them into their wider road map for digital transformation.

If we can make trade work better, everyone will benefit. The shift from the slow and inefficient trade networks we see today to the collaborative, data-informed ecosystems of tomorrow is an opportunity for innovation. Leaders who work to shape that future can secure their place in the new era of global trade.

 

Summary

The world’s current political and regulatory climate has pushed global trade toward a state of crisis. At the same time, we’re entering a breakthrough era where data and technology are fundamentally changing the way trade is conducted. What was once impossible is now becoming reality. Organizations need to have trust at the core of their global trade plans to better respond to challenges and secure their place in this new era of trade.

About this article

Authors

Shaun Crawford

EY Global Vice Chair – Industry

Driving solutions designed to reshape global markets and industry through convergence and disruption.

Dai Bedford

EY Global Banking & Capital Markets Advisory Leader

Transformation leader. Talent developer. Family man. Welsh rugby fan.