August 17, 2023

How Africa Can Strengthen Supply Chain Diversification in High-Knowledge- and Technology-Intensive Sectors

"The global supply chain disruptions caused by recent crises, such as the 2008–2009 global financial and economic crisis, the COVID-19 pandemic, the war in Ukraine and the resulting global market slowdown, have intensified the need to promote resilience by diversifying supply chain operations across various countries and regions," The United Nations Conference on Trade and Development (UNCTAD), the trade and development body of the United Nations, says in a report that provides a unique insight into the potential for increased integration into the supply chains in Africa by bringing together knowledge on how Africa can strengthen supply chain diversification in high-knowledge- and technology-intensive sectors.

Entitled The Economic Development in Africa Report 2023: The Potential of Africa to Capture Technology-intensive Global Supply Chains, the UNCTAD's report says "The risks of concentrating manufacturing and supply chains in a few markets and of sourcing and supplying sector-specific intermediate goods from a few locations can increase exposure to shocks and disruptions in production networks and supply chains. By diversifying or relocating to Africa, supply chain participating companies can source some of the inputs (raw materials and intermediate goods) from the continent, while reducing the costs of transportation and logistics and minimizing risks of supplier delivery delays and other challenges. These disruptions and opportunities for supply chain diversification or relocation come at a time when African economies are growing more sustainably."

Moreover on the topic of turning disruption into opportunity, the report explains that "In recent years, global supply chains have come under immense pressure as a result of unprecedented trade turbulence, economic uncertainty, geopolitical events and natural disasters. Consequently, these supply chains were severely disrupted. This has led key players, such as the series of manufacturers, distributors, consigners and so on involved in producing goods of a particular kind and bringing them to market, to re-examine ways to strengthen supply chain resilience. Although the integration of African economies into supply chains is relatively low compared with other regions, disruptions to supply chain operations have a more than proportionate adverse impact on their economies."

UNCTAD also points out that "African consumer markets are increasingly transitioning towards middle- and low- middle-income status with an appetite for more sophisticated goods and services. Moreover, the need for supply chain diversification emerges at a time when Governments in Africa and regional institutions have reinforced their commitments to push forward their regional integration, diversification and industrialization agendas, which are viable strategies for developing industrial capabilities and creating prosperity on the continent."

The aforementioned global trends and pressures have given many economies and businesses pause for thought; they are now rethinking strategies for recovery, renewal, and resilience. Many multinational companies are looking into how they can reduce their dependence on a single supplier and diversify their supply chains to build resilience to current and future global turbulence. Others have explored a more regionalized approach with greater security, allowing firms to source and produce within their home countries and regions. While some of these evolving scenarios may have far-reaching implications for investment and fixed cost – and some companies may not be able to pay the cost – their potential benefits and impacts far outweigh the cost. This is particularly so for supply chains and industries that are highly exposed to geo-physical events, trade disputes and other global stresses.
I appreciate how the report "focuses on the high-knowledge and technology-intensive industries – automotives, electronics, green energy technology and medical devices – that are vulnerable to global supply chain disruptions, partly due to their extensive geographic footprint." I also concur that "Opportunities for diversification of high-value and technology-intensive supply chains can strengthen resilience, foster the participation of technology-enabled enterprises in supply chains and optimize the participation of Africa in global supply chains."

What are your recommendations for how Africa can strengthen supply chain diversification in high-knowledge- and technology-intensive sectors?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

August 1, 2023

Financing International Transactions and 12 Steps to Exporting Success

While researching material for the previous post on this forum about a publication produced by the Export-Import Bank of the United States (EXIM) that helps empower American small businesses to succeed in global markets, I discovered an infographic that presents three ways to finance international transactions:

Option 1: Traditional Transaction
Exporter sells to buyer and arranges for either cash-in-advance (the safe choice) or open account credit terms, which is an effective sales tool but one that carries some risk.

Option 2: Transaction with a Factor
The Factor buys invoices from the exporter at a fee and pays the exporter immediately. The foreign buyer is instructed to pay the Factor by the due date on the invoice.
  • Step one: Exporter contracts with Factor
  • Step two: Exporter ships to foreign buyer
  • Step three: Factor pays exporter upon shipment
  • Step four: Foreign buyer pays Factor for goods by invoice due date
Pros of this transaction include the elimination of risk of nonpayment by foreign buyer, payment to the exporter is fast, generally fewer than 10 days, and it maximizes cash flow. More costly than export credit insurance and generally applicable for sales with terms of fewer than 90 days are two of the key risks of transaction with a Factor.

Option 3: Export Credit Insurance
The exporter wins sale to foreign buyer by offering open account credit terms. The Exporter uses an Export Credit Insurance (ECI) policy to insure the receivables against nonpayment by the foreign buyer.

With ECI, receivables are covered up to 95% of the invoice amount. Costing pennies on the dollar, ECI is a more affordable. This post that I published in this forum provides a thorough overview of ECI.

Trade Finance Guide

Exporters may also find value in the Trade Finance Guide: A Quick Reference for U.S. Exporters, which is produced by the U.S. Department of Commerce's (DoC) International Trade Administration (ITA) that explains the basics of trade finance so that U.S. companies can evaluate appropriate financing options to ensure they get paid for their sales.

Export Solutions Guide

In addition, trade professionals at the U.S. Commercial Service, part of the ITA, produced the Export Solutions Guide: 12 Steps to Exporting Success, which was developed to assist American exporters create successful international sales strategies. The twelve steps include:
Which resources do you find useful in financing international transactions or achieving exporting success?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.