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Reshoring of global supply chains spurs growth in financing

Industry practitioners discuss how process of bringing offshore global supply chains back to the country of origin accelerates demand for existing and new financing programmes that provide liquidity for sub-tier level of suppliers

February 10, 2021 | Siddharth Chandani
  • The pandemic has intensified the reshoring and near-shoring of global supply chains
  • Stakeholders prioritise stability and security of supply chains over advantages from cost optimisation
  • Shifts in global supply chains accelerate demand for dynamic financing programmes

The trend towards diversification of supply chains predates both the US-China decoupling on trade, technology and investment and the COVID-19 pandemic. However, the pandemic has exposed the fragility of far-flung supply chains and accelerated the process of reshoring which means supply chains are moving closer to the centres of consumption or migrating to new markets. This, coupled with the severe squeeze on liquidity during the crisis, has raised the demand for new forms of supply chain financing (SCF) or higher utilisation of existing programmes. Demand for reverse factoring or payables finance has grown significantly as corporates recognise the importance of providing sources of funding and enhanced flexibility to suppliers. These are particularly valuable for small and medium size enterprises (SMEs) that can access more affordable funding based on the creditworthiness of buyers (corporates).

To maximise returns, global supply chains are over-optimised and built on principles of lower labour cost and overhead arbitrage. This disrupted complex and long-established supply chains during the pandemic. Paula Da Silva, head of transaction services at SEB, a Swedish corporate bank, observed production bottlenecks in Asia distorted global supply chains across the world. “If you are dependent on supplies in your production from another part of the world such as Asia and China, that has slowed down.” After major mobility restrictions have been relaxed, suppliers continue to face bottlenecks in maintaining delivery rates due to factory labour safety issues and transportation challenges, according to the Institute for Supply Management latest report on b...

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Keywords:Global Supply Chain, Logistics, Liquidity, SME, Covid-19