A Winning Solution
Innovative digital financing solutions are helping SMEs remain resilient against economic uncertainties.
Small and medium enterprises (SMEs) are the backbone of our economy. They account for a staggering 90% of all businesses worldwide and 50% of global employment. However, during times of extreme financial duress, most of these enterprises risk being wound up due to cash-flow constraints.
In early 2020, as the Covid-19 pandemic sent the global economy into a tailspin, tens of thousands of SMEs faced the same predicament: fear of business closure, acute revenue loss, supply chain vulnerabilities, and tightened working capital.
As these heightened risks put the future of the world economy at stake, what can SMEs do to reset?
Acknowledging the challenge at hand, Haier Group, a leading home appliances and consumer electronics company, partnered with DBS Bank in early 2020 to streamline financing options for its distributors, most of whom are SMEs. As a result, Haier’s distributors now have access to lower-cost financing options for purchase orders in a simpler and optimized fashion. This ensures supply chains continue operating in the face of current and future challenges while enabling SMEs to become more resilient.
To mitigate challenges and aid the post-pandemic global recovery, it is crucial to drive global supply chain finance innovation and build resilient SMEs in emerging markets and beyond.
An adaptive and robust supply chain is fundamental for business success. A supply chain involves a set of activities to distribute a product from an organization to a consumer. However, once broken or disrupted, it could prove costly to businesses. Haier, for example, is dependent on a wide network of dealers that are fundamental to its downstream sales channel and supply chain ecosystem. They are also prone to turbulence in the business climate.
Both Ming Qin and Youbin Wu, two of Haier’s many distributors in China, encountered acute working capital constraints during the pandemic. Qin, a driven and passionate millennial business owner, is a Haier water purifier distributor in Huangshi. With her store shut for months, Qin’s monthly operating expenses began to swell, ultimately leading to cash flow constraints.
Wu, who owns eight high-end Haier home appliance stores in Changsha, experienced a similar issue, but on a larger scale. The DBS-Haier digital financing solution successfully provided Qin and Wu the means to access lower financing costs for their purchase orders.
DBS continues to provide customized supply chain finance solutions for China enterprises. By deeply understanding the needs of our business and operating model as well as industrial chain, DBS leverages its experience in digital financing to customize innovative and operable solutions for us.Luo Luo, VP of Xinhaihui Platform, Haier Group
Technology: The Enabler
Digital supply chain finance (SCF) essentially involves three parties: a bank or financial institution providing funding, a core enterprise, and an end customer such as an SME that needs financing. By utilizing a blockchain-powered online platform, DBS provides enterprises such as Haier with timely digital financing to improve the working capital liquidity of its distributors.
Haier’s recent partnership with DBS exemplifies how enterprises can adapt and increase the cash flow efficiency of both upstream and downstream supply chains. Almost a year and a half since the launch of this partnership, many of Haier’s distributors have utilized DBS’ digital financing facility, enjoying flexible payment arrangements as needed to optimize cash flow. With the ability to allocate more funds to product diversification, both Qin and Wu now have the option to cater to a broader client base to increase overall sales.
Building Resilient SMEs
The global trade finance gap was estimated at $1.5 trillion in 2019. The pandemic more than doubled that figure to an alarming $3.4 trillion as of last year. Given the inherent sensitivities of SMEs to financing, it comes as no surprise that SMEs in emerging economies were the worst impacted.
Amid lingering global economic uncertainties, there is an urgent need to ensure that SMEs are equipped with the right financing tools to remain resilient. According to the 2020 McKinsey Global Payments Report, “Significant value in the global supply chain finance market remains untapped. Nearly 80 percent of eligible assets do not benefit from better working capital financing.”
Supply chain resiliency will be key to keeping the global economy on the path to recovery. By offering diverse digital financing options, DBS is providing a win-win solution for SMEs and supply chain ecosystems.
In the future, we will work closely together to inject new vitality into supply chain finance to effectively solve the problem of difficult and expensive financing for SMEs and build a stable ecosystem with a steady stream of financial support.Luo Luo, VP of Xinhaihui Platform, Haier Group