Five key forces shaping the future of trade

Multiple forces are driving a profound transformation in global trade and supply chains. As a bank operating at the core of these global networks, HSBC highlights five of the forces that are having some of the greatest impact on the future of trade.

1 – Growth of trade in services

What businesses are buying and selling is changing.

Today, the value of global trade is estimated to be in the region of $32 trillion¹, of which a fifth is comprised of services². Over the next decade, services are expected to account for a substantial share of all new international trade, with the bulk of this being in digitally delivered services³.

Businesses that adapt to these changing dynamics – by developing ancillary services and embracing digital change – will potentially be among the winners moving forward.

We are already seeing this in practice. For example, leading apparel manufacturers are launching software businesses to help their smaller competitors obtain efficiencies and productivity gains.

2 – Data validation and B2B platforms

How businesses buy and sell goods and services is also evolving.

The Business-to-Business (B2B) e-commerce market is already five times the size of the Business-to-Consumer (B2C) market⁴ and we expect this to grow at an exponential pace.

One of the most exciting growth areas is embedded finance – a market estimated to be worth about $83 billion globally in 2023 – which offers an important opportunity to embed financial services, such as payments and lending, into non-traditional financial platforms. This enables customers to access financing solutions with minimal friction at the point of need.

Furthermore, trust has always been the foundation of strong commercial relationships. This has historically been forged through physical and repeated interactions. Going forward, data validation over platforms (i.e., which helps us with authenticating company identification, transaction legitimacy, etc.) will change how businesses develop relationships. We will see an increase in digital associations allowing trade with anonymous partners.

As these data validation tools and platforms become more ubiquitous, new markets will increasingly open up, both for supply and demand, potentially creating opportunities for most businesses.

3 – A revolution in supply chains

Supply chains have evolved over decades with the almost singular objective of minimising costs. This objective occasionally came at the expense of transparency, optionality, and resilience. Many businesses discovered this when the pandemic struck.

We are living in a world with many uncertainties and, as a result, we are seeing global trade becoming increasingly local.

Corporates are rethinking their traditional supply chain models, with a rise in protectionist measures. Re-shoring, near-shoring, and friend-shoring are all likely to become more widespread as firms react to the vulnerabilities in their supply chains which the pandemic unearthed.

This is leading to more manufacturers diversifying their supply chains into different markets, including Bangladesh and Vietnam. Other industries, however, are choosing to nearshore their supply chain operations. For instance, a number of US businesses are reportedly considering moving some production lines to Mexico, in order to reduce their reliance on certain markets.

Moving forward, it is essential businesses adopt agile supply chains, with options and safeguards in place to weather any potential disruption and geopolitical uncertainties.

4 – Digitisation of global trade

Digitisation of trade has been a non-linear path – with many steps forward but equally many backwards. There is optimism about this changing in the next decade.

There are four foundational steps required to digitise global trade:

• Common data standards for documentation: a critical aspect, with adoption of the universally recognised electronic Bill of Lading being an important step forward.
• Comprehensive legal framework underpinning the common standard. In-roads have been made here following the introduction of the UK’s Electronic Trade Documentation Act, and it is expected other markets, including France and Germany, will follow suit.
• Digital Data Sharing System: over the past decade or so, several experts and consortiums have argued that blockchain – due to its immutability and real-time transparency – would accelerate digitisation in trade finance, but the technology is yet to make a decisive impact, due in part to concerns about its scalability and lack of interoperability.
• Ecosystem of Market Participants: users who are willing to accept that data over the system(s), and act upon it accordingly (i.e., by providing financing/facilitating the physical movement of goods, etc.).

If these objectives can be achieved, then it will result in more trade and help companies navigate new business opportunities.

5 – The strategic importance of sustainability

Sustainability is no longer a fringe issue.

With sustainability regulations growing and scrutiny on corporate supply chains increasing, the prospect of financial penalties and associated reputation damage means sustainability and supply chain risk are high up on business’s agendas.

Regulators, policymakers and industry bodies are also demanding that companies take sustainability more seriously.

A failure to do so could result in companies being subject to even tougher rules on sustainability. But it’s important to acknowledge the trade off companies are having to consider between cancelling contracts with suppliers who don’t adhere to sustainability standards, and maintaining resilient supply chains.

The central message is, act now, or else you will be required to do so on somebody else’s terms.