23 (118) 2016
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How innovation will change the shape of global trade

by Stuart Tait, global head of trade and receivables finance, HSBC
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A fridge that texts you where to buy the cheapest milk; a washing machine that orders washing powder online when it runs out; and a jet engine that tells engineers when it needs repairing and lists the parts to order. It sounds futuristic, but these intelligent machines already exist.

Technologies are helping to change the way businesses operate – and altering the way we trade goods and services around the world.

Over the next few decades we expect a rising global population, new trade agreements, better logistics and improvements in business operating models to fuel a sharp rise in exports. Technology too will play an increasing role in a new phase of globalisation.

Technologies are helping to change the way businesses operate – and altering the way we trade goods and services around the world

Across the world, companies are investing in technology to reduce waste and cut costs. They are looking to reduce their impact on the environment by redesigning products, streamlining processes and switching to renewable energy sources.

The internet, meanwhile, is paving the way for companies to gain a global audience at a speed that was not possible in the past. It took radio 38 years to achieve an audience of 50 million – a target achieved in three years by the internet and in just one year by Facebook.

The internet has created an environment in which ‘micro-multinationals’ can thrive. In the past, companies generally had to reach a certain size to expand overseas. But thanks to the web, it is far easier for small companies specialising in niche products and bespoke services to go global too. The internet and free movement of data are changing the way trade occurs. Some goods that were previously shipped are now delivered digitally. In the UK, for example, more than a third of video entertainment is now downloaded or streamed on-demand, rather than bought in physical format, according to the UK Video Association. An increasing proportion of international trade will be in such services, ordered and delivered using just an internet connection.

Of course, demand for physical goods will continue. But here too technology is playing a greater role, helping to make it more efficient to distribute products and easier and quicker to transport goods to new markets. It is enabling engineers to design more fuel-efficient ships and planes, cutting transportation costs. Meanwhile, ports and airports are investing in automated customs and documentation to speed up shipment of goods.

There will be huge changes in the way businesses source and supply raw materials and parts for complex products. Technology improvements mean that each element being shipped can be tracked online, helping to reduce inventory and waste in the production cycle.

Currently, goods are often produced where energy is cheapest. As renewable energy technologies improve and society increasingly moves to non-fossil fuels, this is likely to change. Production will be possible anywhere, and is increasingly likely to happen closer to the end consumer.

Today many of the goods we consume are mass-produced in huge factories and then shipped around the world. But the development of devices such as the 3D printer means that, in the future, goods could be “mass-customised”. One-off designs could be sent digitally to small, local factories that would make customised products for delivery straight to consumers. As we enter this next phase, business leaders will need to consider where items will be produced, what new markets will open up as result of falling transport costs, and how new trade agreements will help their businesses.

These changes are foreseen in our recent report, Trade Winds: shaping the future of international trade. It’s not just the shape of trade we expect to change – we think the volume will increase significantly too. By 2050 we forecast the value of merchandise exports globally could hit $68.5 trillion – nearly four times the value of exports in 2015 and 150 times that traded in 1950.

Just as trade has enabled massive social transformation in the past 30 years, we think it can continue to lift people out of poverty, help economies grow and promote investment in sanitation, education and healthcare. The conclusion of new regional – and, perhaps, global – trade agreements could power the rise of new trade corridors, including south-south trade between fast-growing nations in the southern hemisphere.

Finally, our report raises questions for companies. As trade patterns and consumer behaviour change, some businesses will have to adjust the way they work or be left behind by competitors. Others will see opportunities to reach new markets, specialise in new areas or revolutionise the way they design, make and market their products. Those who plan ahead and react will ultimately flourish.

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