18 |OPINION

The Business Times | Wednesday, August 26, 2020

EDITORIAL

Consumercompanies likeAmazon have alaser-sharp view
into their supply
and distribution
chains throughintegrated
real-time data on
their inventory
levels, delivery
delays andweather
forecasts tofind optimum
alternatives
when any risky
scenario erupts.
PHOTO: REUTERS

Investing publicmust play a bigger
role in corporate
governanceIN the past two decades since the local financial
market shifted to a disclosure-driven regulatory
framework, regulators have had the unenviable taskof deciding just how many rules should be dismantled and how many should be kept.
On the one hand, the notion that “less is more” is popular among
those who opt for a minimalist approach and a lighter hand – one
where the market delivers the necessary discipline through rewarding or penalising share prices. As the theory goes, well-run andtransparent companies should receive the market’s endorsement
via superior share price performance, while opaque and poorlymanaged firms will see their shares languish. Proponents of such amarket-based regime also point out that too many regulations
place unnecessary financial burden on companies via high compliance cost and hampers attempts to attract new listings.
Conversely, those who prefer a tighter regulatory hand argue
that it is better to have a market that is well-governed with a strong
disciplinary framework that looks to enforce a level playing field
for all participants because it is only when all investors are confident that the system will look after their interests can any market
truly thrive. Under such a regime, more regulation is needed – especially when targeted at protecting retail investors.
Both sides have valid points but what is often forgotten in thesearch for a prudent middle ground is the role that the investing
public has to play. While regulators have to provide the framework
and are responsible for the fine-tuning of rules, they cannot beheld solely accountable for the success of a deregulated market
model.
The problem is that the average retail investor is often portrayed as apathetic, uninterested in how companies are run andonly concerned with receiving as much dividends as possible or
making money quickly from punting the market.
Although retail investor sophistication has improved over thepast 20 years – thanks to the educational efforts of several organisations such as the government’s financial literacy programme
Moneysense, and courses run by the Securities and Investors Association of Singapore – anecdotal evidence is that there remains
room for improvement.
If the market-driven, disclosure-based model that has been carefully installed here is to operate properly, investors must better acquaint themselves with the affairs of the companies in which theyhold shares and play a bigger role in corporate governance.
If they are serious investors, they must scrutinise importantcompany documents such as annual reports, and demand better
disclosures from their boards. They should pay close attention to
all company announcements, not just those relating to the firm’sbusiness. For example, announcements of changes in key managerial positions that might appear routine should be tracked asthese could be precursors to trouble ahead.
Investors should go as far as to question the composition of
their boards and the adequacy of its level of independence. If they
are not satisfied with the conduct of the companies in which they
have invested or the answers that are given, they can always votewith their feet. They should understand that a disclosure-based regime, in essence, seeks to allow them, the investing public, to decide who wins and who loses. The public must therefore play its
part in the governance and regulatory process, and not leave thejob solely to regulators.

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breaking news editor

A trade war and post-Covid reality will force an extensive realignment of how companies
plan, source, make and deliver. Here’s a survivor’s guide. BY GIRIJA PANDE AND VIJOY VARGHESE

T

HE super-efficient global supply
chains may be consigned to historysoon. Political sparring betweentwo of the world’s largest economies and the aftermath of Covid-19
have thrown a spanner into that shiny image offactories in China gobbling raw materials to
make cheaper goods that move seamlessly
through docks and airports to put everythingfrom food on your plate, fuel into your car andsmartphones into your hands.
For decades, these supply chains have been
the foundation of modern business. They contribute to nearly 70 per cent of global trade
today, up from 30 per cent in 2011. Then Covid
arrived unannounced. First came the supply
shock in masks, ventilators, gloves and sanitisers. Consumers panicked, raiding food and toilet paper aisles in cities from Singapore to
Sydney and San Francisco. Many countries
banned exports, creating wild price spikes globally. As companies ordered people to work from
home, airlines froze operations, tourism andhospitality floundered and demand shifted
drastically to online channels for banking, shopping, entertainment, healthcare and more.
Gone is the interdependent, cooperative
global economy of yesteryears. Enter the new
economy of protectionism and self-interest.
Global trade may contract between 13 to 30 per
cent in 2020, estimates the World Trade Organization. These are startling statistics. Hope is
not a strategy in such times.

DISRUPTION AHOY

chief executive officer
singapore press holdings

editor-in-chief(english/malay/tamil media group)

As supply chains break,hope is not a strategy

A chain, it is said, is only as strong as its weakest link. Covid-19 exposed the supply chain itself as the weak link in most companies.
Three stark realities have emerged from thepandemic.
The enemy is unknown: Covid-19 showed
how porous and vulnerable global supply
chains can be. Take car maker BMW. Nearly
1,800 suppliers at 4,000 points feed 30 million
parts into its 30-odd factories that roll out
10,000 BMWs every day. Built on lean inventory, just-in-time delivery, sequential production and driven by cheap labour, many supply
chains are so extended that even Tier 1 or Tier 2
suppliers don’t know who or where the last link
is. Danger lurks in unknown quarters today. It
could be an act of terror, trade offensives, border closures, regulatory changes, labour disputes or spikes in demand and supply due topandemics resulting in recurrent lockdowns.

Corporations need to build in more visibility,
third party risk buffers and damage-control
mechanisms into more flexible supply chains.
Just-in-case supply chains and not just-in-time
supply is the new paradigm.
A cloud hangs over China: Factories haveopened in China, but consumers are not buying. Ships are idling at ports, creating fresh backlogs of orders and invoices. Yangtze floods
have added to the chaos. In the era of lockdowns, demand shifted online for an endlessvariety of goods, delivered fast, rightly priced
and ethically sourced. The “Cheap China” modelthat was already strained got another blow.
Companies like Nike or Adidas make moreshoes in Thailand and Vietnam than in China.
Zara, H&M and Uniqlo source from Turkey, Thailand, India and Bangladesh. Cars are mostly
made in Eastern Europe and Mexico. A new-age
consumer wants sustainable sourcing added tothe equation. He is saying no to lax rules on labour, ecology and intellectual property. Political rhetoric is mounting to shift pharmaceutical and other critical supply chains home or diversify.
Geopolitical tensions: Geopolitical tensions
are rising. Take the case of Chinese 5G provider
Huawei that US President Donald Trump first
blacklisted, then banned chips supply to it. Thecompany alleged that the move could “impactthe expansion and operation of telecom networks worth billions of dollars in more than170 countries”. In the post-global, volatile world– whether hit by Brexit or trade war – politics
and not economics will increasingly drive business. Company bosses may willy nilly have totake sides in these technology and trade wars.
Most firms have accepted a “China +1” sourcing
strategy by now. Next they will have to build
contingency plans beyond natural disaster orhealth scares into supply chains.

A CEO’S SURVIVAL GUIDETechnology, the game changer: Digital technologies like IoT (Internet of Things), artificial intelligence, data analytics, advanced robotics
and digital platforms are risk-management
tools in the CEO’s arsenal. When the pandemic
hit, Nike used predictive analytics to selectively
mark down goods, cut production and reroute
goods to online sales through its training app.
Consumer companies like Amazon or Procter &Gamble have a laser-sharp view into their supply and distribution chains through integrated
real-time data on their inventory levels, delivery delays and weather forecasts to find op-

timum alternatives when any risky scenario
erupts. Building sophisticated tech stacks allows track-and-trace capability and digital payments, simplifying life for all.
Specialist sourcing vendors: Today global
specialist sourcing vendors (SSVs) operate
across major supply lines. These SSVs have received good reviews by independent analysts
like Everest & Forrester’s who track themclosely and rate them on their global sourcing
capability. These vendors have by now createdscale as well as regional buying operations.
Some of them are often carve-outs from majororganisations and have good tech systems andbuying processes reflecting their pedigree.
Chain iQ, a European specialist vendor, for example, is a carve-out from a major European
bank! Often these vendors deal with over 15-20
thousand suppliers globally, which gives them
unmatched buying power. One of their major
services revolve around “consortium buying”
where they engage in aggregate buying – especially of indirect purchases (which exclude direct materials) – for their large MNC customers.
Such bulk buying led by a neutral SSV is usuallymore acceptable to all consortia members andlegally works well to provide comfort to different buying entities. Savings ranging from 15 to
20 per cent are common from such activities.
For many firms that may not be able tohandle such supplier risks in the new world, outsourcing to such SSVs could be an alternative aspart of re-engineering the procurement organisations in such volatile times. A lean central
procurement organisation that spends effort ineffectively managing such a vendor mitigates
supplier risks, is cost effective and benefits
greatly from bulk discounts negotiated by thevendor. For organisations intent on deeper costcuts, a “carve-out” solution to spin off their procurement operation is also an option well worth
considering.
As the biggest supply chain reset in history
takes place, new hybrid models that fuse thephysical with digital will emerge. The sourcing
function will be reengineered and reimagined.
No one can possibly predict when any disasterwill strike. But when it does, no CEO can afford
to be caught flat-footed.
Girija Pande is chairman of Apex AvalonConsulting, Singapore. He was previously
president, Asia-Pacific, at Tata
Consultancy Services. Vijoy Varghese is CEO,Asia-Pacific, of Chain IQ, an independent
global procurement and sourcing company.

FIONA LAM

THE BOTTOM LINECan ‘buy now, pay later’ help Singapore’s retailers bounce back?
By David Chen
HE rest of 2020 and beyond will be an uphillbattle for Singapore’s battered retail industry.
Now in recovery mode as consumers once
again head to the malls – albeit tepidly – it will be aslow recovery at best.
A walk down Singapore’s shopping belt of Orchard
Road, for example, shows just how badly the pandemic has hit the city’s retailers.
Fresh Covid-19 outbreaks across Asia and Australia point to a rocky road ahead that will be punctuated by stop-starts in reviving the economy and retailsector.
In Manila and elsewhere across the region, the entire shopping mall experience is under question.
Across Asia, the pandemic and uncertain economic outlooks have also resulted in consumers
spending less and saving more.

TWaiting not a strategy
However, for Asia’s retailers, simply waiting it out is
not an effective or sensible option. Retailers whoquickly pivoted towards an effective omnichannel
strategy have been able to ride the online shoppingboom; they are also poised for the gradual recovery inoffline sales.
Prime examples are Singapore multi-label fashion

retailer Decks and Foot Locker, which have defied theretail doom and gloom by launching their five-storey
megastore at Orchard Gateway.
But this alone is no guarantee that consumers will
open their wallets and spend.
In Malaysia, IKEA was prescient enough to launch“buy now pay later” (BNPL) in their stores at end-2019,a few months before Covid struck.
In Hong Kong, Tencent launched BNPL integrationin its WeChat app in March this year.
Asia’s hoteliers are offering innovative “buy now,travel later” packages to keep their staff employed
and to kickstart the tourism revival.
Even car manufacturers are offering BNPL plans inSingapore to spark car sales.
The impressive growth of Afterpay in Australia in
the first half of 2020 is an indication of BNPL’s potential.
Brands like Klarna in Europe and Affirm in theUnited States are also riding the home-shoppingboom triggered by prolonged lockdowns, as consumers look for safe, alternative ways to shop andpay. For digital-savvy Gen Z and millennials in particular, BNPL provides flexibility, control and conveniencein letting them decide how to budget their discretionary spend.
Scarred by what they saw their parents go throughduring the 2008 global financial crisis, they are waryof credit card debt and place a premium on simplicity
and transparency; 90 per cent of Afterpay’s businessthis year is based on repeat customers.
Growth of a new payment mode in Asia
The natural question, given this backdrop, is why
BNPL is not yet widely available in Asia?
There are at least three reasons for this, the first ofwhich is the perception that it fuels consumer debt.
This is misleading and comes from a limited understanding of how BNPL actually works.
In fact, industry insiders know the opposite is true:
consumers who overspend and default will have theiraccounts suspended, which does no one – the consumer, retailer or BNPL provider – any good in thelong run.
Unlike for credit cards, late fees for most BNPL providers are capped at a fraction of the original purchase, making it an unsustainable way to build a business.
The next reason is a lack of awareness and education among merchants.
BNPL is a relatively new concept in Asia and retailers do not yet have a clear understanding of its key benefits: higher conversion rates and ticket sizes, and abetter way to manage business cash flow.

Most important of all, it offers the potential of amore tailored customer shopping experience and relationship.
The third and final reason: the availability and accuracy of data.
Time to innovate
Across many emerging markets in Asia, a large proportion of people are still unbanked or underbanked,
with no record of credit, financing or payment behaviours.
Coupled with complex regulatory, payment andtechnological infrastructures, it can be difficult for
BNPL brands to properly assess risks that come withthis business model, which essentially hinges on an
accurate assessment of the customer’s ability to pay
promptly over time.
It remains to be seen whether BNPL will gain wider
acceptance among Singapore’s retailers.
But in Covid19, the retail industry faces its biggest
challenge and must do everything it can to embrace
new partnerships, innovation, and business models.
The writer is chief executive of Atome,a Singapore fintech firm