Trade and technology

How COVID-19 accelerated the shift towards TradeTech

Wolfgang Lehmacher

Published 02 March 2021

COVID-19's impact on globalization and existing geopolitical tensions has created an acute demand for new and innovative management tools and systems to support good corporate governance and risk management practices. The emerging solution are coming from a burgeoning new field called TradeTech.

Article originally published in the World Economic Forum.

COVID-19 is often linked to its impact on mobility and globalization. Stringent measures have been taken to contain the situation, which have constrained the movement of people and goods, nationally and internationally. The coronavirus pandemic has also accelerated previously existing geopolitical trends, especially regarding trade protectionism associated with, for example, medical equipment, pharmaceutical products and COVID-19 vaccine-related research. This, in turn, continues to feed a techno-nationalist zeitgeist as governments resort to export controls and sanctions in “strategic” sectors such as semiconductors and 5G networks and other so-called “dual use” technologies.

This environment has created an acute demand for new and innovative management tools and systems to support good corporate governance and risk management practices. Governments also need to apply new technologies and tools to better fight COVID-19 and facilitate trade.

The emerging solution to manage the challenges of both COVID-19 and techno-nationalism are coming from a burgeoning new field called TradeTech. The dynamics of the development in this field are captured in the new World Economic Forum report, ‘Mapping TradeTech: Trade in the Fourth Industrial Revolution’.

TradeTech

TradeTech leverages the internet of things (IoT), artificial intelligence (AI), 5G, cloud-based platforms and other Fourth Industrial Revolution technologies to unlock new possibilities and enable transparency and traceability in digital trade and global value chains.

The importance of digital trade has also been outlined in a 2019 paper published by the McKinsey Global Institute titled Globalization in transition: The future of trade and value chains. Services trade is on a trajectory to outperform global goods trade. The authors of the report write: “In 2017, gross trade in services totaled $5.1 trillion, a figure dwarfed by the $17.3 trillion global goods trade. But trade in services has grown more than 60% faster than goods trade over the past decade.”

Although differences between political and economic systems are on a trajectory of decoupling, and value chains are fragmenting around different standards and values – which will present challenges to TradeTech – there will still be many opportunities to turn this field in a significant growth industry.

Three areas, in particular, offer great promise for the future of TradeTech.

1. Expanding upon existing supply chain technology

Visibility and data-sharing are critical for 21st century supply chain and logistics management. They allow companies to drive efficiencies, resilience and customer satisfaction. The complete end-to-end data, paired with powerful analytics, also enables compliance in export controls, denied parties, restricted entity and data privacy regulations. Advanced technology provides the components to realize innovative TradeTech solutions to bring global commerce to a new level of performance and compliance.

Initiatives such as IATA’s ONE Record in aviation, or the TradeLens data-sharing environment for container ocean shipping – originating from the collaboration between Maersk and IBM – are two initiatives intending to ease data-sharing and raise visibility. The maritime sector is also working on digital standards through the Digital Container Shipping Association (DCSA).

Global supply chains – rightly and wrongly – have been criticized for their vulnerability to shocks. While many argue that near-shoring is the solution, the reality proves that this is easier said than done. What is certain, however, is that a higher level of visibility is needed regarding the suppliers along the chain, their location, abilities and capacities, the progress of orders and levels of material stocks, as well as the location and condition of goods in transit.

Compliance risk can be mitigated through unique digital trade identities. In a digital world with limited travel, it is hard to know with whom we are dealing. Privately, a Google or Facebook identity can be used across multiple applications. But big businesses need to establish and maintain thousands of profiles, one for each application they wish to use. This comes at a heavy cost and not without risk. While we are lacking a neutral entity that issues standardized and recognized identities for businesses, more reliable product identity technologies have emerged. Start-ups like Evrythng and Santrust, for example, have developed immutable QR codes to ensure authenticity of products.

For some time, export software solutions have been helping companies and employees to increase efficiencies in document processing, execute export licensing and deal with denied parties lists. Compliance and performance traditionally go largely hand-in-hand and many older, well established software solutions will coalesce into new technology ecosystems.

2. TradeTech Ecosystem

The new constraints and risks such as trading restrictions caused by the COVID-19 pandemic and techno-nationalism create opportunities for start-ups and innovative companies. A buzzword in the FinTech industry is the term “Reg-Tech”. Major banks are investing in know your customer (KYC), regulatory, and onboarding technology to reduce risk and costs as part of the broader digital transformation agenda.

Blending Reg-Tech into the mix of TradeTech solutions minimizes the impact of regulatory scrutiny, while coping with the changes of procedures, laws and regulations. New export control-driven Reg-Tech involves work being done on microscopic tracking technology that can be placed inside the tiniest of sub-components and components, which then get subsumed within larger machines. These can be used to trace “end use “and “end users” of restricted technologies.

When sovereign interests and our own health is at risk, the stakes for private business are at the highest level. With the expanded use of TradeTech and Reg-Tech, the need for cyber security is also increasing, as the fight against cyber risk and cybercrime is fought with the most advanced and sophisticated “cyber weapons”.

3. Beneficial spillover from TradeTech to other sectors

Data analytics services cut across major parts of supply chain networks throughout the global economy. With their industry-agnostic solutions, data companies drive progress and innovation throughout the world. Specialized companies fill data gaps with their own or third-party sensors and analyze newly created data along with data that is stored in traditional systems like enterprise resource planning (ERP), transport management systems (TMS), and port community systems (PCS). These companies, such as Navis and FourKites are themselves innovators but they also create the foundations for others to innovate on, across all industries.

TradeTech allows for the better management of sites, partners and activities far away. Technologies like 3D-printing, robotics and the internet of things allow for a much more distributed way of manufacturing and operating. While holding the global economy together, they also distribute the grounds for innovation and growth. TradeTech at large is driving many new solutions, ranging from better measurement and reduction of carbon footprints, to enforcement of labour standards, to tools that help to realize the circular economy – a model that fosters the reuse of products and materials to replace the take-make-waste approach.

A recent Gartner survey finds that 70% of supply chain leaders are planning to invest in the circular economy in the next 18 months. “Already, 35% of companies believe that digital technology will be a key enabler for their circular economy strategies, but very few are leveraging existing technology for this purpose yet," says Sarah Watt, senior director analyst with the Gartner Supply Chain practice.

Sensors and satellite imagery combined with other technologies that provide additional data points can be used to trace carbon footprints, illicit discharge and water pollution, and enforce environmental standards for sustainably-caught seafood. Many of these same technologies can also be used to track controlled technologies, from an export controls perspective, throughout global value chains.

Conclusion

Techno-nationalism, accelerated by the COVID pandemic, has disrupted supply chains and global commerce. But the need to manage new risks brings additional pressure for innovation to the TradeTech field, which, in turn, has spawned new ecosystems of Fourth Industrial Revolution technologies and businesses. These solutions provide transparency and traceability in supply chains, which facilitate commerce; as well as offering small and medium-sized enterprises the possibility to better connect to the global marketplace.

Core elements of TradeTech are expanding into new areas, creating new ecosystems and spilling over into other sectors, and have become important drivers on the journey towards a more just and sustainable economy.

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Author

Alex Capri

Alex Capri is a research fellow at the Hinrich Foundation and a lecturer in the Business School at the National University of Singapore. He also teaches at the NUS Lee Kuan Yew School of Public Policy.

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