Cash & Liquidity Management

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Shifting Sands of International Trade The Editor examines the shift in trading routes from western economies to north-south and south-south trade, and notes how all companies should leverage the opportunities that this development provides.

by Helen Sanders, Editor

One topic we have been exploring recently in TMI is the shift in trading routes between western economies to north-south trade and latterly south-south trade i.e., trade across countries in Asia, Latin America and Africa. As is commonly discussed, growth in China and other ‘emerging’ economies, the more extensive effects of the global financial crisis on western economies, and ongoing volatility in the Eurozone have all contributed to this shift. However, it is not only companies headquartered in southern economies that are benefiting from changing trade patterns. Instead, the distinction between North American and European multinationals and those headquartered in Asia or Latin America is becoming more blurred, and all companies should be leveraging these opportunities.

“Nothing new under the sun”

International trade patterns are in a constant state of flux as companies seek new opportunities for growth. After all, if you’d told a Chinese trader in 100BC that 2,100 years later, there would be significant trade between Asia and Europe, he or she would have nodded sagely and said something like, “Much like today, you mean”. Now, once again, south-south trade routes are strengthening, driven by multinational corporations headquartered in every part of the world. Shivkumar Seerapu, Regional Product Head, Trade & Supply Chain, Asia, Deutsche Bank discusses,

“A clear trend that started before the global financial crisis, but has been accelerated as a result, was a shift in trade to Asia and for Asian corporations to expand into other regions. Multinational corporations headquartered in all regions continue to look beyond their home markets for growth opportunities, particularly in emerging markets as stagnation continues in many western economies.”

He continues,

“While corporates headquartered in Latin America and Asia sought to export to Europe and North America initially, they have looked towards the emerging markets as demand from the West has declined, resulting in strengthening south-south trade corridors.”

George Fong, Head of Trade Product Management & Financial Institution Trade Advisory, Asia Pacific, J.P. Morgan also comments,

George Fong“South-south trade (i.e., trade between Asia, Latin America and Africa) represents a growing share of the world’s trade market. In 2008, developing countries exported more to the south than to the north for the first time, and by 2010, south-south trade reached 23% of world trade (UN South-South Trade Monitor, June 2012). Despite ongoing economic volatility in many countries in the northern hemisphere, exports from emerging markets continue to rise, at the expense of north-south trade.

There are a number of reasons for this:

  • Consumption in developed countries is slowing, pushing trade to new export markets
  • Many Asian countries continue to depend on export-led growth to drive the economy
  • Markets such as China continue to be manufacturing-driven, which in turn drives the demand for commodities. Such commodities and other raw materials are typically sourced from Latin America, Africa and other parts of Asia.

These changing supply and demand patterns as well as the development of FDI flows (e.g., between China and Africa) have led to commodities continuing to dominate south-south trade flows.” 

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