Fishtail Voices: Episode 4

Tune in to hear about:

• What the real world path to global trade digitization looks like;
• Pamela's perspectives on the primary obstacles faced by small manufacturers and raw material providers in embracing digitization and sustainable practices;
• and the pivotal role of global standards in addressing a multitude of challenges in global trade.

Transcript:

Ronit Wolf:  

Welcome to Fishtail Voices, episode four. This is Ronit Wolf with Fishtail. I am really excited and honored to have Pamela Mar with me today, who is the first of her kind in more ways than one. And what do I mean by that?  Well, she's the first  of her kind for our Fishtail Voices. But also, I would argue, for our global trade industry as a whole, as she sits in this very niche intersection of digitalization, sustainability and trade finance.

She is currently the Managing Director at the Digital Standards Initiative, which is a project you could say at the International Chamber of Commerce.  And she's based out of Singapore at the moment.  

Without further ado, I'm very excited to pass it over to her, with our first question for Pamela, which is: 

With your current role as the Managing Director at the International Chamber of Commerce (ICC), Digital Standards initiative/ project, I would love to hear about what the goals are for this somewhat new department. It's actually three years old. So what are its goals? If you could walk us through those.

Pamela Mar:

Sure. Hi, Ronit. Thank you for inviting me to be on this. I'm super excited to be here. Essentially, the digital standards Initiative was set up by the I C C and several external funding partners, in order to enable the digitalization of global trade. Now what does that mean? Iit basically means that we want to bring modern day technology to the transactions which enable supply chains to operate. So as a good moves down the supply chain, there's a number of pieces of paper that are required because things are being transacted. Things like certificates of origin, bills of lading invoices, and so on. All the paperwork. And actually during Covid, it became really clear that this was not only not possible because people could not do things in person and in actual paper, but that technology gives us a lot more power to speed things up, make the whole process more accurate, reduce costs, and provide a lot more transparency on supply chains.

And yet, trade is a process that is decades old, and things are hard to change. You need a lot of private sector coordination. You need public sector support because supply chains cross borders. So there's a public sector element involved. There's health and safety conditions attached to products. There's different rules of trade. That's all public sector. But then essentially the actors, many of the actors are private sector, so you need a massive amount of global coordination at the macro level globally and also at the micro level.  DSI was basically set up to enable some of that coordination to happen.

And essentially we're talking about two things. #1: The creation or  the convergence of supply chains towards global standards. And #2: the legal reforms that are required in order to make data the legal currency of supply chains rather than paper. So it's on a government basis and in courts, to make use of data in the place of paper.

You know, like all of these documentation to basically be totally legitimate and protected. So at DSI, you know, we are all about enabling the supply chain to go digital by converging the industry towards digital standards for different data that's required along the supply chain. And then we do a lot of policy advocacy.

We work directly with the World Trade Organization, the World Customs Organization, and a range of industry bodies, all of whom  are really committed to this project of digitizing global trade because it has so many benefits and yet there's a lot of coordination that's needed and a lot of sort of intra industry agreement. And that's what we provide.

We're the neutral platform to enable global trade to go digital. 

Ronit Wolf:

Very interesting. Touching a little bit on the legal, does this mean that there are a lot of lawyers involved here? 

Pamela Mar:

The legal part of it is more, from the public sector side because it's codified in different countries, laws, you know, the documentation which is required in order that goods may be transacted and also disputed in court and so on. You may have seen just a few weeks ago the UK passed the Electronic Trade Documents Bill, which provides the same legal certainty for the use of electronic records i e datasets in the place of documents. The advancement was that they said there's functional equivalency between data and document, which, you know, for everyone in our daily lives we already know. But on a commercial basis, that transition needs to have legal certainty. You need to have as much protection for your electronic records or dataset as you might for an invoice with a company stamp on it.

The Electronic Trade Documents bill is an example of the legislation which offers that protection and globally there is, it's based on the Model Law for Electronic Transferable Records, which was developed by the United Nations Commission on International Trade Law. So there is a global standard and part of our role is to encourage countries to align their legal frameworks to the Model Law for Electronic Transferable Records (MLETR), which was developed by the United Nations Commission on International Trade.

Now I've never heard a public sector official say “no, we're against this, we're against digitalization.” Rather, it's an issue of capability, complexity, and overcoming the complexity because it's not just about changing things at customs. If you accept that electronic records have. The same legal standing as paper records. It affects trade commerce, interior tax, finance. I mean, there's a whole range of government departments that have to be involved. It's not just a simple measure to say: "okay, I support this, let's sign on." But there's a lot of capability building, and coordination that must take place. We do have capacity building, with the public sector in countries which have raised our hand and said: "okay, we're ready. Let's see what it takes."

Ronit Wolf:

Yeah, that's amazing.  I feel like with a lot of these pushes that require this type of guidance it's never really about, you know, countries or entities wanting or not wanting to make these types of changes, whether we're talking about digital initiatives or say sustainability, which we'll touch on later. The want is usually there. It's usually more on the side of, as you mentioned, alignment, resources.  

Pamela Mar:

Yeah, I totally agree. In fact, that was the example I was gonna give. Everyone wants to do the right thing. Everyone wants to, you know, lower their carbon emissions, lower their environmental impact.

The issue is the how. We were set up to actually guide the industry on how and to provide some of the enabling guardrails to make that happen. Because you can't just converge towards global standards overnight. You need to get a lot of industry engagement and buy-in. And in some cases engage with the standards development bodies to actually decide, okay, well the industry should converge around X standard or Y standard.

Some of that is happening, but it is slow work. Because, you know, early adopters of digitalization, a lot of them actually did their own thing, right? You have a lot of platforms, a lot of networks, which are using their own kind of version of a digital standard and how they handle data.

That's not because they're against digital standards, it's because at a certain point it wasn't really clear, what should you use? Today it's becoming more clear and our hope is that increasingly networks,  and platforms will be able to interoperate data so that you can take your data from one platform and truly plug and play it in another one.

Today it's not so simple. There's probably a degree of IT configuration thats needed because networks are using their own standards.

Ronit Wolf:

You said earlier that data should be the legal currency of supply chains.

Pamela Mar:

Yeah. Your data is actually your business, right? And you need to be able to see where did it come from? Who has touched it? Where do you send it to? And you need to be able to ensure that the conditions under which it is handled are, you know, to a standard that offers you every protection and every kind of traceability that you deserve.

Because you need your data to be sacrosanct.  And another part of what we're doing in addition to, enabling the harmonization of industry towards given data standards, is defining the technology principles for how that data is handled in the process of trade. Because today there is no clear way That data could be sourced, protected, transited, and shared, right? There's no given standard. Every platform is claiming, you can trust us with your data. But you know, we think that it is actually quite important that there is a standard to which platforms and networks should recognize how data is interoperated and handled. Otherwise we'll have a lot of data, but then we won't know how it's protected, how it's sourced.

Ronit Wolf:

Okay. So I feel like I only gave away one of the many hats you wear, Pamela. I wanted to take a little walk down memory lane and touch upon one of your previous important, longstanding roles at the Fung Group. 

Could you talk a little bit about what you were looking at when you were at Li and Fung and the Fung Group, and how this relate to some of the work that you're doing over at the ICC?

Pamela Mar:

So at the Fung Group, I was actually, Head of Sustainability, which for the Fung Group (as a supply chain manager), involves mostly what the work that we do inside the supply chain with a third party vendor network. These are third party, factories, processors of consumer products located all over the emerging markets and the Fung Group's principle product that it deals with is apparel. So really starting at the so-called, you know, the really labor intensive, poorest of the emerging markets that are just trying to get into global trade. So apparel, manufacturing, and our goal was, so sustainability was all about compliance, which means that you have to pay workers on time. You have to, you know, abide by local environmental regulations and so on. There was a regulatory aspect to it, but it was also the beginning of large brands beginning to recognize that climate change and circular economy and organics and so on were important to their brand identities.

And we had a lot of programs that try to enable energy efficiency, water efficiency, business process improvement, traceability and so on as a part of the production process. And in the course of that, I realized that actually, there's two big barriers to small manufacturers and raw material providers to adopt increasing levels of sustainability and digitalization. Number one was that they were basically alone in their task because there was very little visibility that they had on the future. They didn't have 10 year contracts. They had basically season to season contracts. So it was very hard for them to invest because they, you know, you can't, even if you tell them, well, you'll get paid back with this energy efficiency investment within one to two years. If you have no visibility on your one to two years ahead, it's very difficult to invest. So, they had that.

And their situation was not the easiest for them to do business planning. Large investments were out of the question. Even small investments , and we're talking anywhere below USD $50,000 became very difficult. Their range was very narrow. 

The second thing is that they didn't have access to finance. If you're a bank operating in the emerging markets, it's too costly for you to deal with small providers. You'd much rather deal with, you know, Siemens, or a large brand. Right? Why would you want to lend at high risk to someone who's unknown? It was very difficult for them to get financing. And I realized that actually the problem is not the manufacturer's commitment to sustainability. I never met a factory manager who said, “no, I'm against doing the right thing.” Everyone wakes up and they wants do the right thing. It's just that the barriers to action are so steep.

Then I realized, okay, you have to solve the problem at a bigger level. You have to enable the whole industry to move towards digitalization, to create the data set which will enable, which will lower the cost of finance. And enable big banks, and small banks to make it profitable for them to actually lend to SMEs, small and medium sized enterprises.

So, you know, the connection between what I'm doing, what I did then, which was in a large part, to drive sustainability, upgrading and business performance, upgrading along the supply chain. And now is that back then I was dealing with a lot of micro barriers. And now I'm trying to solve those micro barriers at the macro level by enabling the whole industry to go digital, across borders.

And by working  to create some of the data which will allow, you know, allow the cost of financing to drop. FinTech is a big part of it because you need to isolate this supply chain data in platforms which are dedicated to reducing the cost of financing. I believe that Fintechs are totally complimentary to big banks.

There should be a lot of partnership because big banks weren't set up to do a lot of this work at the most ground levels of the economy. You need to partner with Fintechs in order to make that happen. 

Ronit Wolf:

I just read something today on that: SMEs are seven times more likely to get rejected by a bank for trade finance than compared to a corporation or a big company. Which is a huge, huge difference.

Pamela Mar:

Totally. And that's for the SMEs which bother to apply. Right? Imagine actually, you know, there's not a study of Trade finance or investment finance, which reports that SMEs are actually in  a less than disadvantaged position. I think the global SME finance gap is something in the range of 5 trillion.

Ronit Wolf:

It's so much more than the reported. I think the reported is 2 trillion. But, I agree with you and I hadn't even thought about the fact that the data that's out there that we see, or that we read about in the news really only accounts for small businesses that actually apply to financing. But what about the myriad that can't even apply or the barrier is too high for them to contemplate applying. 

Pamela Mar:

Yeah. And you, you know, the thing is,  everyone says "the key to climate action is in enabling decarbonization of global supply chains." The vast majority of the players on global supply chains are small and medium sized enterprises. So here we're expecting them to invest in decarbonization technologies. Which requires financing. So, you know, it's, it's, it's all connected. How are we gonna create the resources to enable change at the ground level? We have to look at financing and to change the way that we've traditionally approached financing.

We take the financing decision out of the hands of SMEs by saying, okay, let's attach them to buyer led financing. But unfortunately, many SMEs don't have multinational company buyers. So what do we do about them? It's a very complex problem and for sure digitalizing, so, digitalizing trade and enabling the data to flow a lot more is only a part of the solution, but I believe it's a big part and so it, it sort of answers the gap that I saw when I was at the phone group.

Ronit Wolf:

Thank you for that very thorough connection there.  

So now shifting gears, we've covered two out of  the many different hats you wear: digitization and sustainability. But now I wanted to shift over to one of your other hats, which is teaching.

You currently teach in the M B A and E M B A programs at the Hong Kong University of Science and Technology.  Teaching both sustainability as a competitive advantage as well as leading. the sustainable enterprise. 

Could you tell us a little bit about that decision to start teaching?  Did it fall on your lap? Did you actively search for it? And why? What, what are you personally,  hoping to get from it or are, or are getting from it?

Pamela Mar:

 I actually began teaching at the H K U S T, I think in 2017 or 18. And that was, that was actually before sustainability became sort of a big thing in business.  In fact, I think my course was the only sustainability focused course in the M B A program. Everything else was more about ethics, you know, ethics and doing the right thing and abiding by the law and so on.

 I got into it actually because one of my colleagues happened to be a professor at the University of California Irvine, and he pulled me in to,  you know, to his class on strategy to give a sustainability perspective. And I found that actually students were super curious and they didn't actually understand why sustainability was essential to future business success. And our whole approach at the Fung Group was that sustainability is not something you should do simply because you know, you feel it's the right thing.

You really have to see it as something which is gonna be critical to business success in the future. Because at its heart, sustainability is about better use of resources to produce products, which are better overall. Better economically, better environmentally and better socially, but it's about your role in society and about the more efficient use of resources.

So it is something that is totally in line with being competitive as a business and being resilient and having full visibility and so on. And so I wanted to bring that perspective. It's not just something for bleeding heart liberals, it is actually something which you need to do as normal course of doing business.

And over time now, through Covid, and so on, obviously the rest of the business world has now seen that.  And of course, the fact that it's now entering,  it's now becoming something that is legislated in terms of corporate disclosure. It puts even more attention on it. And  there's actually been a groundswell of interest in the topic.

HKUST I think was one of the first EMBA programs to have a module on sustainability as part of its core curriculum. The first year I taught  in the EMBA, it was actually voluntary, so,  you know, the E M B A participants could elect to attend the weekend module and they actually opened up to  alumni as well. This year it is actually part of the core curriculum, you can see the evolution. And the reason that I think, at the E M B A level is super interesting is because all of these people, they're all Managing Director, Country Head, they're really in a position to do something about it right now, in their business's transition.

So it's super important that they get a good grounding on what the issues are. 

Ronit Wolf:

Yeah. That's really interesting that You're both seeing perspectives from like the fresh, young, college students, but also from executives that are really on the ground, that'll be able to much quickly translate what they're learning from you and from H K U S T and apply it right away into their fields and their companies. That's really cool.

Pamela Mar:

And I really think it's important for us to see sustainability and digitalization as just two sides of the same coin. Digitalization will enable you to generate the data, which will drive change in your business.

From a sustainability perspective, it's the same infrastructure. That is allowing trade and supply chain to digitize that is going to produce auditable data about your environmental footprint, traceability, product composition, and so on. And now that by 2025, everyone's scope three footprint is gonna have to be verified by external parties, you need that traceability of your data and digitalization is the only thing that's gonna get you there. So it's everything's coming together. It's very promising. 

Ronit Wolf:

Yeah, 2025 will be a big year. Big year.

Alrighty. To close this off….I would imagine you feel this way, we certainly feel that the global trade industry as a whole really lacks collaboration. I would say specifically for areas such as sustainability and at Fishtail we're trying to do our own initiatives to promote more collaboration. 

But curious to hear from your standpoint, how can the industry foster more collaboration? 

Pamela Mar:

I'm gonna go back to global standards, because usually we think of collaboration as something you do bilaterally or even in a consortium. And even at that level, you can't manage your whole business by special initiatives. Aligning your data trails to global standards around data, you can achieve that kind of collaboration in a single go. You can open up your interoperability with other networks in a single go. And I think it's this kind of commitment to say, okay, I'm going to now adhere, you know, in all of my data set to establish industry standards around this (in the interest that I want to enlarge my market share by making all my data interoperable with other markets).

It's a bit of a mental leap because, As networks and as platforms, the traditional thinking is that you should close off your platform, like get your customer and rope them in, and then try to grow your organic business with them. And actually this is the sort of new mentality: that businesses are too complex and it changes too fast to have that captive view of your customers.

By definition being in the digital space, you have to interoperate with other networks. You have to rely on others, and you have to rely on partners. And the only way to do that, you know, from a business perspective is to make sure that your system can connect to others for mutual benefit. It doesn't mean you shouldn't protect yourself, but it means that collaboration and connectivity is your way of life and it's your way of business.

And the only way to do that is to look at global standards, and standards that function across borders and across networks. So watch this space, it's super exciting! Because I really feel that we're past a turning point and people are beginning to recognize that universal digital standards are the way to go.

I hope that's clear?

Ronit Wolf:

Yes, definitely. You know, we don't necessarily have time to totally cover this, but my question around the global standards is: How involved governments have to be in that? How involved are they currently and how involved do they have to continue to be? Because I feel like a lot of times government involvement is a roadblock.  

Pamela Mar:

I actually see the government as an enabler. Government wants to be an enabler. They just need to be included in the discussion so they can can guide the legislation.

Sort of in the public interest always. And, and we're talking both about government at the UN level, right? Because the UN has a lot of experts who are trying to enable the global transition to the digital economy.  And they need to connect with the national authorities whose primary concern is to enable business to succeed, right?

That, that's how the system works. We just need to come around at the same table and say, okay, what is best? What will provide the growth and sustainability and the inclusivity, which will be good for everyone.  We all need to be around the same platform, and that's what DSI was founded to do.

Ronit Wolf: 

Yes. And be able to be truly plug and play anywhere and everywhere as you said.  Alrighty. Well, thank you so much for your time, Pamela. Thank you for sharing your knowledge with me and our listeners, and I look forward to following what your next steps are.

Pamela Mar:

Thank you. Okay, bye-bye.