Why and How to Innovate traditional Trading Business
What is Trading Business?
Talking about “Trading Business” some people think of Retail and Wholesale Distribution business, others think of commodities trading, Swaps or Spot Trading. We met Business people in the US who even do not know at all the terminology in the context of business models, they mainly associate Foreign Trade. A view into Google tells you that “Today “trading company” mainly refers to global B2B traders, highly specialized in one goods category with a strong logistic organization.” It’s almost impossible to find academic and practical publications on Global Trade Business, a very interesting business model mainly known in Asia and in Europe.
There is a number of categories of Trading Businesses, so independent Trading companies like Cargill, or Trading subsidiaries of traditional General Trading companies in Japan, the so called Sogo Shosha or in Korea, the so called Keiretsu. Beside those, you find Trading processes in many companies and various industries, so Wholesale Distribution, Fashion companies, Oil and Gas, Chemicals, High Tech, Mining and Mills, Building materials and so on. The Trading process is a key process of all of them.
Now, you should be interested to learn more about the characteristics of a trading business. There are some easy indicators: Traders talk about “tons” or “containers” instead of dollars, about transaction volume instead of revenue as they are used to handle large volumes. They sell and buy positions instead of creating customer-specific assortments. Their suppliers can be their customers and vice versa. Purchasing and sales usually is done by the same person. Intransparency of the trading transactions of the General Trader towards suppliers on the one hand and customers on the other hand has always been a prerequisite of the traditional business model of a trader.
Business capabilities of the Global Trader are Import / Export management including taxes and duty, currency exchange, Long/Short analysis and Profit-Loss analysis.
The organizational view typically reveals three different layers:
– The front office: planning, trading processes and logistics operations
– The middle office: risk management
– The back office: finance, controlling, post-calculation
Many variants of the trading business models can be described by the following criteria:
– Contract type, so as back to back business or Long/Short w/o association or frame contracts
– Initial business driver, so as demand or supply driven
– Logistics execution, so stock shipment or drop shipment
– Trading subjects, so as physical goods or financials
Another type of business is financial trading with the following categories: Spot trading, Swaps, Washouts, Futures.
The modern Trading Company
With all businesses having the opportunity to access internet and ecommerce capabilities, new disruptive business models appeared like Alibaba and Amazon Business and endanger Traders’ market position. Traders have to think about extending or even reinventing their business model leveraging digital technologies and offering innovative value-added services.
Looking on the e2e process they have new requirements to stay competitive, such as understand the needs of the customer and the customers’ customer, understand the needs of the supplier, analyze customers, products, suppliers, and B2B transactions, continually learn and anticipate to proactively offer the customers/suppliers new interesting opportunities.
Many opportunities we see in offering value-added services to their suppliers as well as to their customers. Some modern traders are already offering marketing services to help their business partners to transform to intelligent enterprises as well, so Market Research, customer specific labeling, product information services and so on.
With SAP as a strategic partner they have the opportunity to reinvent themselves, transforming their traditional business model to an intelligent enterprise by leveraging SAP technologies and solutions.