Since the beginning of globalization, multinational companies have continued to extend their tentacles to other nations not only due to saturation in the home markets but in their determination to enhance market share, profitability, and competitive advantage. Since the market is hypercompetitive, MNCs are under pressure to produce quality products at affordable prices; hence, the need to lower production costs. The supply chain is one of the significant expenditures that bleeds firms and contributes to the high production costs. According to Usui, Kotabe, and Murray (2017), collaboration with local suppliers reduces costs and helps firms to attain flexibility. Nonetheless, even with such initiatives, global firms are still struggling with several challenges such as currency fluctuations, delayed payments, and export-import regulations. In this study, the researcher seeks to discuss ways these barriers could be removed concerning cryptocurrency as the mode of payment for international businesses.
Payment Challenges Facing the Global Supply Chain Systems
A century ago, supply chains were easy because the trade was purely local. The invention of trucks that would replace trains as well as the computers led to a shift in the management of supply chains. Additionally, some companies moved their manufacturing centers to overseas nations to access cheap labor as a way of reducing operational costs. Therefore, the management of the global supply chains has become complex and less transparent since consumers have an opaque view of the actual product value. Numerous links and individuals are involved in making the supply chain more efficient and effective ( Christopher, 2016). The product type manufactured by a firm affects the size and the number of stages of the supply chain. This implies that global supply chains may comprise of hundreds of steps, spanning numerous geographical locations, and involve several payment systems and partners. The payment processes can even take months to complete. Besides being affected by currency fluctuations, MNCs are expected to pay extortionate banking fees during transactions. Other factors include human errors in documentation, improper storage of documents, and slow payments and transfer of documents. To minimize such challenges and guarantee efficient operations, multinationals are compelled to deploy effective and capable accounting systems that come at a cost; hence negatively affecting profitability ( Christopher, 2016).
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According to the World Bank (2013), the potential income that could be attained by eliminating supply chain barriers outweighs the would-be gains that can be made by completely removing import tariffs. The report indicated that the global GDP could burgeon by more than 4.6% while trade could increase by approximately 14.3%. Conversely, eliminating importation barriers could enhance the global GDP by 07% and trade by 10.1%. In 2017, the global GDP was approximately US$79.87 trillion. A 4.6% change would translate to US$83.544. This infers that by eliminating barriers, the global GDP would surge by US$3.67 trillion. Therefore, the world is losing trillions of dollars due to global trade challenges.
Impact of Cryptocurrency on Global Supply Chains
Cryptocurrencies could impact global supply chain positively as discussed below.
The Blockchain Technology
According to Tapscott and Tapscott (2018), “the blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.” Blockchain technology was initially designed for Bitcoin and principle advantage is that blockchain is not subject to compromise or changing regulatory pressures and penalties, are decentralized (not controlled by financial institutions), and process information quicker than the traditional ledger.
The Smart Contract
According to Hofmann, Strewe, and Bosia (2018), the smart contract is another feature that organizations can utilize. While blockchain is the digital pecuniary payments, smart contracts provide additional information regarding the given transaction. Simply stated, it is an agreement to a transaction between the buyer and the seller that holds them accountable. Smart contracts do not need intermediaries like banks because it uniquely distributes and collects digitized assets. Multinationals can utilize smart contracts to pay for or purchase products.
Flaws of the Traditional Payment Systems
As aforementioned, the traditional payment systems have numerous flaws. Their validation process can take days, they are subject to mistakes, exposed to currency fluctuations since companies need to settle expenses across the globe, and banks (intermediaries) can be expensive as well. Therefore, cryptocurrencies can help remove the problem ( Tapscott & Tapscott, 2018). For instance, Litecoin was used to transfer $99 million worth of assets. The transaction took approximately 2.5 minutes to settle and was completed for just $0.40 in mining fees (Nasdaq, 2018).
Other examples of companies using the blockchain technology include Tomcar, the Australian Vehicle manufacturer pays its suppliers using Bitcoin. Furthermore, Walmart, one of the largest retailers employs the blockchain to pay for its pork from China. It makes it easier for Walmart to trace the source, the mode of storage, and the expiry date of the meat. Tyson, Nestle, and Unilever use cryptocurrencies for a similar purpose (Marr, 2018). This signifies that fast, cheap, and secure payment systems mean the operational costs remain low, and the pace of doing business increases.
Supply Chain Automation
Using smart contracts, firms will be in a position to automate their entire supply chains. For instance, a car company that sells different types of imported cars purchases them from suppliers located in different countries. Each state operates under distinct import and export regulations, yet the firm has to comply to get its products. To function effectively, the firm has designed a smart contract low stock rule that executes when the car inventory falls below 12 units. Currently, the company has 10 units in store, thus, the contract is initiated automatically, and the car suppliers paid using a cryptocurrency. The cars are delivered, and the car company reduces the costly payroll payments, mistakes, and utilizes the savings to enhance its margins (Alford, 2018).
Effective in Curbing the Rate of Counterfeiting
The issues of counterfeiting are rampant and could cost the global economy approximately $1.9 trillion by 2022. Cryptocurrencies can eliminate the problem by ensuring accountability. For instance, Wabi, the Chinese blockchain is designed to track products from the manufacturer to the ultimate consumer. Wabi has a custom app that allows them to check goods with the RFID chip embedded in them to ascertain if the product is genuine or compromised (Alford, 2018).
Cryptocurrencies would enhance Transparency
The international trade requires parties to have the exact and correct documentation for both import and export portions. Probable discrepancies in the documents would mean withholding of payment by the concerned bank until the issue is resolved. Although such glitches could be settled in a few days, frequent occurrences could make it a more relevant financial matter. Cryptocurrencies come in handy due to the recent weight regulations. Shipping companies are expected to verify the gross mass of containers before they can be loaded on ships. The verification process alone is becoming costlier as shippers struggle to adjust to the new regulations. Once a container is weighed and loaded, it becomes difficult to manipulate any more parties along the supply chain. If cryptocurrencies are deployed, they will hold shippers and manufacturers responsible for providing misleading weights because producers will measure containers, and at every stop (Alford, 2018). It implies that each party would be exposed to the same data making it difficult to manipulate.
Conclusion
The study sought to discuss the future of cryptocurrencies in the global supply chain systems. With the increasing costs of payment systems, delays, human errors, and potential compromises associated with the traditional payment systems, there is a need to have cryptocurrencies as the mode of payment because they are fast, secure, and cheap. They also enhance transparency, lower the rate of counterfeiting, and automate the supply chain process, which makes them ideal for the future global supply chain systems.
References
Alford, T. (2018). How could cryptocurrency impact global supply chains? Trade Ready . Retrieved from http://www.tradeready.ca/2018/topics/international-trade-finance/cryptocurrency-supply-chains/
Christopher, M. (2016). Logistics & supply chain management . Harlow, England New York: Pearson Education.
Hofmann, E., Strewe, U. & Bosia, N. (2018). Supply chain finance and blockchain technology: the case of reverse securitization . Cham, Switzerland: Springer Verlag.
Marr, B. (2018, March 23). How blockchain will transform the supply chain and logistics industry. Forbes . Retrieved from https://www.forbes.com/sites/bernardmarr/2018/03/23/how-blockchain-will-transform-the-supply-chain-and-logistics-industry/#720bd82d5fec
Nasdaq. (2018). Crypto shakeup as $99m worth of Litecoin traded in a single transaction . Retrieved fromhttps://www.nasdaq.com/article/crypto-shakeup-as-99m-worth-of-litecoin-traded-in-single-transaction-cm952128
Tapscott, D. & Tapscott, A. (2018). Blockchain revolution: How the technology behind bitcoin and other cryptocurrencies is changing the world . Toronto, Ontario, Canada: Penguin, an imprint of Penguin Canada.
Usui, T., Kotabe, M., & Murray, J. Y. (2017). A Dynamic process of building global supply chain competence by new ventures: The case of Uniqlo. Journal of International Marketing , 25 (3), 1-20.
World Bank. (2013). Report: reducing supply chain barriers could increase global GDP up to 6 times more than removing all import tariffs . Retrieved from http://www.worldbank.org/en/news/press-release/2013/01/23/report-reducing-supply-chain-barriers-could-increase-global-gdp-6-times-more-than-removing-all-import-tariffs
