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Innovations in International Trade: The Impact of Blockchain Technology
A variety of concerns have led to a lack of digitization in international trade. Security and coordinating dataflow between multiple parties across borders are just two of these concerns. However, there is a technology that has the potential to change the game: Blockchain. This paper will discuss the opportunities Blockchain can offer stakeholders and how it can revolutionize international trade for small and medium-sized enterprises (SMEs).
A Brief Explanation: Blockchain Technology
A Blockchain is a decentralized digital record of transactions or ledger. Because it is decentralized, no one single entity controls the network it lives on. It is shared with all participants, and transactions are stored using cryptographic techniques in a highly secure, verifiable, and permanent way. As more records, or “blocks,” are “chained” together with cryptography, a highly secure Blockchain is born. Blockchains can operate without the need for a central authority or any intermediaries. Once added to a Blockchain, information is time-stamped and cannot easily be modified.
Originally developed as the technology behind cryptocurrencies like Bitcoin, Blockchain applications soon started to spread. Due to its security and transparency, both the private sector and governmental associations have taken notice. Different projects and proofs of concept involving Blockchain have skyrocketed – the rate of Blockchain patent applications tripled that year (Noonan, 2018), and venture-capital funding for Blockchain startups reached US$ 1 billion in 2017 (CB Insights, 2018). Its applications touch all sectors of the economy and society, from finance to eCommerce, food safety, supply-chain management, and even voting. The question is: can Blockchain solve the digitization problem for international trade?
How Will Blockchain Impact International Trade?
The control of international shipments and other forms of assets were always handled by trusted third parties and included a slew of forms and personnel that had to be managed and tracked. However, Blockchain ensures immediate, across-the-board transparency. As transactions added to the Blockchain are time-stamped and cannot easily be tampered with, Blockchain technology allows products and transactions to be traced easily (Ganne, 2018).
Not only that, but the information is not stored in a central location. Instead, it is distributed throughout the world by computers that carry relevant information from one manufacturer, buyer, or freight forwarder to another. This does not just mean that the transaction timeline is sped up by instantaneous sharing – stakeholders now do not have to worry about keeping physical documents and copies of the many documents required for a trade transaction. The sharing of secure, verified information that is less dependent on and influenced by fewer people will only lead to greater efficiencies.
A recent study estimated that the gains from Blockchain technology could deliver US$3 trillion of value worldwide by 2030 (Gartner, 2019). Other potential benefits include cross-cutting opportunities to enhance supply chain transparency, reduce trade costs, and open up new trading opportunities for SMEs.
Opportunities Presented by Blockchain
Connectivity
Through Blockchain technology, SMEs can create a channel of connectivity and integrate all players of a trade transaction in one chain. The ideal platform would contain on-demand translators, legal advisors, mediators, video conferences, virtual tradeshows, and more, all done with the click of a button.
Low risk
By utilizing Blockchain, SMEs could join international commerce with less risk or fear holding them back. These alleviated risks include the high cost associated with the process, different international laws, extended time of a transaction, the risk of loss or not getting compensated, and pre-transaction cost such as high cost of acquiring a customer, finding the market, and understanding or adjusting to the market. Simultaneously, psychological barriers such as fear of losing control, fear of breaking something that works, i.e., disrupting their domestic business and relationships, and fear of political, cultural, and legal barriers would be eased as well.
Real-time verification
Verifiable Blockchain information opens up new opportunities for SMEs and other stakeholders. Without extraneous, time-consuming, and expensive entities and paperwork, timelines for trade transactions are exponentially sped up. In international trade, Blockchain technology’s impactful benefits include: Verified users receiving real-time status updates of transactions, ability to review transaction details transparently, a decentralized system keeping the supply chain moving, quickly tracked and traced proof of business ownership, automated transaction fees through smart contracts eliminating third-party financial institutions, and elimination of double spending on bills of lading.
IBI number card
This brilliant system allows data to be transferred securely between the parties involved, resolving the disconnect with trade finance and the supply chain. Another benefit is the IBI number, which is a digitally encrypted identification card that is verified individually and recognized globally. The card holds business information such as business license, company ownership, company type, and product type and its classification. After receiving the IBI number, businesses can enter the international trade marketplace with similar businesses. These companies can virtually showcase their products and receive orders or PO requests from buyers around the world. Purchases will only be possible if the regulations of both countries, origin, and destination permit the nature of the business/product. If the transaction is not possible, a warning will be displayed. Eliminating returned transactions at customs clearance and no longer proving their business identity to multiple agencies.
Smart contract
Imagine: once an order is confirmed via a smart contract, the buyer and seller can enter a favorable contract without a lawyer, because the contracts were pre-generated at the time of the order. If a custom agreement exists, it is shared within a ledger all parties involved can view, and its information stamped in the history of the transaction. Simultaneously, a custom request for shipping the order with a complete packing list is sent to certified freight forwarders for an open bid. When the agreeable logistics bid is accepted, the freight forwarder is added to the network of the responsible parties and shared in the network ledger. All documents will be visible to all participants, accessed in real-time, and unable to be changed or forged. This process also streamlines paperwork and should not necessitate additional employees.
Potential
Blockchain presents a pure, raw potential for international trade. If we genuinely wish to enlighten small businesses around the world, we must devote ourselves to researching the full extent of Blockchain’s capabilities, sharing the knowledge we uncover with our fellow entrepreneurs. By putting our findings to their different uses, these SMEs can continue to research and develop even more practices to share with the community as a whole.
Conclusion
As SMEs around the world slowly realize their hidden exporting potential, each one’s success is paving the way for others to participate in global trade. Blockchain-enabled platforms can and will propel small businesses to compete with larger enterprises, leveling the playing field between SMEs and larger, established companies. Blockchain is the ideal platform that encourages SMEs to take on new opportunities without the fear of barriers or financial loss.
Blockchain technology will make the complex international trade transaction smoother by reducing processing time, minimizing the costs associated with international trade, and giving peace of mind to buyers and sellers by allowing them to monitor every step, while also knowing they are working with other verified IBI holders.