Marketing of Services Telecom Essay Example

the Eurasian continent in the 13th century caused a devastating plague that reduced Europe and the Middle East's population by one-third but also increased per capita income and demand for Eastern luxuries such as precious stones, spices, ceramics, and silks. Consequently, there was a rise in the supply of precious metals to the East and greater reliance on Indian Ocean trade routes. The discovery of a sea route to Asia further stimulated commodity trading in Asia by connecting the Old and New Worlds via sea. Manila's discovery in 1571 established trade linkages among Asia Africa Europe and Americas. Initially driven by its high value relative to weight and lower transportation costs , spice trade became predominant force eventually large quantities of silver were exported from America to Asia particularly China . Currently ,Asia has emerged as a major trader for spices,silk,and teaAsia is believed to be the origin of commodity trading derivatives, with evidence of rice futures trading in China dating back 6000 years. The first recorded futures trade occurred in Japan during the 17th century. Currently, significant changes are taking place in Asia's commodity trading landscape. Despite the challenges of predicting financial markets in this region, it is widely expected that Asia will maintain its position as the largest exchange-traded commodity market globally. Global investors share this sentiment and hold particular optimism for Singapore's prospects.

The establishment of new exchanges in Asia has further solidified its status as the future hub for commodities. Notable examples include the Hong Kong Mercantile Exchange, which receives full support from prominent Chinese banking institution CUBIC. This exchange aims to capitalize on restrictions placed on Chinese derivatives trading and benefits

from its strategic positioning as a gateway between China and other parts of the world.

Another notable exchange is the Singapore Mercantile Exchange (SMS), which commenced trading on August 31, 2010. SMS holds the distinction of being the first pan-Asian multi-product commodity and currency derivatives exchange. Given Asia's rapid economic expansion and increasing demand for commodities, SMS is well-positioned to provide an integrated and single-platform solution for multiple products.The SMS has achieved significant success, generating a trade turnover of $153 million in its first nine months. Currently, it has set a new record for trading volume at 9,659 contracts, with a turnover exceeding $350 million. Membership numbers have also doubled from 25 to 50.

China's commodity derivatives market across the Shanghai, Dahlia, and Squeezing exchanges has experienced substantial growth. This reflects China's transformation into the largest buyer of various commodities.

In terms of contract trading, the Multi Commodity Exchange of India, Chicago Board of Trade, and London Metal Exchange are currently leading. However, India stands out among developing countries due to its high number of contracts traded across agriculture, metals, and energy sectors.

Initially facing stagnation due to fragmentation among exchanges like Tokyo Commodity Exchange, Tokyo Grain Exchange,Kansas Commodities Exchange,and Central Japan Commodity Exchange (C-Com), solutions have started to emerge. Notably,C-Com announced its plan to close in early 2011.

Despite experiencing tenfold growth in a decade,the Asian commodity derivatives market seems yet to fully realize its potential. In 2010,the Shanghai Futures Exchange (China) became the world's largest commodities exchange with $mm bargains,making it an important player in changing dynamics of risk management in emerging Asia.The Enzyme exchange had $mm in deals, followed by the Squeezing Commodity Exchange (China) with $mm,

and the Dahlia Commodity Exchange (China) with $mm. ICE Futures Europe also recorded $mm in bargains. Risk management is now a central focus for Traders in Asia, as they actively develop it as a core skill. It is considered essential for scaling and growing their businesses, as it helps them identify, capture, measure, monitor, manage, and control various risks. This competence serves as the foundation for future growth. Trading houses have strategically invested in integrating their supply chains by entering upstream and midstream parts of the value chain. They have also explored new business opportunities using existing assets. To assess risks in these new areas of business, they deploy effective risk evaluation practices such as yield analysis, scenario analysis on outcomes, and exposure forecasting models. Additionally, trading houses are enhancing their risk management performance for key risks like credit and counterpart risk.The text describes the improvements being made in risk management at Loam International. These improvements involve enhancements in the scorecard for rating counterparts and a thorough assessment of counterpart performance. Loam International is recognized as a leader in this field and has established a Board-level Risk Committee to manage risk systematically. This committee, consisting of five directors, holds the highest authority for risk management within Loam. The Risk Committee recommends overall risk limits to the Board at the beginning of each financial year, which determines the Group's overall risk capital. Risk capital is expressed as a percentage of the Group's equity capital and represents the maximum potential loss if operational, information, and trading risks across all products and regions materialize simultaneously.

To determine how much equity capital should be allocated as risk capital, the Risk

Committee considers two important factors: (1) management's track record in managing risks in the previous period; and (2) financial budgets including projected volumes and turnover. In contrast to Wall Street practices where excessive risk-taking can lead to large bonuses for managers, Loam focuses on influencing behavior by implementing business performance measures that initially select performance measures which then influence decision making based on risk awareness and responsiveness.

Companies are now implementing better reporting standards by regularly monitoring and reporting their risks. Some companies are conducting rigorous testing, such as stress testing, to evaluate their risk management policies. Stress testing provides a unique way of understanding the interrelatedness and interdependence of risks in a trading portfolio, particularly the relationship between credit and market risk. Many risk management professionals aim to comprehend the interconnected risks that could result in suboptimal or catastrophic outcomes.

For Asian companies, hedging is not a straightforward game. Most of them have established a comprehensive framework for creating and reviewing their hedging policy. Firstly, these companies consider the overall rationale for hedging and how it can add value to their organization by setting financial risk management objectives. Secondly, they carefully assess various factors that should influence the decision to hedge and determine the appropriate timing for doing so. Lastly, if a hedging program is necessary after considering other financial levers, companies identify the most suitable hedging strategy and execution plan.

This type of framework allows companies to approach hedging in a structured manner instead of using different methods within the organization that may undermine its purpose.

The potential of this framework to become the benchmark for commodities trade and its strengths towards dominance in

the industry are widely acknowledged. Asian countries, particularly leading importers and consumers of commodities, demonstrate significant growth, if not total consumption. This trend is expected to continue in the long term.

With 60% of the world's population and substantial infrastructure needs, Asia has the potential to be a key player in commodities trade. The growth stories of India and China further contribute to this potential. Asia boasts a diverse resource base that ranges from rice and coffee to coal and gold, making it a major producer for almost all commodities except oil. In fact, Asia's production significantly influences commodity prices.

There are indications that Indian and Chinese commodity exchange markets may soon be internationalized as institutions and investors seek entry into these markets. Both countries are gradually reducing barriers for international players. China surprised many by rapidly opening its new equity index derivative market to foreign participants while India's Forward Markets Commission suggests allowing foreign participants to act as brokers without direct market involvement. It is believed by experts that India's internationalization will happen faster than China's due to China's systematic approach towards market opening.
Additionally, regional trading hubs play a crucial role in driving Asian trade markets forwardSingapore is strategically positioned for trading activities in Asia, benefiting from its proximity to source and demand markets and having a sophisticated physical and financial infrastructure for trading. The Hong Kong Mercantile Exchange is expected to thrive due to its close proximity to mainland China, driving the financial system. The newly established exchange, Hex, located in Hong Kong, is ideally situated to facilitate commodity trading between China and the rest of the world according to Albert Helmet, the

exchange president. Hex's 15-hour trading day overlaps with US and European trading hours, encouraging cross-continent trading and boosting liquidity. However, Chicago, New York, and London remain dominant hubs for global commodity trading in agricultural goods as well as precious and base metals along with oil and gas products.

Despite higher volumes on the Shanghai Futures Exchange compared to Enzyme and CABOT exchanges, there is a significant difference in underlying volume values. Western exchanges still hold dominance over Asian exchanges in terms of value by a large margin. Asian nations are cautious about derivatives and foreign speculation's potential disruptive effects which has led them to hesitate in implementing reforms.

The growth of these exchanges faces a major obstacle - educating a large domestic investor population about the risks associated with commodity markets.The pace of reforms in commodity exchanges in Asian markets is satisfactory, but there are significant differences in fundamental concepts and operations compared to the West. China's complex governance system requires approval from multiple authorities, such as the China Securities Regulatory Commission, the State Council, and relevant ministries or agencies.

In India, commodity trading often faces blame whenever prices rise abnormally. In response to pressure from different groups, the government has previously banned future trading for sugar and certain commodities. There is an expected shift in commodity trading with Asian countries becoming "price setters" instead of "price seekers" due to their domestic exchanges driving high volumes. Malaysia, being the largest global exporter of palm oil accounting for 50% of production, experiences the highest volume of palm oil trade in London.

However, Bursa Malaysia trades Crude Palm Oil future (PEPCO), making it the only globally available liquid commodity

future. Malaysia now witnesses considerable trade volumes in palm oil on par with London.Geoff Howe, a strategist at MFC Global Singapore, states that historically Asia's demand has either gone overseas or through the over-the-counter market. Many international trades have flowed to the US and Europe. However, he believes that local markets will grow. This is demonstrated by the fact that 85% of Asia's energy requirements flow through the Asian market, making Singapore the largest energy trading market globally.

Asian exchanges offer unique and innovative products, leveraging their strengths to develop complex products suitable for Asian markets. For example, Hex provides physical delivery of gold and silver at a designated Precious Metals Depository in Hong Kong airport. SMS CEO McMahon ensures that SMS or regional clients have specifications specific to them. As an example, SMS introduced Singapore's first physically delivered gold futures contract called Gold Futures.

In the future, global commodity exchanges may consider collaborating or establishing their presence in Asia as it is expected to become a prominent trading center. SAX made an agreement with the London Metal Exchange in July 2010 to list mini versions of ELM's monthly metal futures. These futures are cash-settled based on ELM prices and will initially include copper and zinc. Steel billet derivatives will follow upon regulatory approvalThe hedging of commodity risks presents unique challenges compared to other financial risks. It requires coordination with the business and consideration of impacts on the physical supply chain and supply-demand dynamics. Trade financing is vital in Asia, often referred to as "trade's lifeblood" by the World Trade Organization. Around 90% of trade relies on credit, and the trade finance market in emerging markets, including

Asia, is estimated to be worth approximately US $2 trillion, with up to 75% being syndicated according to the International Monetary Fund.

A recent study conducted by the Triple-A rated DAB and the International Chamber of Commerce highlighted the low-risk nature of trade finance. The study surveyed nine banks involved in trade finance and discovered that defaults accounted for only 0.02% of 5 million transactions over the past five years. This amounted to a total value of $2.5 trillion. Furthermore, it was revealed that DAB's Trade Finance Program has never experienced a default.

While these statistics offer promising opportunities for firms, they do not address the overall accessibility of trade finance. Accessible credit is crucial for commodity producers, processors, and traders as it allows them to meet working capital needs and invest in new farm assets, technology, and equipment required for processing and post-harvest activities.However, in many developing countries and countries in transition, access to credit is severely limited as most banks only lend against specific fixed assets and offer unfavorable terms for those in the commodity sector. Regulatory reforms are necessary for commodity financing in India to thrive on par with global markets.

Issues related to negotiability and transferability of warehouse receipts, the lack of dematerialized warehouse receipts, the inability to fund private warehouse receipts due to credibility and inadequate systems, restrictions on commodity exposure by banks, and the disallowance of options on commodities are some of the challenges faced by both bankers and traders. The Regulatory and Inspection Board (RIB) has also imposed limits on banks' commodity exposure. Although the RIB has taken some steps, such as formulating the Negotiable Warehouse Receipts Act, the pace

of reforms has been slow due to the lack of financial infrastructure.

One of the major challenges in trade finance is the non-availability and high interest rates. The SEEM sector, particularly countries with low-income in Asia, have faced difficulties in accessing trade finance since the Asian financial crisis. These countries are often disproportionately affected during times of financial crisis when risks and liquidity shortages are reassessed. Trade financing through international institutions is also susceptible to changing country risk profiles.

Coffee, a leading company in trade risk management, has recently added China, Pakistan, and Vietnam to its watch-list due to increasing risks across various sectors. The use of more complex trade structures, focusing on large bilateral relationships in valuable and cross-border commodity flows, plays a crucial role in financing heavily Asia-linked trade flows. While commodities still dominate, precious metals are expected to benefit the most from strong interest in investor diversification, inflation protection, and currency hedges. The source stated that it is often underestimated how strong and far the market can go when there is limited supply to meet high demand. Singapore's bank vaults have seen a rapid increase in the volume of gold stored. In May's first week, commodity prices including gold, silver, and others experienced a decline as investors sold off their holdings. The commodity market can be heavily impacted by significant sellouts from influential entities like hedge fund trader George Soros or investment bank Goldman Sachs. It is important to recognize that people depend on food and factories require raw materials. Moreover, our group's participation across the energy sector allows for a comprehensive approach encompassing commodities and shipping as well. Our active involvement

throughout the energy value chain becomes evident when observing our client base.

The convergence of the three sectors, banking, commodity finance, and insurance/trading, is becoming more prominent. Despite banks reentering the market, ongoing liquidity issues and Basel III preparations are likely to keep pricing higher than pre-crisis levels. However, there have been improvements in the commodity finance market as players can raise sufficient working capital to support increasing commodity prices. The current market situation resembles that of 2006/2007 with margin pressure and a shift towards event-driven financing. There has also been a transition from structured commodity finance to unsecured/unstructured corporate finance and bond issuance, particularly in the oil sector for Russian corporations.

Basel III rules may present challenges for banks in maintaining profitable returns on equity. Consequently, there may be a greater focus on ownership lending and traditional banking activities such as secured commodity trade finance.

While limited activity is observed on secondary markets, commodity finance has become more mainstream not only for banks but also insurers and traders. Investors are favoring consolidation in this asset class due to political and economic reasons, leading to investments in land rights or shareholdings in companies like Noble and Loam. An example of this trend is Korea Investment Corp (KICK) investing in Noble following the global financial crisis.
The improved credit metrics and strong commodity prices have prompted banks and financial markets to provide financing more aggressively. However, deal flow is limited, especially in the energy sector, leading to oversubscribed transactions. There is a significant disparity in risk perception between larger and smaller players. Larger companies are benefiting from new opportunities in terms of duration, structures, and pricing that were not available

before 2009. This is partly due to a growing interest in emerging market risk and increased participation by local banks. Smaller players may still face challenges in securing financing, but current structures are holding up well. Nonetheless, we expect liquidity to soon reach these smaller players.

Despite some recovery in the commodity finance market since 2009, it has not returned to its pre-2009 state. While liquidity has improved, particularly in Asian markets where pricing is declining and structures are becoming more flexible, globally pricing remains higher and caution prevails compared to the period prior to 2009. Domestic banks in the US and Latin America are eager to enter the agricultural commodity markets as syndication markets shift towards Asia due to its ample liquidity and receptiveness towards commodity opportunities. Moreover, there is an increasing demand for committed financing rather than uncommitted or transactional financing options available.
As trade evolves into supply chain management, it is important for trade and commodity finance bankers like us to reassess our business model in order to capitalize on new opportunities. The main goal for supply chain managers/traders is to streamline the value chain, which has led to an increase in mergers and acquisitions. Our global ETC franchise faces the challenge of expanding the chain while implementing forward and backward integration strategies. Our clients are essential in optimizing market intelligence and commercial power for our activities in ETC, M&A, food, and agricultural research. Managing our product portfolio effectively is a necessary skill for any trade finance company. While newer products like financial supply chain gain popularity in Asia, traditional trade businesses such as documentary trade and LLC issuance and negotiation continue to grow

significantly. Although the open account business declined during the crisis, it is now experiencing rapid growth. Introducing new products without sacrificing control over existing ones presents a major challenge for banks. Financial institutions have focused on commodities trade finance by nurturing client relationships at both front-end and mid-levels to accommodate their day-to-day business needs.In order to meet the demand, companies must create their own structured commodity finance (SF) business solution and seek external agencies with expertise in this area. The text discusses the need for structured solutions for pre-production hash and investment financing in trading, as well as the challenge of liquidity for financial institutions. It mentions the high inflation in Asia and increasing reserve ratios of central banks worldwide, resulting in squeezed liquidity in domestic markets. The text emphasizes the importance of trade finance banks offering products that alleviate liquidity issues for customers. Furthermore, it highlights the establishment of an Asia-Pacific Trade Insurance Network aimed at facilitating intra- and extra-regional flows and investment through insurance cooperation among export credit agencies. However, it states that many developing countries lack the capacity to address trade finance shortages independently and calls for actions beyond short-term emergency measures. This includes establishing or strengthening government-backed export credit insurance and guarantee institutions, as well as export-import banks. These institutions can play a significant role during times of crisis but are currently inefficient or absent in numerous developing countries within the region. Governments should assess various models such as public-private partnerships to establish self-sustaining trade finance institutions.

It is essential to establish or strengthen credit rating agencies and information-sharing mechanisms, while also supervising them, in order to reduce the cost of trade

credit and insurance. This accurate assessment of the creditworthiness of buyers and sellers is crucial. A strong and credible banking and insurance sector is vital for ensuring access to a wide range of trade finance instruments. Achieving this goal requires good macroeconomic fundamentals, prudent regulations, and a practical approach to liberalizing the financial sector.

The Asian market for trade finance is diverse and unique, with different methods and products used by financial institutions yielding varying levels of success across countries. In Indonesia, there has been limited adoption of new trade finance products due to caution and reluctance to take on additional risk throughout the entire supply chain from buyers to suppliers, especially after the financial crisis.

There has been a shift in export and import settlements in Asian trade from open account to a letter of credit (L/C) base. Financial companies are receiving more inquiries about this change. Intra-Asian trade has become more complex as companies now sell components from one country to another intermediary for production before reaching another for final assembly before leaving Asia.

Regional Institutions play a critical role in increasing trade finance availability.Exporters in Asian developing countries face difficulties in obtaining finance from commercial banks due to perceived risks. To support these growing markets, Swiss Re's commercial unit, Swiss Re Corporate Solutions, and the Asian Development Bank (ADB) have partnered to offer guarantees and loans to banks for trade finance, particularly in frontier economies. Swiss Re will insure $250 million of trade finance conducted through the ADB's current trade finance program.

This new capital injection could result in an additional $500 million per year in trade finance support for developing Asia. In 2010, the ADB's

trade finance program supported 783 trade transactions worth $2 million. The ADB is one of the most active users in Asia with banks located in Bangladesh, Vietnam, Pakistan, Sri Lanka, and Nepal. Demand across Asia increased by over 50% compared to the previous year during the first quarter of 2011. The ADB is also working with the supply side to enhance availability of trade finance in the region and has established a financial risk sharing agreement with Exporter Financing and Insurance Corporation.

In 2010, Australia exported goods amounting to A$284.1 billion to Asian markets, with $155.9 billion (67.3%) going specifically to East Asia. The ADS-EPIC credit risk sharing deal aims to enable developing Asian countries to import more Australian goods. Additionally, it is crucial to establish a commonly accepted currency for intra-Asia trade beyond just using the dollar or euro as well.
Companies and financial institutions worldwide are excited about the People's Bank of China's initiatives to enhance accessibility in international trade settlement and promote the global acceptance of its currency, as evidenced by their efforts.