Supply Chain Finance Solutions Chapter 6 The Market Size for SCF Solutions By Wang Di 1

Main contents 1.Company Characteristics 2.Commercial Relationship Characteristics 3.Cost–Benefit Analysis of SCF Solutions 4.Application of the SCF Model 5.Summary of Results 2

Product and industry categories based on SITC (Standard International Trade Classification) 3

highest benefits were assigned to retail, manufacturing, electronics, food and beverage and pharmaceutical companies 4

Commercial Relationship Characteristics 1.Supply Chain Design 2.Supply Chain Risks 3.Supply Chain Transaction Characteristics 5

Supply Chain Design constraints : A bilateral monopoly or restrictive monopsony （ only one supplier and one buyer ） low level of complexity No Networks lower benefit opportunities. 6

Supply Chain Risks economic risks political risks financial risks the probability of deterioration in the exchange rate. a constraint towards SCF solutions. reduce currency risks via various hedging techniques the possibility that cargo is damaged insurance Not fulfill its obligations. Exporter: 1.Production risks 2.Risks of non- acceptance 3.Default Importer: 1.Procurement risks 2. Insolvency risks 7

Supply Chain Transaction Characteristics Cross-border domestic trade OECD non-OECD trade. Geographic Scope 120 annually is minimum assumed 75% fulfills the frequency criterion Frequency of Transactions 8

Cost–Benefit Analysis of SCF Solutions Assumptions: The calculated market potential implies that each company either acts as an importer or exporter, thereby excluding the likely case that a company represents both excluding the possibility of prepayments does not consider intra-OECD and intra-non-OECD trade does not consider distinctions in the motif and benefit distribution of the different SCF solutions. Experience 9

Determination of the Relevant Parameters average invoice value DPO WACC DSO WACC eliminated insolvency risk, dilution rate savings in loss deduction Servicing fee funding and the risk fee 10

Administrative Costs 11

Parameters Specific to the Importer (Focal Company) the average DPO in all major industries was 50 days 51.6 and 48.5 days SCF leading to a DPO extension of 20 days. 12

WACC(Weighted Average Cost of Capital) Defination : A calculation of a firm's cost of capital in which each category of capital is proportionately weighted. All capital sources - common stock, preferred stock, bonds and any other long-term debt are included in a WACC calculation. ke = cost of equity kd = cost of debt E = market value of the firm's equity D = market value of the firm's debt V = E + D E/V = percentage of financing that is equity D/V = percentage of financing that is debt T = tax rate 13

we can see how much interest the company has to pay for every dollar it finances. WACC 代表公司整体平均资金成本，可用来衡量一个项目是否值得投资；项目的 回报必须不低于 WACC 。 计算 WACC 时，先算出构成公司资本结构的各个项目如普 通股、优先股、公司债及其他长期负债各自的资金成本或要求回报率，然后将这 些回报率按各项目在资本结构中的权重加权，即可算出加权平均资本成本。其他长期负债加权平均资本成本 加权平均资本成本（ WACC ），反映一个公司通过股权和债务融 资的平均成本，项目融资的收益率必须高于这个加权平均资本 成本该项目才具有投资价值。 计算公式 = （债务 / 总资本） * 债务成本 * （ 1- 企业所得税税 率） + （资产净值 / 总资本） * 股权成本 其中，债务成本和股权成本用债务人和股东要求的收益率 表示。至于债务成本一项要乘以（ 1- 企业所得税税率），是因 为与股权融资相比，债务融资可以使企业少缴企业所得税，因 为利息在计算利润时是被扣除掉的，而所得税的计算又是按照 利润总额的一定比例计算的，显然被扣除利息后的利润乘以一 定比率所计算的所得税要比不扣除的计算的少，基于此，所以 说利息能够抵税。 14

Parameters Specific to the Exporter (Focal Company) DSO average 59 days SCF can reduce 39 days & reduce lost ratio from 0.3% to 0.1% 15

Parameters Set Externally An average funding spread of 3% in this research Funder realistic risk fee is 0.2% annually Risk taker around 0.3% of the transaction volume Service provider their WACC is estimated to be 15% Non-OECD supplier/buyer 16

Cost–Benefit Analysis to the Importer An importing focal company generates potential savings by implementing an SCF solution if its non-OECD purchase volume is greater than $3,373,984.Additional purchases yield savings of $ per US dollar 17

Cost–Benefit Analysis to the Exporter An exporting focal company generates potential savings by implementing an SCF solution if its non- OECD turnover volume is greater than $1,904,937.Additional turnover yields savings of $0.016 per US dollar. 18

Estimation of Relevant Trade Flows As can be inferred from Table 6.10, the constraints overall reduce the SCF application potential from $2,770,260 million to $702,843 million, which accounts for approximately 25%. Table 6.11 displays the OECD exports. The SCF potential from non-OECD directed imports is estimated at $702,843 million. The potential for directed exports is estimated at $547,049million. 19

Models Benefits to Suppliers in the SCF Importer Model Benefits to Buyers in the SCF Exporter Model 20

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Summary of Results The potential market size for SCF solutions for non-OECD directed imports is estimated to be $702,843 million. The potential market size for SCF solutions for non-OECD directed exports is estimated to be $547,049 million. An importing focal company generates potential savings by implementing an SCF solution if its non-OECD purchase volume is estimated to be greater than $3,373,984. An exporting focal company generates potential savings by implementing an SCF solution if its non-OECD turnover volume is estimated to be greater than $1,904,

The end Thank you! 26