Welcome to the fourth in a series of newsletters from Crest Trade Services providing insights and updates on commodity trade execution.
Contact us at info@crestts.com with your feedback & questions
Execution Insight
“TO CENTRALISE OR NOT TO CENTRALISE, THAT IS THE QUESTION……”
In previous editions of our newsletter, we highlighted the importance of developing an organizational blueprint that aligns with your business strategy. A critical component of this blueprint is determining the optimal structure for trade execution (TE). One of the most pivotal decisions is whether to centralize or decentralize the TE function.
Four strategic Options for Trade Execution organisation
Centralize in regional hub(s).
Offshore to an in-house service centre.
Outsource to a third-party provider.
Adopt a hybrid model of the above options.
Historical Context
Centralized functions located in a commercial hub were, for many years, the preferred organizational model for most trading houses. These centralized hubs were designed to facilitate seamless information flow and coordination. It is only fairly recently that large global and regional trading houses recognized that, by leveraging their geographic footprint and scale, they could decentralize functional organizations (with technology playing a key role) and create significant benefits such as enhanced performance, talent access, and cost advantages over their competitors. By contrast, small and medium-sized enterprises (SMEs), without access to a similar scale of operations, typically maintained a more centralized approach.
A Strategic Dilemma
The late 1900s and early 2000s saw unprecedented global integration and globalization, reducing the perception of execution risk in international trade. However, recent global events—rising regional tensions, the COVID-19 pandemic, and a resurgence of protectionism—have challenged this model. For many in the industry, this new landscape is unfamiliar territory.
Outsourcing: A Strategic Opportunity
In the face of these challenges, outsourcing emerges as a strategic opportunity for trade houses of all sizes, and especially for SMEs, to:
Reduce Costs
Access Talent
Leverage Enabling Technology
Improve Performance and Flexibility
For commodity traders, whether established or recent entrants in the industry, outsourcing can be both a tactical and strategic tool to scale quickly, control costs, and access the necessary skills and experience. Containerization on many commodity trade lanes also makes outsourcing a strategic proposition due to the increase in administrative workload and overhead as goods switch from bulk shipment to much smaller parcel sizes.
In rapidly growing trading hubs, such as Dubai, the challenge is finding people with the necessary skills, experience, and knowledge. This has led to a ‘reverse’ salary arbitrage, where talent is imported to meet demand at a cost greatly exceeding that of the same employee working remotely from their home country. For traders in these regions outsourcing, or seeking external support to set up their own offshore service hubs, with experts such as Crest Trade Service can be a strategic opportunity.
Outsourcing as a Competitive Strategy
The decision to centralize or decentralize your TE organization is more than a question of cost—it's a strategic choice that can significantly impact your business's agility, risk management, and long-term success.
For SMEs, outsourcing offers a unique opportunity to compete with larger trade houses by reducing costs, accessing talent, and leveraging technology.
As you consider your options, it's essential to carefully evaluate how each choice aligns with your overall business strategy. By embracing outsourcing as a strategic opportunity, traders can enhance their competitive edge and navigate the complexities of today's global trading environment with confidence.
Connect with Crest to start a conversation: info@crestts.com
With over 30 years experience in commodity trading we deliver training and expert consulting services to lead your TE teams to consistent high performance.
TECHNOLOGY CORNER
Overcoming Key Challenges in Digital Transformation for Trade Execution
Embarking on a digital transformation in trade execution is a bold move, but it comes with its own set of challenges. Here are some of the main obstacles trading businesses should consider and strategies to overcome them:
Resource Constraints
Digital transformation requires significant financial investment and employee time. To secure the necessary resources, build a robust business case and outline the expected payback timeline.
Technology Integration
Address integration challenges with legacy systems within the project scope and consider whether full integration is necessary. Tactical, ‘standalone’ solutions can resolve high-impact, but narrow process challenges effectively. A compelling business case can be made for these tactical solutions if they address critical pain points.
Addressing the Skills and Knowledge Gap
Adopting digital solutions requires specific skills and capabilities within the workforce. Develop a comprehensive HR plan within the project to address the skills required for both project execution and post-implementation.
Successful Change Management
Leading an organization through change is critical for successful implementation. Engage employees early in the project lifecycle. Digital transformation generally results in either:
Doing more work with the same resources (headcount-neutral growth), or
Doing the same work with fewer resources.
Difficult choices may need to be made concerning employees’ future roles. Mitigate impacts with a strong HR plan and by reassigning employees to new opportunities created through natural turnover.
What strategies has your organization found effective in overcoming these challenges? We’d love to hear your thoughts .
Crest Trade Services - your partner in trade execution transformation.
Tel: +41 22 710 21 69
Email: info@crestts.com
Web: crestts.com
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