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Human skills will remain critical for businesses - Industry roundup: 5 February

Human skills will remain critical for businesses amid technological advances

The power of human interaction will continue to play a critical role in business over the coming decade, even as technology, such as AI, robotics and quantum computing dramatically reshapes entire sectors and business models, according to an HSBC report: Digital Horizons: How emerging tech will shape tomorrow’s business. The research, which surveyed 2,900 business leaders across eight markets globally, found that respondents plan to invest in their workforce to maximise the opportunities new technology will bring: 86% are looking at how emerging technologies can help advance employee skills; 83% are planning to re-train their workforce and 82% are investing in new talent in response to rapid advances in technology.

The report identifies collaboration as fundamental to business success in the coming decade. A large majority agree that more collaboration within their organisation (85%) and with other players in their sector (84%) will drive growth. But most business leaders also agree that collaboration outside their own industry (82%), and beyond national borders, through international partnerships and networks (83%), is vital to success.

The report highlights the leading strategies businesses most favour to enable this new era of collaboration. The most favoured approaches include greater focus on technology-driven, agile ways of working (47%); while 36% believe embracing partnerships with smaller and nimbler industry entrants is essential. The research revealed four trends that will drive fundamental change and bring new opportunities for businesses through digitalisation over the next decade:

  1. Borderless business - a new era championing a global outlook and networks where successful businesses adapt to embrace global talent, supply chains and relationships.
  2. FLIT organisations - the rise of organisations focusing on a flexible workforce, lean processes, innovative business models and tech-driven operations.
  3. Inclusive automation - a workplace where businesses focus on the positives and gains of AI and automation, enabling and upskilling talent to embrace this mindset.
  4. Creative edge – organisations that cultivate a culture that champions open-mindedness, independent thinking and innovation will gain a competitive edge in the market.

Those surveyed recognise that technology is central to growing their businesses over the next decade, highlighting their most important areas where technology will play a role as increasing revenue (27%), improving customer service and experience (26%) and reducing cost (26%). Robotics and automation, augmented or virtual reality, machine learning, and generative AI were identified as critical areas for investment and growth.

While business leaders acknowledged a lack of familiarity with some of the technologies driving longer-term change – only 31% of businesses globally are familiar with robotics and automation, optical character recognition (26%) and quantum computing (26%) - the majority (86%) feel confident in their ability to keep up with technology advancements over the next decade.


UK businesses’ confidence increases to kick off 2024 with greater positivity

Businesses entered the new year with renewed positivity as overall confidence rose to the highest level for nearly two years, according to the latest edition of the Lloyds Bank Business Barometer. The Barometer – which measures businesses’ confidence by assessing their trading prospects and optimism in the economy – shows overall confidence rose to 44%, up 9 points from the previous month. It was the most significant monthly increase since August and the highest level of confidence reported since February 2022, when the UK economy was recovering from the Covid-19 pandemic. It is also the strongest start to a year since January 2016. 

The increase in confidence is driven, in part, by the easing of inflation over the past year and the growing expectation that interest rates will start to decline this year.  The positive sentiment partly reflected optimism about the broader economy. Despite continued geopolitical risks, the survey shows that broader economic optimism has increased to 37%. Trading prospects for 2024 were also the strongest for over six years, with the net balance rising by 3 points to 51%. 

Elsewhere, firms’ expectations for staff pay fell back after December’s rise. The share of companies anticipating wage growth of 4% or more in the next 12 months was the lowest for five months and remains lower than levels across the past year. Similarly, the share of businesses expecting pay growth of at least 5% remains below last year’s level. Despite this, the longer-term view shows wage growth expectations remain above pre-Covid levels. 

Companies' pricing expectations fell for a second month – the first consecutive decline since June 2022. Some 60% (down two points) of firms plan to raise their prices, while 4% (up from 3% in December) said they planned to cut their prices.

Three of the four sectors tracked in the Barometer reported rises in confidence. The most significant increase was in services, which accelerated 15 points to 45%, up from December’s 16-point drop. Manufacturing confidence also increased to 49%, while construction increased/rose 8 points to a 10-month high of 45%. There is a more mixed picture in retail, however, dipping 3 points to 41% with anecdotal evidence of weaker footfall and sales in December as shoppers hit the streets earlier than usual in November. Nevertheless, some companies still reported stronger sales over the festive period. 


Why US stocks are worth sticking with

US equities continued to outperform in 2023, according to data from Goldman Sachs, with a 26% total return that exceeded non-US developed equities at 19%, emerging markets at 10%, and Chinese equities, which lost 11%. Such strong performance has pushed US equity valuations into their top historical decile, meaning US stocks have been cheaper at least 90% of the time.

The Goldman Sachs Wealth Management Investment Strategy Group (ISG) acknowledges that US stocks are expensive on an absolute basis and relative to non-US equities. Even so, ISG continues to recommend, in their 2024 Outlook report titled ‘America Powers On’, that clients maintain a long-term strategic overweight to US equities. They also recommend staying invested in US equities rather than tactically shifting into bonds, cash, or non-US equities. (ISG's forecasts may differ from those of other groups at Goldman Sachs.)

US markets are more expensive than equities in almost any other country or region (India is the one exception). But US equities aren't as expensive as they first appear relative to their non-US counterparts. The mix of sectors in a market varies significantly, and this affects its overall valuation. Some sectors are more expensive, such as technology, so an equity market index with a heavy technology weighting will have a higher valuation.

Another reason to stay invested in US equities, according to ISG, is that valuation differentials haven't historically been a helpful signal of countries' future relative performance. ISG also points out that US earnings per share grow faster.

ISG expects non-US equities to outperform US equities by about two percentage points in 2024. But since these returns are stated in local currency terms, if the dollar appreciates by ISG's expected 2% this year, US and non-US developed equities would have similar returns.

Reflecting on the past ten years shows that there have been substantial changes to the sectoral structure of the US stock market. For example, almost 30% of the S&P 500 index is made up by the technology sector today, up from 18% previously, according to research by the comparison team at CasinospotFR. This change contrasts the energy sector’s decline in market capitalisation, which dropped from 13-14% to 2.4% in the same time frame.


C2FO introduces supply chain finance solution

Working capital platform C2FO has announced the launch of SCF Propel, a tailored service designed to allow large enterprises to evolve their existing supply chain finance (SCF) programmes while eliminating the administrative burden typically incurred when launching similar programmes. SCF Propel aims to enable enterprises to safely combine one or more legacy SCF solutions with C2FO’s technology and funder network in under six weeks.

Most global enterprises have had one or more SCF programmes in place for years, sometimes decades. Because updating and modifying these legacy programmes is so complex and time intensive, around 80% of the SCF programmes C2FO works with have been with their original provider since launching their programs, meaning most are running on outdated technology with a single funder, or they are juggling multiple programs with different capabilities, reporting and supplier experiences. Until now, no solution has been available that is focused exclusively on removing the pain of upgrading an existing SCF solution. 

A statement from C2FO says that SCF Propel simultaneously benefits multiple partners. It enables more suppliers to use SCF solutions. Large and small suppliers can now have competitive access to working capital, meaning no minimum spend requirement for suppliers and zero disruption for existing participants. Enterprises gain access to C2FO’s extensive network of global funders and can effortlessly deploy their cash, driving EBITDA benefits and managing other key business health indicators. They can get more value, support more suppliers and reduce the complexity of multiple bank platforms. Banks also benefit from a strong relationship with their customers, gain access to more extensive funding opportunities, and eliminate the administrative burden and challenges with payment reconciliation.

C2FO has already implemented its latest solution to enhance some of the world’s largest SCF programmes. By integrating the solution, thousands of additional suppliers can access low-cost, convenient working capital. Enterprise clients using SCF Propel saw their available credit double while reducing supplier onboarding time from several weeks to a matter of minutes, according to C2FO.


US truck freight market ends 2023 with drops in volume, spending

The US truck freight market ended 2023 with further declines in both shipment volume and spending, according to the latest U.S. Bank Freight Payment Index. Compared to the same period in 2022, fourth quarter shipment volume was down 15.7% while spending by shippers contracted 13.5%. The year-over-year drop in volume was the largest in the history of the Index.

“The truck freight market is feeling the impacts of companies reducing inventories significantly as well as consumers continuing to spend more on experiences over goods,” said Bob Costello, senior vice president and chief economist at the American Trucking Associations. “We’ll watch carefully in coming quarters if companies complete their inventory reduction efforts and begin to restock, which would help boost trucking.”

All regions in the fourth quarter felt the slowdown in volume versus the same quarter in 2022, but it was most acute in the Southeast (-25.4%) and Northeast (-23.8%). Spending also dropped in all regions year over year, with the most significant in the Midwest (-17%).

“Throughout 2023, our Index has consistently revealed significant declines in spending by shippers,” said Bobby Holland, director of freight business analytics, U.S. Bank. “While spending dropped again in the fourth quarter, we are seeing indications that might suggest trucking supply is coming into balance with demand.”


Mastercard deploys gen AI in war on fraud

As fraudsters increasingly exploit technology to thwart banks and their customers, Mastercard says it is adopting generative AI techniques to enhance the protections that keep consumers – and the entire payments network – safe. Mastercard’s Decision Intelligence (DI) - a real-time decisioning solution - already helps banks score and safely approve 143 billion transactions a year. New generative AI technology will scan an unprecedented one trillion data points to predict whether a transaction is likely genuine, building Mastercard’s existing ability to analyse account, purchase, merchant and device information in real-time.

The next-generation technology, Decision Intelligence Pro, assesses the relationships between multiple entities surrounding a transaction to determine its risk. In less than 50 milliseconds, this technology improves the overall DI score, sharpening the data provided to banks. Initial modelling shows  AI enhancements boost fraud detection rates on average by 20% and as high as 300% in some instances.

The enhancement of DI should further improve banks’ abilities to protect cardholders from fraudulent transactions and mitigate false positives: legitimate transactions which are incorrectly flagged as fraudulent ones. DI Pro will be available from later this year.


Emirates NBD taps Silent Eight to enhance compliance efficiency

Emirates NBD has announced a strategic partnership with Silent Eight following a successful Proof of Value (PoV) engagement that demonstrated the technology firm’s ability to automate the alert screening investigation process and improve the efficiency, accuracy and auditability of the bank's compliance operations.

In collaboration with Emirates NBD’s FinTech Partnership and Engagement Team, the PoV involved testing Silent Eight's solution on alerts generated by the bank's screening system. The solution uses natural language processing and machine learning to replicate human reasoning and decision-making based on historical alert data and continuous learning. The solution solved close to a third of the alerts in the scope of the PoV, explain the resolutions with clear narratives, and close the alerts with zero error rates.

Based on the results of the PoV, Emirates NBD has decided to deploy the Silent Eight solution to reduce reliance on human investigators, lowering operational costs, and enhancing the customer experience by minimising the delays and requests for information caused by false positive alerts.


DBS treasury markets business gets a revamp

DBS has announced that it will be merging equity capital markets, brokerage DBS Vickers and DBS Digital Exchange (DDEX) with its existing Treasury Markets business, with the new group to be renamed Global Financial Markets (GFM). This takes effect on 1 March 2024.

As part of the merger, Andrew Ng, currently head of Treasury Markets, will oversee the new enlarged group as Group Head of GFM. Clifford Lee, currently Group Head of Fixed Income, will assume the expanded role of Head of Investment Banking, which encompasses debt and equity capital markets, and DBS Vickers. In this role, he will continue to report to Ng. Art Karoonyavanich will extend his existing role as Head of Capital Markets (Singapore) to include the region. Kenneth Tang will continue his role as Group CEO for DBS Vickers. Both Karoonyavanich and Tang will report to Lee.

These organisational changes are being made with the retirement of Group Head of Capital Markets, Eng-Kwok Seat Moey, who is stepping down in March after 36 years with the bank.

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