Global Trends Affecting Letters of Credit in Finnish Companies
Kiilamo, Sara (2024)
2024
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Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi:amk-2024052013672
https://urn.fi/URN:NBN:fi:amk-2024052013672
Tiivistelmä
Recent global events and disasters have had major impacts on global trade and therefore also on trade finance and Letters of Credit. Digitalization has been increasing in the trade finance sector especially in the last few years. The COVID-19 pandemic speeded up digitalization as paper-based trade was not possible in some cases. Russian invasion of Ukraine has, in turn, affected the global economy and caused geopolitical tensions. Recent global changes have also increased companies’ and financial institutions’ focus on sustainability.
This research-based thesis investigates how current global trends affect the usage of Letters of Credit in Finnish mid- and large-sized companies. The thesis was done for the Company X which operates in the financial sector. The benefit of the thesis was for the Company X to get insights on whether they should prepare for changes in their LC related services and strategies.
This thesis was conducted by researching the main concepts and the current global trends affecting Letters of Credit, Finnish exports and imports as well as the financial sector. This forms the theoretical framework of the thesis. Based on the theoretical framework, the identified global trends were digitalization, economic changes, geopolitical tensions, and sustainability. Additionally, primary data was collected through a survey which was sent to Finnish mid- and large-sized companies. The survey responses were analysed to gain understanding of how the global trends affect Letter of Credit usage in Finnish companies.
Despite the limited number of survey responses, the research indicates that there is some correlation between the global trends and LC usage in companies. The volumes of Letters of Credit have decreased in some companies, one reason for that being changes in markets. Another reason was that certain companies prefer to use other payment methods. Some companies have also increased digitalization in their Letter of Credit processing and are estimating that digital processes will grow. Sustainability seems to be an important factor in some companies, however other companies stated that they do not focus much on it in Letters of Credit. However, there is an indication that sustainability’s role will grow.
The author suggests that Company X pays attention to providing and marketing digital solutions which would smoothen the Letter of Credit processing for companies. Since there is also some indication of changes in markets, Company X could research further which markets are estimated to increase or decrease. The author also suggests Company X to consider how sustainability could be supported in their customers’ Letter of Credit deals.
This research-based thesis investigates how current global trends affect the usage of Letters of Credit in Finnish mid- and large-sized companies. The thesis was done for the Company X which operates in the financial sector. The benefit of the thesis was for the Company X to get insights on whether they should prepare for changes in their LC related services and strategies.
This thesis was conducted by researching the main concepts and the current global trends affecting Letters of Credit, Finnish exports and imports as well as the financial sector. This forms the theoretical framework of the thesis. Based on the theoretical framework, the identified global trends were digitalization, economic changes, geopolitical tensions, and sustainability. Additionally, primary data was collected through a survey which was sent to Finnish mid- and large-sized companies. The survey responses were analysed to gain understanding of how the global trends affect Letter of Credit usage in Finnish companies.
Despite the limited number of survey responses, the research indicates that there is some correlation between the global trends and LC usage in companies. The volumes of Letters of Credit have decreased in some companies, one reason for that being changes in markets. Another reason was that certain companies prefer to use other payment methods. Some companies have also increased digitalization in their Letter of Credit processing and are estimating that digital processes will grow. Sustainability seems to be an important factor in some companies, however other companies stated that they do not focus much on it in Letters of Credit. However, there is an indication that sustainability’s role will grow.
The author suggests that Company X pays attention to providing and marketing digital solutions which would smoothen the Letter of Credit processing for companies. Since there is also some indication of changes in markets, Company X could research further which markets are estimated to increase or decrease. The author also suggests Company X to consider how sustainability could be supported in their customers’ Letter of Credit deals.