Subscribing to Convergence
How an openness to new sectors and partners can give businesses global reach
The subscription model can revolutionise supply chains in a way that breaks down sectoral, geographic and cultural barriers, suggests Jan Metzger, Head of Asia Pacific Banking, Capital Markets and Advisory.
Head of Asia Pacific Banking,
Capital Markets and Advisory
The subscription model, apart from a tie-in to the customer, allows a change in the business model of the supply chain.
“This is about much more than just subscription. I actually think it’s a changing of society in subtle, but meaningful ways.
Let’s take your smart phone. Let’s say you were renting it or subscribing to it, and the outside was perfect and it worked, would you really care if the DRAM chip was in its sixth phone? I don’t think you would.
There are companies in Shanghai that are now renting out female clothing, business clothing. They’re getting suits from different premium brands, and they are getting them for three weeks at a time. They’re being cycled in and out and they will never own those suits again; people love this offering.”
Head of Asia Pacific Banking,
Capital Markets and Advisory
Subscription will also spill over into the oldest, most traditional sectors.
“Take housebuilding, for example. In China, over the next five to 10 years, we will see a meaningful number of apartments built without kitchens! No kitchen, no living room. And the logic here is that if you’re a young couple, you will only formally entertain at home maybe four times a year.
So, you build a tiny apartment, with a double bed, a shower and a toilet – that’s it. When you want to entertain, you can just book a huge, high-end living room-kitchen combo in the same building. All of this is shared in a way that you get an even better experience than if you owned it.
Today, the most expensive balance sheet item of a modern family is a home. And, if that home becomes much smaller and people are much more willing to rent, that balance sheet item may be much smaller, may even no longer exist. So, you change a family or individual balance sheet to be almost entirely operational expenditure instead of capital expenditure.
This trend is coming into every aspect of society. It will create completely different financing structures in the world.”
In the last two years, I’ve been asked to attend more board meetings than in the prior 20 years of my career put together. And the reason for that is that boards are very focused on these changes and want to be educated about them.
“We lead deals in many sectors; we have a lot of cross-sector insight due to our network across 160 markets. Fifteen years ago, meetings with clients were very focused on their specific industry. You needed to be an expert in their specific sector. Now, experience in how one sector is responding to technology disruption is very relevant to other sectors. So, having experience in several sectors is extremely valuable.
There is so much happening all over the world that spill-overs between industries are becoming the norm. Insights on this are fascinating to boards.”
The biggest threat is that something that you do becomes a customer acquisition cost for somebody else.
“Let’s say you were an e-mail services company in 2004 and you were making pretty good money selling an email service and then another brand offers a gigabyte mailbox for free.
And they didn’t do it because they wanted to destroy you, they did it because they wanted the consumer information flow. And because they were monetizing your e-mail by selling ads. And that’s the biggest threat, that whatever you’re doing becomes an auxiliary service to something else. And then you could vanish.”
One of the trends that we’re seeing is different industry teams working together across numerous transactions.
“We helped to raise $14 billion for a FinTech company last year. We had the tech team and the financial institutions group (FIG) team working together. So there’s a lot more people working across teams in ways that need to be collaborative; in the past, it almost never happened that you had teams from different industries working together.
We have also been doing many more introductions between clients that might have otherwise never met. And that’s the huge value of the global Citi network.”
One prediction I have is that many companies are actually becoming more international.
“For example, we are seeing a very big increase in flows between Asian countries, which is something that didn’t happen so much in the past.
We have an e-commerce company in China that wanted to be introduced to providers of commodities like Sri Lankan crab, Spanish mandarins and Bangladeshi avocados. Who would have thought 10 years ago that an e-commerce company would want direct access to these kinds of people?”
“This kind of enabling of the circular economy that a subscription model allows will make for a much more powerful and efficient and, frankly, ecologically friendly kind of society as well.”
We think about all clients and all engagement in three dimensions.
“One is the country dimension, which is country expertise. Two is an industry over-layer that doesn’t work in one particular country but across all of Asia, or even across the whole world. And then the third is a regional product overlay.
We helped Pakistan’s largest mobile wallet provider and leading microfinance bank strike a strategic partnership with Ant Financial. It was owned by Telenor. A Norwegian telco owns a microfinance bank in Pakistan, and we source investment from a Chinese fintech.
In order to do that deal, you needed people that knew the client in Norway, on the ground investment bankers in Pakistan, tech bankers in Hong Kong and China bankers that knew Ant Financial on the ground in China. That’s an unbelievable spanning of the world.”
Subscription may seem to be a customer convenience issue or an economic issue, but it goes much deeper.
“I think globalization in this sense is inherently healthy. What you will see, I hope, is a greater understanding across cultures. This kind of enabling of the circular economy that a subscription model allows will make for a much more powerful and efficient and, frankly, ecologically friendly kind of society, as well as one that benefits more broadly across society too.”