Cathay Pacific collaborates with suppliers like Rolls Royce and Fulcrum BioEnergy to innovate its supply chain and business model. With Fulcrum, Cathay was the first airline to invest in biofuel development, gaining a stake in the company and long-term fuel supply. Alibaba partners with Payscout to expand globally by providing secure payment processing across markets. Payscout spent years establishing trust in China before partnering with Alibaba, and now works closely with Alibaba teams to rapidly deploy new markets. Both partnerships required aligning goals and building trust over time for successful collaboration and innovation.
2. 1 Innovating through partnerships Asian leaders entering new markets1
BNPParibasForeword
BNP Paribas Securities Services is proud to sponsor this series of articles on supply chain
innovation. We hope these remarkable innovations will give you an ‘outside the box’
view on the possibilities to innovate in your supply chain.
We purposely looked outside our own partnerships and sectors to provide a very
open and unbiased view. We wanted to explore the correlation between innovations
in financial services with that of other sectors. The result yielded a few surprises in
particular with regards to the following themes:
Article 1: innovation in finance, insurance and technology
l Operational efficiency through real-time inventory management
l Customer insights for future proofing new products
Article 2: innovation in manufacturing and technology
l Engaging start-ups for product innovation
l Co-creation of products for a new market
Article 3: innovation in Asia
l Co-creation for a sustainable future
l Expanding globally with scalable partnerships
We hope these examples will generate some new ideas for your business and ways you
can innovate with your partners.
For more information on how you can work with BNP Paribas on similar innovations,
please contact us at: bit.ly/ContactOurExperts
The full series of articles is available on the Economist Insights website at:
bit.ly/supplyinnov
3. 2
Alignmentenablesinnovation
Supply-chain collaborations only work if they are built on a foundation of trust and
common goals
Hong Kong-based Cathay Pacific Airways relies on its supply chain to move the
needle on innovation. From redesigning passenger seating to technologies that cut fuel
emissions, the airline turns to trusted suppliers to address challenges and grab new
opportunities at the core of its business. As Adrian Gjurasic, head of fuel and sustainable
procurement, points out: “Collaboration is absolutely critical to the success of our
company, and to our industry. We have to innovate our way out of the current state,
and we can’t do it by ourselves.”
By collaborating with its suppliers to achieve innovations, the traditionally conservative
airline is able to try out new ideas without assuming a lot of risk, according to Mr
Gjurasic. Cathay’s supplier collaborations typically involve two
kinds of vendors: major global suppliers, such as Rolls Royce,
with which the airline has long-standing relationships, and
innovative start-ups that bring disruptive solutions to the
table and use the success of the partnership as a way to scale
up their own businesses. “In both cases, these vendors have
a vested interest in the success of the relationship, and that’s
what we want,” Mr Gjurasic says.
Inpursuitofbiofuel
Cathay spends roughly 40% of its total operating budget
on fuel, so finding ways to cut fuel costs and lessen the
environmental footprint of its fuel use is a constant focus for
the company. Fuel considerations are at the core of many
of its supply-chain collaborations. In 2014 Cathay pioneered
a partnership with Fulcrum BioEnergy, a US-based biofuel
developer which converts municipal solid waste into jet fuel.
Not only will this partnership help Cathay lower its CO2 emissions and cut fuel costs, it
will also establish the airline as a global leader in sustainable jet-fuel development. “A
lot of airlines talk about biofuel, but we were the first to put real money behind it,” Mr
Gjurasic says.
Cathay made a significant initial investment in the company, ensuring that it shares an
interest in Fulcrum’s success. “This is a really good example of how we are partnering
with a start-up to achieve our goals,” according to Mr Gjurasic.
What kind of company the airline is willing to collaborate with, and how deep those
Innovating through partnerships Asian leaders entering new markets
Written by The Economist Intelligence Unit
“Collaboration is
absolutely critical
to the success of our
company, and to our
industry. We have to
innovate our way out
of the current state,
and we can’t do it by
ourselves.”
Adrian Gjurasic,
Cathay Pacific’s head of fuel and
sustainable procurement
4. 3
partnerships go depends on much more than a vendor bringing a creative solution to
the table. “We need to have a good rapport, a good cultural fit and aligned values with a
supplier for collaboration to happen,” Mr Gjurasic explains. “Otherwise these projects can
fail dramatically.”
Cathay has a dedicated biofuel manager who explored several
possible partnerships, and while Fulcrum seemed promising,
Cathay still spent 12 months meeting with the Fulcrum
leadership team before investing. This involved vetting the
technology, assessing the company’s business model and
getting to know its leaders and corporate culture to determine
whether this was the partnership that could help make
biofuel a reality for Cathay.
“A lot of relationships in Asia are built at the senior level,
with two CEOs sitting together and getting to know one
another before the project moves forward,” states Mr Gjurasic.
Cathay’s CEO liked the fact that Fulcrum’s leaders had
energy-industry experience, proven technology and a similar
approach to business management.
Cathay now has a seat on Fulcrum’s board of directors and
has a long-term supply agreement for an initial 375m gallons
of sustainable aviation fuel over ten years. In exchange, Fulcrum has used Cathay’s
initial investment to begin construction on several large-scale, waste-to-jet-fuel plants
at locations strategic to the Cathay Pacific network in North America. Mr Gjurasic
concludes: “From an operational perspective, this collaboration is a brand new direction
for us. The risks are there, but they are manageable, and it puts us on the ground floor
to take biofuel to the next level.”
Alibabagoesglobal
“Spending time up-front to build trust before diving into the innovation phase is key
to the success of any supply-chain collaboration. This is especially true in Asia, where
relationship-building is at the foundation of every strong partnership,” says Cleveland
Brown, CEO of Payscout, a global payment-processing provider based in California.
In September 2015 Payscout announced a partnership with Alibaba Group, China’s
largest e-commerce company with annual sales of Rmb76.2bn (US$12.3bn). “It is
a collaboration that took years to solidify, but could change the long-term business
trajectory for both companies,” according to Mr Brown. Through the partnership
Payscout will provide global payment logistics for Tmall, Alibaba’s business-to-consumer
portal. Tmall currently has more than 180m shoppers in China, but the company wants
Innovating through partnerships Asian leaders entering new markets
Written by The Economist Intelligence Unit
“From an operational
perspective, this
collaboration is a
brand new direction
for us. The risks are
there, but they are
manageable, and it
puts us on the ground
floor to take biofuel
to the next level.”
Adrian Gjurasic,
Cathay Pacific’s head of fuel and
sustainable procurement
5. 4
to expand its global product offering by encouraging non-Chinese companies to sell
directly on its site. The Payscout platform will enable Alibaba to establish secure global
payment processing quickly and accelerate Alibaba’s expansion into new markets.
“We often collaborate with suppliers mainly because of the need for new ideas and the
desire for new perspectives on our market expansion,” says John Lu, co-ordinating
manager for Alibaba’s logistics division, based in Hangzhou. Mr Lu notes that Alibaba
was attracted to Payscout because of the vendor’s efforts to
improve and modernise online payment technology.
However, the vetting process to partner with Alibaba had
started three years earlier, when Payscout established a
presence in China. On opening offices there it became a third-
party service provider for China UnionPay, the only domestic
bank-card organisation in China.
Mr Brown’s team spent a full two years meeting with
Chinese financial institutions and local finance regulators
building relationships, establishing trust and demonstrating
his leadership team’s track record for good business decisions.
“You have to be willing to prove yourself, and that takes time.
We had to earn their trust through our own integrity and
cultural empathy,” Mr Brown asserts. “That opens a space
where true innovation emerges.”
Today Payscout’s engineers are working on a daily basis
with Alibaba’s IT team to expand the payment platform
and address issues around currency conversion, sales forecasting, regulations and tax
laws, enabling Alibaba to rapidly deploy Tmall to countries around the world. This is
where the time spent up-front ultimately pays off. Payscout’s presence in more than
100 countries can greatly benefit Alibaba by making a new market entry possible in
a matter of weeks, rather than requiring a build-up over years. “Together, we can
achieve mutually beneficial results across developing markets,” Mr Lu says. “This is our
strategy.”
“Being selective about your partners increases the quality of the work and ensures that
when problems arise, they will be handled efficiently—and then avoided in the future”,
he adds. “Everyone makes mistakes. Not repeating them is the fate of great companies.”
Innovating through partnerships Asian leaders entering new markets
Written by The Economist Intelligence Unit
“Being selective
about your partners
increases the quality
of the work and
ensures that when
problems arise,
they will be handled
efficiently—and
then avoided in the
future.”
John Lu,
co-ordinating manager for
Alibaba’s logistics division