Going Global, Going Digital
by Gianfranco Bisagni, Co-Head of Corporate & Investment Banking, UniCredit
International expansion is a common strategy for European corporates. However, if not managed properly, it can bring with it a number of challenges and pitfalls. Gianfranco Bisagni, Co-Head of Corporate & Investment Banking at UniCredit, delineates the key drivers of corporate expansion and the strategies for the smoothest possible process.
What trends are you seeing at the moment in terms of corporates’ growth strategies?
European corporates have the resources and the appetite to expand internationally. According to UniCredit Research’s recent study, Internationalisation of companies by 2030, outward foreign direct investment (FDI) is a highly popular strategy – German and Italian multinational enterprises (MNEs) are already among the top global players and are expected to double their foreign investment activities by 2030. In the case of Germany, we are talking about an additional EUR 1,200bn and for Italy EUR 500bn, with the Eurozone and the US remaining the most important destinations.
This builds on a longer-term trend that has seen growth in FDI outpace worldwide trade volumes by 1,400% between 1980 and 2014.
Why is FDI a strong option for expanding corporates?
In the past, FDI appealed to corporates as a means of lowering their overall production costs by spreading processes across different countries – with each carried out in the most cost-effective location. Today this is no longer the most relevant driver. The main incentive now is the prospect of providing a more direct and comprehensive service to overseas clients, while avoiding transportation costs, trade tariffs and exchange rate volatility. This is proving particularly popular with German and Italian corporates – with 61% of Italian multinational enterprises citing high customer demand as an incentive for FDI, while 45% of German industrial companies investing abroad envisage improvements to their sales and customer service.
What are the main challenges corporates face when undertaking an FDI programme?
Corporates investing abroad must overcome a number of challenges. For a start, setting up abroad involves the challenge of negotiating the customs, regulations and practices of new and unfamiliar markets.
There are also challenges with internal administration. Cash management can be particularly tricky, as opening bank accounts for new subsidiaries makes cash positions increasingly complex. Overseeing the flows of a growing number of accounts can therefore become a considerable administrative burden.
Corporates investing in new markets also face the risk of dealing with unfamiliar counterparties. Containing these risks and building relationships with local buyers and suppliers will be another crucial element of any successful foreign expansion.
What can corporates do to mitigate these risks when dealing with new counterparties?
Fortunately for corporates, there are a number of innovative risk-mitigating products on the market. This is an area to which UniCredit has devoted considerable investment. We offer MT798 messaging, which enables clients to use SWIFT’s digital infrastructure to exchange data with their banks and improve the efficiency of their documentary processes. We are also part of SWIFT’s global payments innovation initiative, which aims to simplify correspondent banking processes for corporates by making cross-border payments faster, more predictable and more transparent.
We are a market-leading provider of the Bank Payment Obligation (BPO) – an innovative settlement method that allows banks to reduce clients’ exposure to settlement risk by mediating and guaranteeing payments between trading partners.
Once relationships have been established, supply chain finance solutions can help corporates improve their collaboration with local partners. Here, too, we are determined to offer clients of all sizes the highest level of service. To this end, we are working on a new trade finance portal for corporates, which will include, among other things, advanced features, with a digital platform for executing supply chain finance programmes.