The Next Generation of Asian Treasuries?
by Helen Sanders, Editor, TMI
One of the most significant outcomes of globalisation and the development of markets in Asia is the emergence of Asian multinationals as companies with a strong domestic presence pursue growth opportunities both across other parts of the region, and beyond. While many North American and European corporations measure their international growth journey in decades, many of their Asian counterparts can use the fingers of one or both hands to demonstrate comparable expansion. Not only are companies experiencing organic growth, but M&A in Asia is rapidly approaching levels more familiar in the west: in 2015, M&A by Asian corporations across a range of industries grew by 60% compared with 2014.
Key to the longer-term success of an international strategy is effective cash and treasury management to manage liquidity and risk across markets. Consequently, given the pace of change, treasurers of Asian multinationals need to focus on how they create treasury functions that will support their international growth strategy today, and in the future. These treasurers do not have the comparative luxury of years of incremental change, but need to react quickly to maintain visibility and control over cash, avoid exposure to liquidity and market risk across the countries in which they operate, optimise working capital and preserve operating margins.
Building efficient treasury functions has been a lower priority for many Asian multinationals in the past compared with pursuing growth. Today, this has changed. Unprecedented volatility in both financial and commodity markets, regulatory change, and the emergence of new business models in which the ability to harness innovation quickly creates competitive advantage are converging at the same time, with the result that treasury has never been more important. So what should treasurers of Asian multinationals be doing to position their business for further international growth, whilst also preparing for the inevitable challenges that doing business internationally brings?
Inevitably, there is as much diversity amongst Asian corporations as there is amongst North American and European businesses. Consequently, every treasurer will find her or himself with a somewhat different ‘to do’ list depending on factors such as treasury’s maturity, organisational structure, cash flow dynamics and corporate strategy, amongst others. As Kee Joo Wong, Regional Head of Global Payments and Cash Management, HSBC warns,
“The term ‘Asian’ multinational is somewhat of a misnomer, as not all corporations are at the same stage in their international growth strategy. Some corporations headquartered in Japan and Korea, for example, expanded offshore many years ago in some cases, whereas today, corporations in China and parts of ASEAN have only recently embarked on this process.”
As Andrew Bateman, Head of Treasury Software Solutions, FIS continues,
“It is important not to generalise too far when identifying treasury and technology trends amongst Asian multinationals, as these inevitably differ by industry, geography and the maturity of a company’s international growth strategy, amongst others. However, cash and liquidity management is usually top of mind for Asian and western multinationals alike, closely followed by risk management, particularly FX risk management. Beyond this, various nuances exist. In North Asia, for example, such as China, managing the impact of regulatory change is typically a key priority, as is managing interest rate exposure. In Australasia, which has a longer heritage in treasury technology, interacting with core banks and managing commodity exposures is often more important.”
A key characteristic of many Asian corporations, however, is their international ambition. Bruno François, Head of Transaction Banking, BNP Paribas China emphasises,
“Trends and priorities amongst Asian multinationals will inevitably differ, not least due to the country of incorporation. For Chinese companies, for example, state-owned enterprises (SOEs) are actively pursuing the ‘go global’ strategy promoted by the government in response to slowing growth in China and the need for diversification. This applies not only to the largest, well-known names, such as Huawei, but smaller, less well-known enterprises too.”
With internationalisation a widespread objective, and despite inevitable differences across organisations, the core treasury tenets of liquidity and risk are universal, irrespective of the maturity, reach and background of a company. Treasurers’ specific priorities and the way in which these are manifested may differ, as Kee Joo Wong, HSBC says,
“Multinational corporations globally, wherever they are headquartered, typically share similar treasury priorities, namely visibility and control over liquidity and risk. A key difference however, which often characterises multinationals headquartered in parts of Asia, is where they are in their international expansion journey and therefore the degree of treasury sophistication that they have in-house to facilitate this international strategy.”
Centralise to globalise
International expansion can result in fragmentation of processes and controls, replication of technology and operational capacity, and loss of visibility and control over liquidity and risk, particularly when growing through M&A. Consequently, establishing visibility and control over cash and risk is typically a first priority for treasurers. There are different approaches to achieving this, such as rationalising bank relationships and accounts, implementing liquidity structures such as cash pooling to bring cash into a single location wherever possible, and putting in place bank communications technology to bring this information together. Achieving these objectives is often easier in a centralised cash and treasury management environment, whether regionally or globally, as treasurers have a greater ability to influence transaction and information flows, manage bank relationships and accounts, and improve efficiency and control over processes and decision-making. Furthermore, it is easier to integrate new business units that result from M&A without loss of operational or financial control.