Globalisation: External Forces Driving Corporate Growth and Expansion

Treasury management plays an important role in a corporation’s globalisation efforts especially in the areas of cash management, banking, foreign exchange risk, and investments. Treasury must address challenges with managing liquidity distributed across markets, currencies, and businesses, especially the need to keep up with regional liquidity nuances and regulatory issues.

As an outgrowth of globalisation, four key external forces impact opportunities and challenges for corporate growth and expansion: economic uncertainty, geopolitical climate, regulatory environment, and technology evolution.

Eight years on from the 2008–2009 financial crises, global economic growth remains sluggish, hovering between 3.1% and 3.4% since 2012. There are numerous examples of geopolitical events exacerbating volatility, uncertainty, and risks arising from the increasing interconnectedness of regions caused by globalization. New regulations impact treasury organizations in many ways, including in-house banking, intercompany transactions, and transfer pricing documentation.

Corporate treasury organizations continue to lean on technology to facilitate change and mitigate complexity arising from global expansion. Cloud-based treasury management systems (TMS) provide an opportunity to implement specific modules on a subscription pricing basis. Governmental agencies, banks, and fintechs are collaborating to evolve complex corporate treasury services.

As discussed in the new Celent report “Globalisation: External Forces Driving Corporate Growth and Expansion," although firms are in different stages of their globalisation journeys, they can benefit from working with their banking partners to adopt strategies and tactics that address the external factors affecting corporate growth and expansion. Universal banks understand geographic differences and nuances, and are in a unique position to advise firms seeking to expand their businesses globally. This report is the sixth in an ongoing series of reports commissioned by HSBC and written by Celent as part of the HSBC Corporate Insights program.

Corporate Banking in Asia is Heating Up

The press seems to focus a lot of its coverage on competition for retail banking business in Asia, but from where I sit it looks as though the corporate banking side is at least as hot, if not more so. One reason is that retail products and services are already fairly well developed in the region, leaving much of the action on the retail side to the marketing and branding of increasingly commoditized offerings. Corporate banking services, on the other hand, are still developing. There is a lot of room for improvement in the way banks in Asia are packaging and delivering their corporate banking services. This is particularly true for transaction banking services, including cash management, treasury, trade finance and supply chain management products and services. The large global banks have been investing heavily in developing comprehensive suites of services, often on a worldwide basis; many banks in Asia are now starting to see the value in developing a full range of transaction banking services for their corporate customers. I was recently invited to speak at an event in Hanoi, Vietnam for Asian banks organized by Citi, where this trend was readily observable. The venue was packed with managers from banks throughout Asia, large and small. They came to see what Citi had to offer in the way of web-based delivery, global payments solutions, trade finance and supply chain finance services, etc etc, and to think about how to offer these services to their corporate clients. Many banks in the region are likely to use the white labeled services of global banks such as Citi, ABN AMRO or HSBC, to name a few. Banks will be faced with choices in what mix of services, both outsourced and home grown, to offer in their particular market. I was struck by the number of banks I spoke with at the conference that were feeling challenged in developing their strategies for corporate banking services. Celent has followed developments and strategies in transaction banking for some years, and is now covering the market from the corporate side as well with our new corporate treasury research service. I look forward to working more closely with banks in Asia as they consider their options in this rapidly developing area.

Working Capital is not a dirty word, is it?

There is no dispute that one of the hardest organizational barriers to break is the one between Finance and Operations. Accountants and treasurers do not go very well with manufacturing, logistics, and procurement. They have different tasks and different (if not necessarily divergent) objectives, which exacerbate the gap. It is often said, to explain such behavior, that neither side had a real reason to “mingle” and cooperate beyond the basic courtesy of being employees of a same company. But “today” is making things quite different, and models of the recent past will hardly apply to the future scenarios, as soon as the recession dust settles down. “Cash is king” is the refrain in today’s economy, and working capital is the most direct, and effective, metric that measures the health of a corporation. While Treasurers are very familiar and comfortable with the intricacies of what it takes to improve the value of the figure, operations people are not. Just yesterday I was at a meeting of logistics and supply chain managers. I was impressed to listen the presenters mention “working capital” quite a few times. My initial enthusiasm to listen logistics managers finally speaking the finance vocabulary came to a halt, however, when I heard comments along the lines of ”The benefit achieved from this project is that we increased (italic intentional) our company’s working capital.” After an unavoidable shiver, I calmed and realized that they wanted to express something quite different. As a matter of fact, the increase was in the final result of the corporate financial statement, thanks to a reduced need for working capital. Moving away from the semantic analysis of the various other statements heard on the subject of working capital, one item appears clear: operations people are still far away from confidently handling matters that traditionally belonged on the other side of the wall. It should be a priority for corporate decision-makers to ensure these barriers eventually tumble down. When definitions are mis-communicated, they surface an inherent lack of understanding of the subject. In a world continuously revolutionized by changing dynamics and paradigms, it is not an option to fumble for results. The first barrier to break down is the one of corporate language, and operations people should not shy away from terms that sound “financial” and, therefore, out of scope. Understanding of working capital, and of the levers needed to impact its value, should be the first practical test-bed where finance and operations meet to produce positive results for the corporation they both work for.