Taking the long view and forward thinking at EuroFinance 2013 in Barcelona.
Nothing’s more important than planning for the long term and taking a truly forward-looking approach. Still, amid these views of the distance, there are still issues in the “now” that need to be addressed: cyber-security, technology solutions and “bad” banks.
These were some of the themes of EuroFinance’s 22nd annual International Cash & Treasury Management extravaganza in Barcelona this year. Conference goers were encouraged to pay particular attention to their banking partners and the changes going in banking as a whole, to remain competitive through thoughtful strategic analysis (along with tips on how to do this) and to make sure goals are not only achieved but are sustainable.
Drivers of Change in Treasury and Banking
John Owen, CEO of International Banking at official lead sponsor RBS, began the event with a few remarks about what he perceived to be the key drivers of change in treasury management and in banks’ servicing of clients:
- SEPA: the genuine opportunity lies in not just complying but to streamline payments and processes around them, which over time will reduce transaction cost;
- RMB settlement: it’s only just got started and further deregulation in China will increase it;
- Digital banking: eBAM, as just one example, is becoming real (although according to a poll of conference goers, 53 percent of corporates want eBAM but say it’s either not offered to them or it does not meet their needs); digital banking will change the cost structure of the banking business going forward. Yes, there are problems with harmonization but with digital comes the opportunity to remove both paper and reduce the risks of human error;
- Centralization and control: to increase the speed of information access and decision making, to monitor and reduce counterparty risk, access cash quickly, improve working capital efficiencies, you need to increase the connection between treasury and the business operations.
The Path to Corporate Competitiveness
Stéphane Garelli, university professor and director of the IMD World Competitiveness Center in Switzerland, kicked it up a notch with a fast-paced treatise on competitiveness and how strategic insights drive it in organizations. With financial, economic, social and political crises creating cumulative uncertainty (the “new normal”?), the challenge is to forecast what will happen. A company without a view of where the world is going, it cannot think strategically and long term about what it should be doing and how. A few highlights of his talk:
- The world has developed into a “dual world,” the professor remarked: the government side with huge debts and the corporate side with lots of cash. The perfect illustration is the bankrupt state of California where there is great innovation and profitable companies (although they technically make their profits elsewhere, contributing to the state’s delicate finances, no doubt). At the same time, the world is not in synch: economies are white hot in Asia, slow in the West, Africa picking up steam.
- Deficits as a proportion of GDP and government spending as a proportion of GDP are problems that are long-term; for example, there are eleven countries in Europe where government spending is more than 50 percent of GDP. This will have a cascading effect: with high federal debt, sub-sovereign debt (Detroit, California) also spirals upward.
- Higher taxes are coming and tax authorities globally are closing ranks: those higher taxes will come from a broader tax base and be aided by greater transparency (governments working together and sharing information), which enables multinational taxation.
- Flows of money don’t follow the same patterns anymore: more FDI is coming from emerging markets, like Brazil, India, Saudi Arabia, South Korea, Russia, Qatar. This money will finance the globalization of “national champions” (brands, companies) from these countries, and they will become your competitors. There are already 1,000 firms from emerging markets with more than $1 billion revenues.
- Consumers consume differently: replacing old products with new and first-time purchases; with emerging middle class in emerging markets, the latter is important, while the West increasingly sees less purchasing power in some classes and the younger generation in part has a different attitude to consumption than older generations. Payments will also change: many people in emerging markets do not have bank accounts but they do have mobile phones.
- Social time bomb: rising unemployment, especially among youth, will have social consequences.
- Shift in the “weight” of population: The US is on a slow growth path, Europe is stagnant, Asia is growing, and Africa is on a high-growth path: Africa will have over two billion people in 2050. Couple this with high levels of urbanization: 40 mega-cities by 2050.
- Industrialization shifts: less manufacturing in the West, more in emerging markets; but also a trend to “reshore” some jobs, although they will predominantly be white-collar.
Taking the Long-Term on Sustainability
Steve Weiner from Unilever led the first plenary session on the second day, which continued the long-term theme. He shared the company’s strategic focus on sustainability as a key to long-term survival and profitability. Innovations in products, efficiency, packaging, transportation, distribution, etc. all contribute to the financial bottom line and shareholder value, Unilever believes.
The linchpin of that philosophy is that this should not reside in an obscure corporate social responsibility (CSR) department but should permeate the whole company and be part of processes and goals. For treasury and finance, one of the challenges is the measurability of progress. You should have the right KPIs, not too many. Metrics are easier on the sourcing side, for example, and harder on the consumer side. “How do you measure the value associated with saving x gallons of water [in doing laundry]?”