By Joseph Neu
The impact of US-China tension should not spoil the give-and-take around digital opportunities in Asia.
“I’m focused on the larger, long-term impact of digitalization, more so than the near to medium impact of trade issues.” That’s how one China-based treasurer put it during a session on the US-China trade war at an industry treasurer roundtable NeuGroup hosted in October in Singapore.
This makes perfect sense. On the one hand, his company is unlikely to change the current policy dynamic unfolding between the US and China on trade and other political and economic issues. And on the other, the success of his company is much more likely to be a byproduct of how well it continues to navigate the forces of digitalization that are only accelerating their impact on everyone everywhere. His treasury supports businesses that have a high probability of impacting the digital future and they already have. So, I applaud his focus on what he can impact, which also has the potential to have transformative positive effects on people in China, in Asia and everywhere else.
This treasurer’s perspective on US-China tensions is similar to what I thought of repeatedly on my trip through Asia in late October and early November. That is, how can we all continue to tap into what makes the region so special in terms of transformational economic development that has and continues to lift so many out of poverty and brings the majority close to, if not on a path to reach, their full potential? This is why being in the region and seeing these transformational forces at work can be so energizing. It would be a tragedy if this energy were to be cut off from other parts of the world due to out of control political forces. Equally, it would be a shame if Asia no longer had the same connection to America, long the land of opportunity, as it would lose something, too. I’m not casting blame on policymakers on either side, since the prior policies of both were no longer sustainable; I just hope they don’t lead us toward lasting divisiveness when there is so much value to be had in a shared future.
What can treasury and finance do? The China-based treasurer noted above sets the right example: Prepare to support your businesses as they navigate political/economic turmoil but also empower them to take advantage of the opportunities created with digitalization. Here are three other ideas gleaned from my exchanges with treasury and finance professionals on my recent trip to Asia.
1) Prepare for winter, but also for spring. “Winter is coming” may have been the headline takeaway from our AsiaCFO meeting for MNC CFOs in Shanghai, but the subtext was the opportunity for growth is still huge, so don’t shy away from it. Businesses operating in China and markets depending on China need the financial wherewithal to survive a significant economic downturn, but the flexibility to support growth opportunities as and when they are there. See if you can get some excess capital out of China to prove you still can, but don’t send it all away. Look at your exposure to anti-American sentiment, country risk and a stronger dollar, and hedge as needed, but don’t limit your options. Also, other markets may benefit from a slowdown in China, such as India and Vietnam. How prepared are you to support a scale-up of business there?
2) Localize your support infrastructure. Customer, supplier and distributor financing is ever more important during uncertain economic times, so MNCs will want people close to key markets and with knowledge about them empowered to make quick decisions. This is why even MNCs that have traditionally favored centralized treasury and finance functions are putting treasury and finance staff in Asia, and those with long-standing teams in the region are upping their decision-making authority, and increasingly favoring local hires over expats. If the businesses finance is supporting are becoming more localized, as many are, it follows that finance teams should localize, too. It’s also harder for the government to retaliate for political effect if the local team is comprised of locals and the regional team reflects the region.
3) Embrace in-region innovation faster. Asia- and particularly China-based firms are quick to learn about world-class standards and best practices, and innovate on top of them. It’s no different in their treasury and finance functions (some, but not all). Western MNCs need to do a better job of taking up the innovative eagerness to implement of their Asia peers and move faster with innovation around digitalization. They can do the same with treasury and finance practices that Asian counterparts are embracing. They have a bit of a greenfield opportunity, like growth companies building finance functions for the first time. Hang your cultural biases at the door and connect and exchange with peers in the region and you’ll be surprised what they can teach you—but enforce the notion of “give to get.”
Bring It Home
Once an Asia-generated innovation takes, make sure to “spread the wealth”; in other words, bring the innovations home. Western MNCs do their customers a disservice when they transform their businesses for China and other Asia markets and are slow to bring the winning innovations back to domestic and other developed markets. Their finance functions should not make the same mistake.
With the above and more on your to-do list in response to rising tensions casting a shadow over Asia, I hope you will join me in encouraging all with whom you connect to see the benefits of keeping our regions connected. One is setting a new pace of economic transformation and the other has a unique history of creating economic opportunity and innovation. We have so much to give to get from each other, it behooves MNCs to ignore the noise.