By Joseph Neu
Treasurers should remind themselves frequently that their treasuries have a principal duty to support their firm’s business units—all the way down to the local level. It is too easy to get caught up in the benefits of centralization and forget that some of the most important support treasury can provide is on the ground.
The vital need for treasury support of business units on the front lines was brought home again at a NeuGroup meeting with regional treasurers in Singapore last month. Indeed, one member company has recently undergone a reorganization of its treasury, driven in part by a “transformation” forced upon it by business challenges, that emphasizes local treasury over a regional role. In this company’s case, local treasurers at the regional treasury center were promoted as the regional treasurer role was taken away. The implicit point being that in a turnaround situation a local treasury ground game is even more important than when times are good. Since the global economy itself is in a transformational turnaround, every treasury should be further emphasizing its business treasury support ground game.
developing vs. developed
Developed markets enable centralized treasuries promoting standardized processes with customers and suppliers that have mature avenues of access to financing. This is why preachers of treasury management best practice tout centralization as the default. In developing markets, where MNCs (even Apple) find the bulk of their earnings coming from now, a good and dedicated treasury ground game is what helps pay dividends.
What are the elements of a good ground game? In today’s environment much of it is about helping customers and suppliers locate the working capital they need to purchase or contribute to the business. Put another way, it means helping customers and suppliers implement and manage treasury infrastructure of their own.
Step one is to educate local sales and procurement managers on treasury’s available services to their customers and suppliers, including when and how to apply them and to whom. A big part of this education is the message that the company’s balance sheet does not come for free, and, therefore, winning sales through overly generous credit terms or helping out suppliers via early payment is not a path to long-term success. If financing is part of the sales solution or supply-chain finance capability, fine, but such offerings must come with appropriate pricing of credit.
Step two is to have local sales and procurement provide introductions to their counterparties so that they can be given rudimentary treasury training on how to make themselves more attractive to providers of financing. MNC treasuries with an official or unofficial internal treasury consulting capability will have an advantage here.
Step three is to use the MNC’s connections and introduce local commercial counterparties to providers of financing that they might not as easily find on their own. If treasury is not bringing its own balance sheet, it should be in a position to bring those of its bank relationships, for example, or, just as likely, the local bank relationships of its global bank partners. And even if local treasury specialists find local sources of financing on their own, they can bring the influence of a major brand name and their actual or potential wallet to get their customers or suppliers a foot in the door.
Local without being remote
Finally, as we learned at last fall’s pilot meeting of The NeuGroup for Asia regional treasurers, MNCs are striving to become good at acting local without having treasury people in each country. Having a single local treasurer on the ground tends to leave them “remote” and easily separated from the firm’s broader finance agenda. More and more, as a result, world-class finance organizations are establishing a minimum number per site rule (e.g., no fewer than three).
Such finance site floors are about more than just being cost-conscious: Having more people together fosters a broader finance team mentality and better enables career development. Accordingly, local treasury support professionals, folded into a regional treasury center or regional headquarters, can be dedicated to their task but also join the orbit of all-important rotational assignments in and out of other treasury and business finance roles that make everyone better.