Be it trade friction, the need to do more with the same (or less), digitalization or expansion via acquisition, admitting you have resource constraints can help promote innovation and treasury transformation.
In a first-of-its-kind event on Oct. 29, 2018 in Singapore, HSBC partnered with NeuGroup on an Industry Treasurers’ Roundtable for the Technology, Media and Telecommunications (TMT) sector. The partnership brings to HSBC’s clients in Asia the NeuGroup process of connecting treasury and finance leaders to exchange knowledge and experience to help each other succeed. To further promote client success, NeuGroup distills key takeaways from these exchanges into insights that will benefit clients whenever they connect to exchange knowledge.
Following are key takeaways from the roundtable HSBC hosted for 16 sector clients representing regional treasurers from western multinational corporations (MNCs) and group treasury leaders from Asia-based clients. The takeaways draw on interactive sessions where participants discussed: US-China trade tensions and their treasury implications; their treasury projects and priorities; digitalization and its impact on the future of treasury; a case study on M&A as a regional expansion strategy; and how to think about post-acquisition treasury integration to support business goals.
US-China Trade Tensions
To open the meeting, clients heard an assessment of US-China trade tensions, leading to a discussion of the impact on sector firms’ supply chains.
KEY TAKEAWAYS:
- US-China trade tensions are not going away. Clients at the roundtable said their firms are moving beyond wait and see and starting to shift some of their supply chain and manufacturing outside China to reduce exposure to rising tariffs. They also want to find further efficiencies in their ecosystems, along with available government subsidies to mitigate costs they must pass through. This is not an easy or quick process, so action should not be taken lightly. It begins with intercompany transactions (e.g., reinvoicing) and downstream activities like subassembly, noted one client.
- Proactive regulatory outreach is required. One regional treasurer client noted that the countries where it makes the most sense to shift manufacturing are not the most open about cross-border fund flows and currency regulation. (And just imagine how their financial systems will respond to the increased flows from shifts in supply-chain ecosystems.) He said treasury needs to engage—both with business leaders making decisions to shift manufacturing and sourcing, and with regulators in those markets. Companies can educate regulators on specific changes to consider, using the opportunity to make them friendlier to the needs of MNCs. Treasurers need to be proactive given all the work that went into supporting supply-chain activities in China—another country that presents challenges regarding cross-border fund flows. Now this effort may need to be repeated in new countries such as Taiwan, Vietnam and Korea, or even Malaysia.
- Banks should engage to help. Supply-chain shifts require changes to supporting liquidity and cash management structures. Banks can help clients find solutions to ease the transition. They can also help clients engage with regulators and central banks in key markets. This makes the timing spot-on for an initiative by HSBC to improve regional coverage and cross-country coordination to eliminate country silos, Tony Cripps, CEO of HSBC Singapore, announced in his opening remarks. This can help cross-fertilize best practices, solutions and coordination on regulatory improvements.
OUTLOOK
Judging from what clients shared, more firms will be pulling the trigger on near-term responses to mitigate the impact of US-China trade tensions on their supply chains. They will look at contingencies for longer-term structural changes that make sense for the overall business as well as for treasury. These contingencies must consider where China holds a clear advantage for the business based on its manufacturing efficiency and its commitments to continued digitalization. As one treasurer noted, the long-term goal of success with digital transformation trumps trade frictions in the near to medium term. The burden of tariffs creates even more need to drive efficiency and innovation to minimize what gets passed along to customers. Digitalization is what will drive this innovation too.
MAKING DIGITALIZATiON A PRIORITY
Technology and treasury transformation lead naturally to the main themes from the projects and priorities session, as well as the session on digitalization that followed.
KEY TAKEAWAYS:
- A relentless focus on treasury efficiency. “Let’s face it,” noted one regional treasurer noted, “We are not getting more resources to match our expanding roles, so we have to keep getting better doing more with the same.” Treasury projects reflect this, including making better use of existing TMS systems and their reporting tools, along with looking to implement new systems. A significant part of this relentless focus on doing more with the same is building the business case and winning executive champions for new systems and technology resources, including to help implement robotic process automation (RPA). One treasurer was also looking to make cash forecasting more efficient by using artificial intelligence (AI). Beyond technology, the efficiency projects included implementing payment- and receipt-on-behalf-of structures, moving to online letters of credit, and making every effort to reduce the number of bank accounts and streamline account management.
- Re-examining roles and responsibilities. Consistent with the efficiency drive are initiatives to re-examine what people are doing to make a treasury function and how much time it takes, including interacting with banks and other service providers. Every minute spent on things like preparing reports, extracting and manipulating data to support decisions, ensuring KYC and AML compliance, and accessing and managing bank accounts is an opportunity lost to do more with the same. These tasks are ripe for the automation that can come with digital transformation, which is what resonated with treasurers. Then the question becomes, can the people who are very good at these tasks become sufficiently good at other things that can add real value?
- Ensuring proper training and development of people. There were also exchanges about what skill sets should be acquired and developed to prepare for the treasury of the future. Clients are working with their HR teams and governments—for example, leveraging Singapore’s SkillsFuture Credit—to communicate positively with staff affected by automation and provide them with training before redeployment occurs. Initially the message is about process improvement, not job elimination; then it’s about retraining people to fit new roles that are likely to be customer-facing—perhaps something to get them excited about.
- Resource constraints can spur innovation. Throwing big money at a problem can be counterproductive to innovation, while being resource-starved often fosters new thinking about problems and spurs innovation. This comment made by Darren Hubert, Chief Technology Officer for Microsoft Services in the region, and echoed by Jennifer Doherty-Hayes, HSBC’s Asia Innovation Team Lead for Global Liquidity and Cash Management, was the most cited takeaway by participants at the close of the meeting. That treasurers could achieve digital transformation wins without the support of IT and big budgets was a big insight. Ms. Doherty said HSBC—just by announcing the bank was looking for volunteers—found staff internally who proved successful at coming up with and executing digital innovation projects. She suggested that treasurers within the large corporations in the room could no doubt be successful doing the same. What’s more, new perspectives from outside the field bring new ways of looking at processes and solutions to problems. Any coders within your organization, and even non-coders willing to learn, could be the source for your new treasury bot.
- Mimic what others have done and are doing. As part of his presentation, Mr. Hubert shared some of what Microsoft treasury does to test the company’s own technology to innovate and drive transformational outcomes. Treasury also helps develop the technology, and the department will be responsive to helping peers at other companies. And don’t be afraid to look outside of treasury for processes that have been digitized. Ms. Doherty said HSBC can help with solutions it has been or is working on and even guide you on how they were built. And well beyond financial services, a bit of vision can enable you to see a treasury application in a wide range of non-treasury efforts to create efficiencies with RPA, visualize data to improve your analytics, or apply machine learning and AI to make better decisions.
OUTLOOK
The key to success with digitalization is to remain open-minded about what is possible and who can help you achieve it. You want to use all data now being captured everywhere to generate value and use new data science tools to save you time with better analysis. All this goes into the business case and helps win executive champions. But it is also the concept of open APIs and collaborating with people and organizations that embrace them. That will empower technology to make you better, faster and safer (using smart technology-enabled anti-fraud solutions, for example) sooner.
Post-M&A Treasury Integration
In the final session, an HSBC client based in China walked the group through some “controversial” thinking about post-M&A treasury integration. Benchmarking with large tech peers, he found the clear standard operating procedure is to take immediate control of the target company’s treasury and absorb any talent that you want to make your own. He’s experimenting with another way: leveraging the existing treasury knowledge of the target by keeping it somewhat decentralized.
KEY TAKEAWAYS:
- Identify what you can learn from the target. In this example, the acquirer did a deal to expand in Southeast Asia. The target had a significant presence in the region and had developed treasury practices and procedures to support a web business there. So why immediately dismantle the target’s treasury in markets where the acquirer has no knowledge or expertise? One example involved the process for cash on delivery. Many markets in Southeast Asia still use cash for most of their transactions and the acquirer lacks experience in this. This helped prompt the decision to keep the target treasury and its local practices in place. This would allow the acquirer treasury to learn if the target has found better ways to do things in Southeast Asia and integrate them into its own ways over time.
- Hire your own treasurer for the target. In this case, the target had treasury practices but did not have a treasurer per se. This created the opportunity to hire a new treasurer with MNC experience in the region and make him an employee of the target. The advantage, said the acquiring treasurer, is that the new treasurer is neutral, able to get people to share more about how they do things and why, and not be seen as a “kind of big brother looking to impose its way.” So far, it’s working, according to both the acquirer’s treasurer and the target’s new treasurer, who was also at the meeting. Having him in Singapore also provides an option to set up a regional treasury center down the road, if appropriate. The ultimate takeaway might be to absorb treasury back into the parent once the learning is done. But it’s too soon to know.
- Build and foster trust with the acquired. This is all an example of an acquirer working to build and foster trust among the target company’s staff to solidify the local presence and knowledge being acquired. Other clients cited similar cultural integration examples when entering markets via acquisition, including Japan. “By taking it slow, you can make them feel needed and trust can also be established by letting them continue to use a local bank for certain things. Then, by introducing the benefits of a regional/global bank relationship via shared services, they will open up to more integration,” the client added. For example, HSBC can offer integrated services through the regional and global network such as payments and cash management, custody and clearing, and trade and supply chain solutions.
CONCLUDING THOUGHTS
In summing up the event, Vivek Anandh, Regional Sector Head for Technology, Media and Telecom for HSBC Global Liquidity and Cash Management in Asia Pacific, noted that “it was a great opportunity for peer treasurers to discuss real-life and topical issues from various points of view. It allowed the conversation to open the blind spots on key trending topics such as preparing for China-US trade tensions, innovation and digitization, etc.” He added that these types of events are a great sounding board for banks, as well as treasurers, “as it not only gives us a view from the treasurers’ vantage point, but also gives ideas to both sides to work on in the future to manage certain challenges.”
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