By Joseph Neu
Pursuing growth in Asia has focused more treasury attention on Asia and thus greater consideration for putting more treasury staff on the case. The question is where?
Looking past the distractions emanating from Europe that have kept financial markets on a roller coaster for months, Asia has also been an increasing focal point for MNC treasurers. With more cash flow being generated there as business expands, treasury needs to shift resources to support this activity. What’s more, the biggest market in the region—namely, China—is a complex and rapidly changing one, which sucks up a lot of attention on its own. In response, MNCs are staffing up for the region and thus treasurers are faced with the question of where to put them.
Rethinking Centralization
To answer this question treasurers first have to get over the idea that centralization of the treasury function means that everyone works from HQ.
Ironically, an article in the latest McKinsey Quarterly, “Five steps to a more effective global treasury,” says that step one is to centralize treasury globally. Indeed, the need for treasurers to become more efficient and centralize, it says, has actually been exacerbated by the shift in economic activity to emerging markets: “The pace of growth and regulation has left many of them lagging behind on even core activities in their home markets…” The article also says that emerging markets magnify the “lack of an operating model and infrastructure to connect their activities, portfolios, and risks.”
It is easy to read this and think twice about the creation or expansion of an Asia regional treasury center (RTC). But a global coverage model and integrated infrastructure can work with a regional execution and even management scheme. This is why many MNC treasuries are pursuing both: beefing up their Asia treasury presence and integrating it better into a global treasury matrix.
For firms with an increasing portion of their business in Asia, it is not uncommon for half of their treasury staff to be found in the region. New hiring is happening more there than elsewhere, since that is where the cash is flowing; therefore, the trend will grow.
As the proportion of headcount tilts toward the Far East, the center of gravity for treasury shifts with it. Increasingly, MNCs will be running smaller onshore, domestic treasury from HQ and larger, more global centers of excellence offshore (with a growing bias to Asia).
In the meantime, while country-level treasury staffing may be considered for major countries like China or Brazil, the greater tendency also will be to pull local treasury staff into regionally sited global centers of excellence. What’s lost in the way of local knowledge can be regained with effective rotational programs to cycle local finance staff through the RTC.
This is more efficient, but it is also a better way to manage treasury talent. In most cases, the in-country treasury presence will be a small one and the person in the local treasury position potentially risks seeing his or her career stalling. As a result, they may more readily succumb to the local organization’s interests and pursue the local finance leader’s agenda instead of the regional treasurer’s.
Managing the treasury’s human resources outside of a regional center (or HQ), thus becomes an important consideration in shaping treasury’s coverage model. “It’s both a morale and a motivation issue,” said one regional treasurer.
Where to put it?
With these trends pointing to the need for an Asia RTC, the only real question is where to put it. There really is no single best-practice answer.
- Singapore. This city-state is extremely popular as a regional center site for good reason. It is a business-friendly environment with local staffing of a quality that does not require an expat to be your regional treasurer. Though, if you do send an expat, they will note that Singapore barely seems foreign. Plus, if you piggyback treasury on a manufacturing site, R&D center, or regional office with significant headcount, you get an unspeakably good tax deal.
Close cooperation with the Chinese government (which sees Singapore as a model worth emulating) means open channels to the region’s biggest market. Most see an offshore RMB (CNH) clearing licence and related market hub coming soon, which will keep Singapore relevant as a financial center. Yet, despite the close China ties, Singapore is also far enough away to provide comfort should China become less business friendly.
- Hong Kong. Proximity to China is both a plus and a minus for Hong Kong, including political risk due to China’s control over the territory. With the growing importance of the CNH market, which is centered in Hong Kong, it is not as though Hong Kong should fall from consideration.
- China. Locating a regional treasury center in China is certainly a consideration. Shanghai (as the financial center) or Beijing (as the political center) are likely to be the two location candidates. Many MNCs have at least a dedicated country treasurer for China, because it represents such a big market, one that is growing fastest; and serving it is a complicated
exercise.
The skill-level and staffing needed to serve China alone may warrant extending coverage for at least north Asia, if not making it your regional hub. However, the risk is that China can be so all
consuming that other responsibilities can get ignored at times.
- India. India continues to be more of a shared services, offshoring location and as such serves as more of a treasury operations and administration center alternative than a place for the regional treasurers’ office. Still, there are companies that have a regional treasurer in Singapore, who oversees staff in India.
Such an arrangement could also serve a regional treasurer located in China or Hong Kong. Some say Singapore might also serve as the treasury “operations center” for such a more “strategic” regional treasurer.
A strategic regional treasurer
Thinking around a more strategic regional treasurer should follow closely on the MNC trend to extend C-suites to Asia, either with new emerging market leadership positions or even sending the CEO to Asia.
The idea is that senior executives need to be closer to the big suppliers, markets and customers that will be driving the company’s future. If your firm is doing this, it is certainly worth considering putting a regional treasurer, if not your RTC in the same location, for similar reasons.
This consideration speaks as much to the role of your regional treasurer as it does to where he or she should sit. Just as the Asia CEO could be the next CEO, your regional treasurer should be someone who could be in line to be the next treasurer, so their responsibilities and profile within the company should be aligned with this plan.