Looking to the next horizon

When Damian Glendinning first arrived in Singapore in the late 1990s to work as IBM’s Asia Pacific treasurer, the treasury management profession was relatively underdeveloped largely due to the prevalence of family or state-owned enterprises in many economies in the region. “Many Asian companies did not use treasury management systems or have a full time treasurer, and dealings with local banks were often based on preferential relationships,” recalls Glendinning, now group treasurer at Chinese computer technology company Lenovo (which acquired IBM’s PC business in 2005) and president of the Singapore Association of Corporate Treasurers.

But a lot has changed since then. Many of those family-owned companies became major multinational corporations in their own right, which meant they could no longer be managed in a less than professional way. “We are reaching a point where Asian corporates are becoming sophisticated enough to bring pressure to bear on the banks,” says Glendinning. Local banks have also had to grow in sophistication to service the increasingly complex needs of regional treasurers. “When you asked local banks if they could provide daily balance reporting over SWIFT, they would look at you and say, ‘We don’t do that’. But now local financial institutions understand that if they want to work with local multinational corporations they need to connect into their global network.”

Managing complexity

Bank of America Merrill Lynch’s second Asia Pacific Treasury Barometer Survey, based on the views of approximately 1,350 global treasury professionals, highlights the complexities for treasurers operating in a region as diverse as Asia. Challenges identified included managing a range of banking relationships, operating with a large number of accounts, which makes more efficient liquidity management difficult, and disparate means of accessing account information. “If you are a multibanked corporate and you want to have anything approaching modern cash management,” says Glendinning, “you can either sign onto every banking platform and have 300 different banking IDs in lots of different languages, or buy a treasury workstation that comes with SWIFT connectivity and negotiate with your bank to provide you with the data that you need.”

To reduce complexity and risk in its global cash management business, Lenovo has prioritised simplicity. Instead of working with multiple banks in every country, the firm has a single global banking relationship, which gives it visibility over cash positions globally. “We simply go to [our bank’s] internet banking system and download the statements in a spreadsheet,” says Glendinning. “As we use one banking system, we only have one set of passwords to remember.”

Are multinational corporates well served by banks? “The industry as a whole is failing companies because of all the hoops we have to jump through to get the information that we need,” says Glendinning, adding that corporate banking could learn from its retail peers in terms of customer service. However, he acknowledges that corporates are part of the problem. “Banks will do things if customers insist, but we have not been very good at telling them what we want as a community,” he says.

Working capital efficiencies

With multinational companies focused on leveraging growth in their emerging markets subsidiaries, the expectation is that treasury management best practices, as represented by shared service centres, in-house banks and centralisation, will become the norm in Asia. However, given that regulations in some Asian markets prevent inter-company lending, companies will need to free up working capital via other means in order to grow. Here, attention is expected to shift towards trade and supply chain finance. “The growth cycle in China is slowing, and corporates realise they are not going to grow as fast on their top line so they are focused on making working capital accelerations,” notes Vivek Gupta, global head of trade & supply chain product, ANZ Bank.

In April, ANZ Bank led an industry first with a “truly four-corner” Bank Payment Obligation (BPO) involving an electronic bill of lading,” says Gupta. The essDOCS’s CargoDocs solution was used for digitising bills of lading and electronic invoicing between global resources giant BHP Billiton and a buyer, agricultural commodities conglomerate Cargill, in conjunction with Westpac as the recipient bank and ANZ as the obligor bank, for iron ore shipments from Australia to China. As Gupta explains, automating trade documentation with suppliers can help speed up payment. “For large resources companies, each major shipment of iron ore to China could cost US$20 million. Accelerating payment equates to a lot of money in the bank.”

Bevan Davies, vice president, Asia Pacific & head of metals at essDOCS, says the combination of its e-docs platform with SWIFT’s BPO has enabled corporates in the mining, agricultural and oil industries and their partner banks to adopt the trade finance instrument with the minimum amount of effort. Davies says essDOCS now has 22 banks using its electronic bill of lading platform. “We did not work with banks two years ago, so to get to where we are today has been quite rapid progress.”

Disruptive forces

While there may be working capital and processing efficiencies for corporates in digitising trade documents, Glendinning points out that the technology being used to automate trade documentation is not new.

Moreover, he apportions some blame for lack of progress to treasurers, who he says are largely conservative by nature and may be less inclined to adopt newer third-party solutions. But he says the banks should be concerned about disruptive forces like PayPal and Google Wallet. “There’s nothing to say we [corporates] couldn’t go to PayPal and say: ‘I’m shipping some goods. When I give you the documents, I want you to release some money for me’. Are corporate treasurers going to hesitate to adopt these alternative solutions? I wouldn’t be 100% certain that it’s not going to happen. They may be forced to use them,” he warns.

With increased competition in the trade and supply chain space, Gupta says banks need to move beyond trying to protect traditional revenue streams and embrace working with third-party providers who are intermediating between the physical and financial supply chains.

“There is now an inertia that stems from the fact we’ve invested so much into our proprietary technology platforms. But this short-term mindset is not forward looking and will hold us back.”