Optimising the Experience of Asian Multinationals in CEE
by Rajesh Dash, Regional Manager, Asian Corporations, ING
This is the second of three articles in TMI published by ING that provide in-depth insights into the challenges, opportunities and solutions for corporations expanding from their home market in Europe or Asia into new territories. You can find the first article in this series here.
With many of the world’s fastest growing companies headquartered in Asia, across a wide variety of industries, we are seeing substantial growth in the number of Asian multinationals expanding their business into Europe. Given the geographical and time zone differences between their home markets and Europe, a large proportion of these corporations are establishing regional manufacturing, distribution and sales operations. For European treasurers of these companies, the challenge is how best to support the cash, risk and working capital requirements of these business operations, whilst also satisfying the needs of the business at a group level. Implementing, or expanding a shared services model can be a valuable means of achieving these often conflicting objectives.
The importance of location
While many Asian multinationals, such as Japanese automotive and hi-tech firms, have had a presence in Europe for many years, with mature cash and treasury management infrastructure, others are at an earlier stage in their European expansion. The first issue for corporations to consider is where best to locate their treasury centres. With many companies siting their manufacturing hubs in Central & Eastern Europe (CEE), countries such as Poland are also growing rapidly as shared service centre (SSC) locations, with Czech Republic, Romania, Slovakia, Hungary and to some extent Ukraine also becoming more popular. For example, around five years ago, there were fewer than 50 SSCs in Poland; today, this figure is more than 500.
There are a variety of reasons why CEE is often considered as a SSC location over western countries. In many cases, it makes sense to maintain proximity to manufacturing or distribution hubs in CEE. Companies are already familiar with the business environment, and there may already be suitable facilities available. Furthermore, many of these countries, boast a competitive cost base and educated workforce, as well as a strategic location and time zone that straddles Western Europe and Asia.
Supporting new business demands
For Asian multinationals that have had a long-standing presence in Europe, the concept of European treasury shared services is not new.
For Asian multinationals that have had a long-standing presence in Europe, the concept of European treasury shared services is not new. Early SSCs were set up to centralise core competencies and re-engineer processes to reduce costs, improve efficiency and enhance risk management. In many cases, the scope of these treasury SSCs was relatively limited, such as accounting, often for a limited number of group entities. Although some SSCs have increased the range and geographic reach of the services they offer, the wide diversity of business practices and cultures in Europe has proved an obstacle in many cases, whether in technical, cultural or cash and liquidity terms. These obstacles, whether perceived or actual, have prevented companies from leveraging economies of scale and optimising pan-European cash and liquidity management.
The European treasury landscape has evolved considerably in recent years to the extent that many of the former obstacles to pan-European treasury centralisation no longer apply. With the introduction of SEPA (Single Euro Payments Area) it is now easier to centralise payments and collections with the help of an expert pan-European bank. Corporates can leverage the SSC more effectively, now that instruments and formats have been harmonised.
Asian multinationals have expanded significantly in Europe and therefore have to deal with a challenging macroeconomic and regulatory environment in the same way as other multinationals. These changing demands have resulted in more complex cash and treasury requirements, with working capital and financial supply chain optimisation now primary considerations. The challenge for existing treasury SSCs is therefore to review the scope of their SSCs and identify, implement and deliver new means of offering value to the business in Europe.