Fit for Growth: Enhancing Treasury Success in Developed and Emerging Markets
Helen Sanders, Editor, TMI, in conversation with Michael Guralnick, Global Head, Corporate and Public Sector Sales, and Global Marketing, Treasury and Trade Solutions and Swati Mitra, Global Sales Leader, Emerging Market Corporate Clients, Treasury and Trade Solutions, Citi
Supporting growth whilst addressing the opportunities and challenges of globalisation, digitisation and regulation, are core to treasury strategy for multinationals around the world, but the ways in which companies are achieving these objectives can be different. In this feature, Michael Guralnick and Swati Mitra explore the relative experiences and priorities of treasurers of corporations headquartered in developed markets compared with those in emerging markets.
Are the issues being faced by treasurers in developed markets vs emerging markets two sides of the same coin?
Guralnick: Three key themes emerge from our discussions with treasurers of companies in developed markets: generating returns, improving supply chain and risk management, and managing the impact of regulations.
Treasurers are managing multiple streams of volatility as global markets adjust to divergent economic growth prospects
Companies are focused on returns, and treasurers are helping CEOs and business heads create the ‘financial optionality’ to support growth and returns. This is connected to the second issue of managing risk. Treasurers are managing multiple streams of volatility as global markets adjust to divergent economic growth prospects, the US Fed timing on interest rate increases remains uncertain and quantative easing spreads in Europe and China. With geopolitical and economic uncertainty in many regions, treasurers are taking a holistic approach to managing investment, counterparty and supply chain risk to reduce the impact of market volatility. Furthermore, the pace of technological change is introducing a new element of risk: cybersecurity. Thirdly, treasurers need to assess and act upon the implication of changes in the regulatory and tax landscape. For example, as banks adjust to financial regulations such as Basel III, corporate treasury practices from short-term funding to cash management are being refined. Treasurers are working through these changes and building deeper links with strategic partners.
Ultimately, these objectives are linked to an overriding ambition to grow their businesses. Treasurers recognise that cash unduly tied up in the supply chain is cash that cannot be used to fund growth, so creating a transparent and more efficient end-to-end supply chain has become a priority for companies.
Mitra: Whilst similar objectives, challenges and opportunities are shared by treasurers in both developed and emerging markets, the approach, readiness and ability to deal with some of the complexity varies due to differences in pace of growth, treasury resource allocation or perceived relevance. For emerging market treasurers, the pace of growth is often faster, and facilitating growth may take precedence over other priorities. While some of the regulatory responses that treasurers in developed markets need to prioritise may initially appear to be less significant in emerging markets, particularly as there has been limited impact on bank relationships and financing as a result of these changes so far, an understanding of regulations is becoming more significant as these companies expand their geographic footprint and global regulations increase.
Which markets are the most challenging for treasurers, and how are your clients structuring their treasury to address complexity in these markets whilst supporting group-wide objectives?
Mitra: Typically, countries with capital and FX controls are the most complex in which to do business, such as Russia and some countries in Latin America, Africa and Asia . As a result of these controls, it can be difficult to fund entities, repatriate cash and set up regional or global liquidity structures. Market complexity can also be viewed from a clearing system perspective, level of cash, paper vs electronic transactions and statutory reporting, tax and other requirements. As corporates expand into emerging markets, these factors have to be considered when designing the treasury operating model, policies and procedures, and in making decisions to centralise activities such as accounts payable, accounts receivables etc.
Guralnick: Companies in developed markets that have an established treasury function generally aim to extend the same techniques into emerging markets; however, they often experience obstacles in achieving the same degree of centralisation and efficiency. In many cases, they address this by establishing regional centres to gain closer proximity to the business that they support, which makes it easier to understand and manage the complexity. Our clients find that tools such as Citi’s Treasury Diagnostics enable them to benchmark performance and identify opportunities for enhancing efficiency and control at a regional and global level.