Published: January 01, 2000
As corporations expand overseas, they may enter markets in which their global banks are not physically present. Some banks support their clients in such cases by creating different coverage models. Bank of America Merrill Lynch has pioneered the strategic alliance model, enabling corporations to maintain their technical integration and relationship continuity with their primary global bank, while gaining access to domestic expertise and services via a trusted local provider.
As companies seek to access additional markets, a key question is how their banking needs will be served. No global bank has an on-the-ground presence in every country – so in some cases, it may be necessary for corporations to work with local banks. However, by setting up local banking relationships, treasurers may find themselves introducing additional complexity into their banking processes. The use of disparate platforms and processes can result in inefficiencies, and limited visibility over cash flows increases their risk exposure.
The use of disparate platforms and processes can result in inefficiencies, and limited visibility over cash flows increases their risk exposure.
Fortunately, another option is emerging which can give companies the best of both worlds. Historically banks accessed new markets by opening more branches – however, this model has some disadvantages. Building a new branch from scratch is a lengthy process which involves, for example, seeking internal support, building a business case, securing the necessary budget and obtaining regulatory approvals. The whole process can take many years from first identifying the need to having a fully operational branch. And even then, a branch requires ongoing investment to develop capabilities and keep up with local regulatory changes. For banks looking to meet – or pre-empt – their clients’ evolving needs, the cost and time needed to build branches in new markets can be a significant obstacle.
At the same time, in light of the challenging economic climate, banks may be focusing more on risk management and managing costs. Regulatory oversight has likewise made it difficult for banks to expand as quickly as they might have done in the past. Banks are, therefore, beginning to look at other models which can enable them to support their clients’ international expansion.
Most commonly, this just means that the global bank may put the treasurer in touch with another bank in the relevant market. The corporation then initiates a completely separate relationship with the overseas bank – and the global bank typically has no involvement in that relationship. That’s now beginning to change.
In the past few years, Bank of America Merrill Lynch has established strategic alliances with local banks across Europe, the Middle East and Africa. The alliances enable the bank’s clients to access local banking services and capabilities in markets where the bank does not have a physical presence. Corporations can gain access to local capabilities through a trusted local bank in a more integrated way, while remaining confident that Bank of America Merrill Lynch will oversee the services provided as though the relationship was held directly with the bank.
If a company needs to do business in a particular market, Bank of America Merrill Lynch will work with the relevant alliance bank to build the relationship, open accounts on behalf of the client and supply all the necessary documentation. These activities will be carried out by the same team that manages account opening elsewhere within the Bank of America Merrill Lynch network, providing consistency of service to the corporation.
More importantly, the alliance model provides full technical integration, allowing companies to access local services provided by the alliance bank via Bank of America Merrill Lynch’s online banking portal, CashPro® Online. These services may include current account and electronic payment services as well as liquidity management solutions, commercial card programmes and trade finance services. This arrangement delivers the required visibility over cash flows and allows companies to access information in a consistent and streamlined way.
One of the benefits of the alliance model is that corporations not only have the full support of their global bank, but they may also benefit from a more direct relationship with the local alliance bank if they so wish. The alliance model is set up in such a way that clients can operate exclusively through their global bank, achieving the same service level, communication and connectivity as in existing markets. However, the model also provides flexibility if corporations wish to build broader relationships with the dedicated alliance banks in those markets, as their business expands.[[[PAGE]]]
From the bank’s point of view, the strategic alliance model enables banks to meet their clients’ needs quickly in markets where they have no physical presence, since it can be put in place in a matter of months rather than years.
However, while this type of alliance may initially have been driven by economic considerations, it is becoming clear that alliance banking delivers benefits above and beyond the traditional branch model. Global banks may have a branch presence in numerous locations, but they may only provide a limited range of products and services in some of those markets. The strategic alliance model links corporations with a bank that can not only serve their immediate requirements but also provide a full range of domestic and regional capabilities.
When working within this model, one factor that companies often consider is counterparty risk: the company will be holding its account and its cash at a bank that may not be one of its core relationship banks. It’s therefore important to choose a global bank that has entered into strategic alliances with leading banks of sound standing in their respective markets, and banks with which the global bank itself has an established banking relationship. As such, corporations have not regarded the issue of counterparty risk as an obstacle when leveraging the strategic alliance model.
While the strategic alliance model may be driven by cost efficiency, creating such an alliance is a rigorous undertaking and one that Bank of America Merrill Lynch takes very seriously: it requires a formal project management and assessment process and it is essential to choose the right bank with which to form an alliance. This is followed by a very detailed review process, including establishing service level agreements, aligning expectations and undertaking workshops, before the project moves into the implementation phase. Moreover, Bank of America Merrill Lynch selects alliance partners where there is a deep and broad relationship between both institutions.
The process does not end with the launch: once the alliance has been put in place both parties must undergo a robust service review process and continue to challenge each other regularly to make sure that their respective clients are being serviced to the required standard.
As well as working with alliance banks to support subsidiaries of large European or US corporations in international markets, Bank of America Merrill Lynch also works with the alliance partner to provide overseas services to their local clients as they expand overseas and look for capabilities with similar levels of integration.
While the strategic alliance model may be relatively new to the market, treasurers are increasingly seeing the value of this model. An alliance arrangement can give companies the ability to transact in the required markets, while providing visibility over their flows, and the same standard of service that they currently receive from their global bank. With banks continuing to face a wide range of economic and commercial pressures against the backdrop of changing regulatory requirements – and with client expectations around expansion remaining high – it is likely that this model may become even more common in the coming years.
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