Published: January 01, 2000
In this month’s Executive Interview, we are delighted to introduce Ather Williams III, Managing Director, Head of Global Payments and Head of Global Strategy, Global Transactions Services at Bank of America Merrill Lynch. As globalisation, urbanisation and supply chain complexity continues to grow, Ather introduces the innovative concept of ‘borderless business’, emphasising the importance of harmonisation and simplification across countries and supply chains.
Borderless business can take a variety of forms. Firstly, it refers to the breakdown of geographical barriers as companies in all industries expand their footprint. Secondly, the distinction between the physical and financial supply chain is also becoming blurred, leading to new business paradigms. Globalisation is a key driver in both respects: in particular, the ability to buy or sell products or services to or from anywhere in the world. Global trade continues to grow strongly with predictions that trade volumes could triple in the coming years, and largely from emerging markets. According to global consultancy firm McKinsey, 1.8 billion people will enter the global consuming class by 2025, with huge macroeconomic and supply chain implications.
While the implications will depend on the nature of the organisation and the specificities of the supply chain, borderless business has a profound impact on every treasury department. Global expansion inevitably involves new accounts, payment and collection mechanisms and liquidity structures. This, in turn, requires compliance with a new set of regulatory requirements and impacts on risk management and banking relationships. Furthermore, changing trade patterns mean that business currently conducted in USD (or EUR, JPY or GBP for example) will be conducted in a wider range of currencies in the future, with considerable cash, liquidity and risk implications for treasurers. For example, RMB is now the second biggest currency for cross-border trade flows with China, and has the potential to be regionally dominant into the future.
Over the past few years, we have seen a gradual trend towards centralisation of cash and cash management processes, such as cash pooling, payment factories and collection factories. Changing trade patterns, and an emerging consumer class in new economies, are resulting in deeper and more complex supply chains. Consequently, treasurers need to focus more on local cash and treasury management needs as well as those at a regional or global level. This creates a variety of new challenges. For example, identifying and attracting people with the relevant knowledge of local regulations and operations may be difficult. Local teams need to be connected into the wider regional and global treasury management organisation for seamless information flows and consistent processing and security, which, therefore, has considerable implications for treasury policy, processes and technology.
With many companies holding record cash balances, an increasing number are leveraging their balance sheet to finance their supply chain. We are also witnessing the growth in non-bank lending, both within and beyond the supply chain. This is a trend that is likely to continue for a variety of reasons: Firstly, as Basel III takes effect across the banking community, and secondly, as the concept of borderless business, including strong, harmonised global supply chains, becomes a higher priority.
There have been discussions on big data for some time and its value, in areas such as retail, are becoming widely recognised. Similarly, there is potential for big data in treasury but practical examples have not yet been widely explored or implemented. Furthermore, treasury is rarely top of IT’s priority list, so it can be difficult to gain the resources required to take advantage of emerging opportunities. Integrated supply chain solutions offer considerable opportunity to enhance business intelligence, strengthen relationships and gain competitive advantage at every point in the supply chain. For example, long, complex supply chains can result in considerable distance between manufacturer and end customer. Increasingly, companies are developing the ability to connect more directly with end user customers. An FMCG (fast-moving consumer goods) company may sell through large distributors who then sell to retailers. This can mean a long chain of participants in between the producer and the end consumer, limiting the amount of intelligence on customers’ buying habits and making it difficult to influence them. By integrating supply chains and leveraging intelligence that big data offers, companies can engage more directly with end customers and offer incentives to boost sales and increase customer satisfaction, benefitting the entire supply chain.
There are a number of other areas in which technology is developing to facilitate borderless business, in particular, by integrating supply chains more closely. One example is automatic reconciliation, particularly for collections, by collating and enriching data from a wider variety of sources to increase process accuracy and efficiency. Furthermore, by connecting different elements in the financial supply chain – from budgets and cash flow forecasts through to eInvoicing, customer payment and reconciliation – treasurers can identify weaknesses or delays and build up sophisticated cash flow models.[[[PAGE]]]
The use of mobile technology, in both retail and commercial environments, similarly opens up a range of new opportunities and issues. Increasingly, these innovations in the way that people and organisations connect, transact, access and analyse information will create new infrastructure requirements and new payment and collection paradigms. Banks will be challenged to support these evolving needs whilst maximising convenience and integration, with a growing expectation for ‘plug and play’ solutions.
It is important to remember that a key role for treasurers – and their banks – is to enable commerce. To achieve this, treasurers need their banks to provide complete information, facilitate efficient financial flows and help navigate complexity. For example, one of the most significant conversations that we have with our corporate customers is about how to comply with regulation in each country without compromising global financial or efficiency objectives.
Communication is key to navigating and reducing complexity. In a changing regulatory environment, with the cost of capital increasing, pricing changing, and new product offerings emerging in different markets, it is essential to maintain an open dialogue between treasurers and their banks to understand the implications and insulate the company from further complexity. For example, correspondent banking is changing, so working with the right bank can help to avoid business disruption that could result.
The value that global banks can offer extends beyond the relationship with each individual organisation.
The value that global banks can offer extends beyond the relationship with each individual organisation. Inefficient processes and data flows, and disconnects between supply chain participants, can have a considerable impact on the supply chain, not only by increasing internal costs and, therefore, hindering competitiveness, but also by impeding decision-making. For example, treasurers need to know how they can best deploy capital in the supply chain which requires timely and complete access to end-to-end information. Bank of America Merrill Lynch has an important role to play in this by harnessing our network to our customers’ benefit. As we support companies of all sizes across our global footprint, serving 97% of the 2013 US Fortune 500 companies and 73% of the 2013 Global Fortune 500 companies, we can connect our clients with their suppliers and end customers to build intelligence, strengthen the supply chain and ultimately benefit every participant within it.
Technology is a key area in which banks have a major role to play, both by automating the flow of transactions and information and creating a cohesive global experience for their customers. As technology becomes ubiquitous in our personal lives, including for banking, we are extending these capabilities to corporate banking, creating a convenient, consistent experience for treasurers and finance managers wherever in the world they are located. As companies increase their geographic reach and access banking services both centrally and locally, working with a global bank can be particularly impactful by harmonising customers’ access and quality of experience in every country in which they have a relationship with the bank.
How Thought Leadership Can Reduce the Cost of Sales by Patrik Havander, Havander & Partners A focused attention on the costs incurred by the global sales and marketing processes is becoming increasingly important for corporate banks and their transaction banking departments. While the client/bank relationship remains vital, research has shown that in fact relationship selling […]
