Inspiring and Empowering Today’s Treasury Pioneers

by Hugo Parry-Wingfield, Head of Market Management, EMEA Liquidity & Investments, Treasury & Trade Solutions, Citi Transaction Services

With market saturation and sluggish growth in many traditional markets, companies of all sizes are looking to new destinations. Fast-growing economies in Asia, Africa, Latin America, Central & Eastern Europe are increasingly attractive for North American and European corporations. Similarly, companies headquartered in emerging markets are expanding geographically, with increasing trade flows between fast-growing regions, such as between China and Africa.

Tapping into potentially new supplier and customer markets is an exciting proposition. Treasurers may not, however, always be inclined to share in this pioneering spirit. After all, they are responsible for putting in place the financial infrastructure for doing business in a territory that may be unfamiliar, and integrating the new business into a global cash, liquidity and risk management framework. This article looks at how to resolve the conflict between the pursuit of growth on one hand, and managing the associated challenges and constraints on the other.

Market expansion considerations

The rapid development of physical and communication infrastructure in many parts of the world, and a growing desire of governments around the world to encourage international trade, is proving irresistible to many companies in pursuit of growth. So what are the key considerations that are required to facilitate this expansion?

• Regulatory environment: This includes the tax, legal and statutory reporting requirements. but also issues such as the procedure for opening bank accounts and the payments and collections environment, including the practical arrangements that need to be put in place.
• Cash & treasury integration: Although sophisticated, flexible opportunities for physical and notional cash pooling globally now exist, it is not always possible simply to plug a new country into an existing liquidity structure. This presents a dilemma for treasurers who need to maintain controls and manage risk, whilst ensuring operational efficiency.
• Political risk: This is often (but not always) a greater issue in newer markets such as Middle East and North Africa than others. Treasurers need to understand the impact of political change and volatility in terms of banking and sovereign risk, as well as the wider business implications.
• Infrastructure issues: The physical and communications infrastructure will also have an impact on the way that a company structures its operations in a new country, alongside factors such as population centres, education and culture. Financial infrastructure is equally important, not only in terms of the banking system, but also the trend towards adopting mobile and instant payments and cash alternatives, such as in Kenya and Nigeria, and other forms of electronic payment.

Engaging expertise and advice

Not only is infrastructure developing at a staggering pace in many of the newer economies, but the regulatory climate is also shifting. In Russia, China and other parts of Asia, there is a trend towards currency and market liberalisation. In others, such as Latin America, more stringent controls are being introduced. Treasurers are increasingly turning to banks such as Citi that are present across these markets to help them prepare for regulatory change and the resulting opportunities or constraints, as figure 1 illustrates in relation to China.

This engagement typically begins some time before a company enters a new market, or before embarking on a new strategy. In some cases, these companies already have a relationship with Citi while in others they recognise our strength in a particular market and seek to leverage our expertise and solutions. In each case, we focus initially on understanding the customer’s strategy, their internal constraints and priorities. We also explore their regional and global cash and liquidity management requirements in order to optimise financial activities in-country, regionally and globally. Having taken the time to understand the company’s needs, we use our local presence, comprehensive solution and technology portfolio, and experience derived from working with other customers to design appropriate solutions.[[[PAGE]]]

Figure 1 - please click image to enlarge

Figure 2 - please click image to enlarge

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Consistency and compliance

Although every treasurer has different priorities when supporting business expansion in new markets, there are often commonalities. For example, most treasurers are seeking consistent financial practices and processes to comply with internal control requirements, streamline bank communications and increase efficiency. They also wish to leverage existing technology and liquidity structures to harmonise group-wide cash and risk management. This includes bank connectivity and cash investment, whether this takes place locally or centrally. For example, we have seen considerable interest in our liquidity portal, TreasuryVision, both in our customers’ traditional markets, but also in emerging regions such as Africa. This provides a single channel for customers to view and analyse cash and liquidity across both Citi and third party banks, and execute cash investments, as illustrated in figure 2.

Figure 3 - please click image to enlarge

Supporting changing international strategies

Many multinational corporations have already established their operations globally. However, their cash and treasury requirements will change as their business strategy flexes over time, necessitating new approaches and solutions, as figure 3 illustrates. Whether growing the business into a new market for the first time, or expanding a company’s presence, treasurers can approach these initiatives with confidence and enthusiasm. By working with a bank with the combination of global reach and in-country presence, together with innovative technology, comprehensive solutions and client engagement, treasurers can facilitate the company’s strategy and enhance its competitive advantage.