Major capital goods and automotives (CGA) corporates are often early adopters of new treasury techniques and technology largely due to their substantial size, as the corresponding extent of potential cost savings and efficiency gains are attractive. As Jared Smith, Global Sector Head of Capital Goods and Automotives at HSBC Global Liquidity and Cash Management describes, because their needs are often more pronounced than treasuries in other sectors with less diverse geography and product need, CGA corporates are paving the way forward in treasury transformation.
The largest members of the CGA sector were among the first corporates globally to focus on treasury centralisation. As global, highly-diversified industrial companies, they could see the substantial potential benefits of migrating to SWIFT and common message standards, while also streamlining their banking relationships. The overhead of supporting multiple proprietary message types could be removed, central treasury’s visibility of cash globally could be enhanced and banking costs could be minimised by closing surplus accounts. In addition, their ERP systems were able to run more efficiently in terms of both processing and providing valuable management information. Essentially, these CGA corporates completed Treasury Transformation 1.0 10-15 years ago and over the intervening period have already evolved to Treasury Transformation 2.0 or beyond.
Reducing cost and change barriers for later adopters
A major change since the largest CGA companies undertook the first stage of treasury transformation is that the costs associated with that first stage transformation have declined considerably. Smaller companies, which might have found the costs of such a transformation hard to justify 10-15 years ago, now have a far easier decision to make. Technology costs have fallen substantially, with lighter, or software as a service, versions of ERP and treasury management systems (TMS) now available. In addition, these smaller companies are able to work from an established roadmap defined and refined by the larger early adopters. In addition, some smaller companies may have already undertaken some of the preliminary rationalisation needed before they embark on their treasury transformation, so they are not starting from the absolute zero point of their predecessors.
These smaller companies may therefore look to their banks for a slightly different set of skills and services than their larger peers. Many of them could be moving into new and unfamiliar territories, so the extent and depth of their bank’s physical network will be crucial in offering support and guidance on local regulation, clearing mechanisms and payment practices. More generally, they may be looking for a consultative banking relationship, as well as local language support from qualified ERP, TMS and SWIFT specialists.