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Working Capital Management: New Challenges and Opportunities

by Jiten Arora, Global Head, Sales, Managing Director, Transaction Banking, Standard Chartered

One of the many consequences of the global financial crisis was the realisation by many Western corporations that the stagnation of their domestic markets made emerging markets their most likely growth engine for the foreseeable future. As Jiten Arora, Global Head of Sales, Transaction Banking at Standard Chartered explains, the resulting shift is still ongoing - as are the associated challenges and opportunities for working capital management.

While the global financial crisis itself may be a receding memory, we still live with many of its consequences. For many corporations, a shift in emphasis from West to East has been a prominent example. While some may originally have seen this shift as an urgent response measure, there has since been a growing acceptance that this is a fundamental and long-term change that the crisis has served to accelerate and accentuate. Today, it is not uncommon to hear multinationals talking of targeting emerging markets for a significant contribution to their global bottom line. These intentions are already becoming a reality, as OECD corporates increasingly choose to locate their supplier, client and procurement/manufacturing bases in regions such as Asia.

Although corporations may now see this transition as more opportunity than crisis driven, the crisis taught/reinforced a number of key lessons. The importance of managing concentration and counterparty risk was probably one of the most important, which is clearly reflected in the way corporations are managing their expansion into new regions. The days of one global bank servicing all corporate needs are probably gone forever, as most corporations now prefer to work with banks regionally in Asia, in order to distribute the counterparty risks and achieve a measure of contingency.

This new approach has a direct link with another important corporate realisation: that given the right treasury framework, emerging markets such as Asia are no longer as challenging from a working capital management perspective as has traditionally been assumed. Historically, the prevalent concern that caused corporate hesitation was that markets in the region were perceived as both risky and fragmented. The application of regional risk management and liquidity structures were assumed to be unachievable because of issues around currency controls, diverse regulatory models, lack of SWIFT connectivity etc.