For corporate treasurers in Asia, managing a treasury is, at best, an inexact science. Fragmented geographies, disparate cultures and languages, various levels of economic development, political stability and infrastructure, and complex regulatory environments present significant challenges for the treasurer in Asia. The technological environment is also changing and changing fast.
There have been a number of technological initiatives by governments, such as Malaysia's Cyberjaya, and India's attempt to make Bangalore the "Silicon Valley of India". Enterprise resource systems (ERP) have become prevalent, though in many companies, ERPs have not completely taken over legacy systems. Further, companies have introduced e-procurement, supply chain portals, and generally dabbling in e-commerce.
Such an environment often has meant several implications for the Asian treasurer. For example, inaccurate and delayed forecasting at the local subsidiary level could arise which leads to unexpected shortfalls or excess balances. Furthermore, multiple bank relationships hamper effective management of accounts, each with its own proprietary file formats.
As a result, treasury structures cannot be static, says Thomas O'Donnell, head of cash management sales at Standard Chartered Bank, at a recent conference for CFOs in Hong Kong. Banks and companies are constantly seeking to improve and adapt, though, the principle drivers for the corporate treasurer have not changed. Those principle drivers range from providing basic cash management services - that is, collections, payments and information, to risk mitigation and liquidity management.
A recent PricewaterhouseCoopers survey, for example, reveals just how important liquidity management and therefore treasury is as a driver of shareholder value for a company. A 1% improvement on this driver could improve share price value by 120bp. This compares with a 50bp increase on share price given a 1% improvement on the growth rate of a company.
It is little wonder then that treasurers, long relegated to the back office, are stepping back into the limelight. Today, many multinational companies are setting up regional treasury centres, observes O'Donnell. Further, sophisticated liquidity management solutions involving domestic pooling, zero balance account structures in countries like Singapore, Hong Kong, Indonesia and Australia, are quite common.
Another structure that is fast becoming commonplace for multinational corporations are shared service centres across the region, incorporating centralized payables and receivables. There are many roads to a centralized treasury, says O'Donnell. These range from setting up re-invoicing centres where receivables and foreign exchange management is centralized, to shared service centres where, in addition to payments and collections, accounting, human resource management and legal services may be also centralized.
A survey by Greenwich of treasury management initiatives by corporates in Asia gives an indication of how exactly these treasury centres are evolving. Approximately 41% of corporations have centralized cash management functions in 2000 compared to 37% in 1999. Also, outsourcing of non-core back office functions is on the rise, from 12% in 1999 to 13% in 2000, as is the use of treasury coordination centres, which rose from 14% of corporates to 16%.
Other trends that corporate treasurers should look out for are innovative risk management techniques that are gaining popularity in countries where regulations are more restrictive. Back-to-back loans, for example, are a popular tool to utilize excess liquidity across entities or borders where inter-company loans are not permitted. Similarly, non-deliverable forwards are becoming a common risk management tool for currencies that are not freely traded.
Treasurers, continues O'Donnell, are tapping into newly created debt or capital markets like Thailand, India and Malaysia, using new derivatives to hedge multiple risks, like interest rate, foreign exchange and commodity risk.
