One of Citi's fastest growing businesses in the region is its global subsidiaries business, which covers multinationals. A key area of growth has been working with US multinationals, where revenues have doubled in the past three years. Regional head of global subsidiaries Agnes Liew discusses some of the trends.
What has underpinned the growth in Asia-Pacific?
It is basically the fact that Asia is increasingly the engine of growth for the global economy. It is home to over half the world's population and a growing affluence, and the likes of China and India are still churning out GDP numbers that are the envy of the world -- it is a region any multinational (MNC) ignores at their peril.
MNCs are increasingly tapping Asia as a manufacturing/production base for the large domestic markets and exports to the rest of the world. In addition, the supply chain around manufacturing has continued to expand along with increasing investments in manufacturing capacity.
Aside from the market size of Asia, countries have also embraced and encouraged FDI (foreign direct investment) especially in manufacturing and service industries, not least for the ancillary employment opportunities for their population. Countries like Singapore, (have introduced) economic incentives to promote higher value-added manufacturing and services in technology, research and financial services.
As multinationals grow in Asia they need access to currency hedging products. Some have even issued local currency bonds to support their operations. This is likely to be a growing trend, the increased issuance by multinationals to raise capital from the deep pockets of liquidity in Asia.
Which countries in the region are seeing the greatest interest from US multinationals?
India and China continue to attract multinationals including US MNCs. Responses to UNCTAD's World Investment Prospects Survey 2009 -- 2011 show that the five most attractive destinations for potential FDI in the world are China, the United States, India, Brazil and the Russian Federation. But we are also seeing increased interest in markets such as Bangladesh and Vietnam in Asia.
Asia as a region remains a key market for US MNCs; we estimate US MNC revenues in Asia account for 15% to 20% of their total global revenues and we expect this trend to continue to grow with the increasing importance of the Asian economies. Today Citi in Asia banks more than 9,000 subsidiary MNC relationships in 16 markets in Asia, of which over 50% are US MNC relationships.
What services and products do US multinationals need in Asia-Pacific?
US multinationals need products across the spectrum, from cash management, trade services and solutions, funding and FX to risk management and investment products. Given the liquidity in the local capital markets, they may also tap the local capital markets as already outlined.
In the past few years our core products for MNCs, such as our global transaction services, and FX-related business from US multinational corporates more than doubled in Asia. What is most important to our global clients is the scale of our network -- we have a team over 200 dedicated bankers in Asia serving these clients. About 90% of the top 100 Fortune 500 companies are our clients in Asia.
What impact did the financial crisis have on this business? Did you see any cutbacks in investment from your US MNC clients?
The impact of the financial crisis has not been as drastic as feared by many. Business flows reduced in line with the economic slowdown, and some new investments were put on hold, but this was short term and almost all MNCs, including US MNCs confirmed that investments and increasing market share in Asia remain the key priority. We expect investment activities to pick up along with the increased stability in global markets, especially in Asia.
Responding to the crisis, multinational clients increased their focus on liquidity management in order to maximise concentration of surplus cash. Thus we saw big demand for pooling and sweeping structures to facilitate payments and liquidity optimisation in Asia. Products such as our web-based application -- TreasuryVision -- which provides global visibility on cash balances across all banks for a client found increasing relevance.
The US is still home to the lion's share of global multinationals and global brands. Will this be Asia's decade and will we see a growth in Asian multinationals?
Yes, certainly. Asia's decade has been a long time in the making -- China is the third largest economy (in the world) today and India is the 12th. The speed and strength with which many of the Asian multinationals have risen is nothing short of phenomenal as they become significant players in their respective industries, particularly in telecommunications, finance and manufacturing. Expect to see Asia producing more global champions in the coming decade.
We also see a rising trend in Asia-Pacific outbound FDI; a strong sign of commitment of Asia-Pacific multinationals to the rest of the world. It also underlines to us the importance of having a global platform with our operations in over 100 countries.
The concept of "Asia's decade" need not be at the expense of other regions, as more and more partnerships are forged between countries, driven by the role of our Asian multinationals. Recently, the US Department of Commerce published a paper on Asia-Pacific FDI in the United States. Ten to 20 years ago discussion topics would be largely on US outbound FDI, today, the flows are both ways. For example, Asia-Pacific MNCs employ more than 788,000 Americans, in relatively high paying jobs (average $68,000 in annual compensation). Asia-Pacific firms also spend $4.6 billion on research and development in the US and generate $61 billion in US exports. In the past five years, Asia-Pacific greenfield investments created 130,000 jobs in the US. It may well be Asia's decade but that will benefit the whole world.