As trailblazers of growth, many Asian Tigers’s corporate treasuries have had to grow and learn to react to business complexities and changes in their environments very quickly. Over the past decades, many of these treasuries have been able to rapidly develop their levels of maturity and integration in a relatively short time during recent periods of economic growth and prosperity.
In recent years, however, a number of drivers have caused treasurers in the region to adopt a more strategic role – such as the increased volatility in both the financial and commodity markets, the legacy of the global financial crisis, regulatory changes and new innovative business models. Even within Asia, priorities may differ according to the level of treasury maturity of a particular country. For example, treasuries in Singapore or Hong Kong tend to be mature and highly integrated with their business, because they have experienced international growth for a longer period.
Many corporate treasury departments are relatively young and in the process of reaching the required level of treasury expertise commensurate with the higher level of maturity needed to manage these complexities. Fortunately, they are able to advance through the stages of maturity at a faster pace, as technological advancements allow ‘new’ treasurers to omit several hurdles previously encountered by their more mature peers. One such example is the increase in Software as a Service (SaaS) solutions, which enable corporate treasuries to implement a TMS even if they are not heavily supported by IT.
In line with trends in Europe and the US, treasury is adopting a more strategic role in the Asian organization. Senior management is underwriting the importance treasury can have in not only liquidity and risk management, but also in supporting innovative business models that will allow companies to drive competitive advantage. Without a high level of treasury sophistication, expertise and integration, companies may fall short when trying to structure a more efficient supply chain, improve their working capital and monetize their financial assets.
In our most recent white paper, co-authored with Citi , we identified that although the traditional objective of centralization remains valid, its concept has changed. Instead of simply focusing on location, the new concept incorporates location with virtualization supporting centralized control and local empowerment.
Companies that are entertaining the thought of reaching or transcending the highest level of optimization, have reached either the enhancing stage or the optimized stage applicable to the Zanders Treasury and Risk Maturity model. Typically, these companies can be identified by their highly complex business environment and the high level of treasury integration with their business. Treasury’s expertise is relied on to offer solutions to navigate their complex business environment. For example, regulatory challenges and the global tax trend toward substance over form, transparency and documentation are driving a further need for standardization across the global organization.
Technological advancements have allowed treasuries at these levels of business integration and expertise to continue to mature, thus improving efficiency and providing better quality. This has allowed companies to reap the benefits of treasury’s value adding services. Technological advancement has seen increased speeds of development with new technologies such as robotic process automation (RPA), data analytics, blockchain and artificial intelligence (AI). These exponential technologies have ignited discussions around what level of optimization and centralization can be achieved next by transcending treasury.
At the same time, larger corporations at the highest level of maturity are questioning whether local or regional teams are still required. With all activities centralized and standardized, could they not consolidate and close some regional or local centers? Do they need regional or local centers in Asia if the corporation is headquartered in Europe or the US, or do they need regional or local centers in the US or Europe if headquartered in Asia? These questions come up as treasuries reach high levels of maturity and optimization and are confronted with highly improved treasury transcending technological solutions.
Such corporate treasuries act as internal consultants to the business. They operate in highly complex business environments and are highly integrated with the business in order to provide added value. However, if we look at the traditional solutions and stages of maturity, they are close to full optimization of their treasury operations.
Global Treasury Centre
Exponential technology may offer a new solution to help answer the question of whether to centralize operations further in a single Global Treasury Center (GTC) to increase the level of optimization. However, developments in this area are so rapid that it is sometimes difficult for treasurers to keep up. Clients frequently ask us whether these advancements can offer a solution to their day-to-day problems.
We believe that treasurers who are open to embracing the opportunities presented by exponential technologies will be able to improve their operations. To do so, they will need to review existing manual processes and identify those that can be improved, redesigned and replaced by these technologies. Re-assessment of human skill requirements needed to reach the corporate’s strategic objectives will also have to take place. For example, RPA will free up valuable time for dedicated treasury staff to add more value elsewhere, potentially from a single location. Outsourcing will become near-sourcing and parts of the operations will be executed 24/7 on an automated basis, supported by RPA, machine learning or AI. Developing a data strategy to identify, collect, manage and analyze all the relevant data will support a data-driven culture that should enhance the decision-making process.
The China Cross-border Inter-Bank Payments System (CIPS), and emerging instant payment solutions in Singapore and Australia are examples of continuous developments that are creating opportunities for efficient payments and cash management. They enable increased standardization and possibly the centralization of processes by setting up a GTC. A GTC undertakes all functions, is highly centralized and serves as the only treasury for all global markets that a company operates in or as the consolidation of all local and regional treasuries.
A GTC will help overcome the fragmentation of organizational structures, policies, processes and systems. Everything will be structured and managed from a single location and perspective to optimize the level of expertise and integration it can offer the organization, as local empowerment becomes less important. However, exponential technology can still re-instate local empowerment even when centralization has taken place. It can offer a virtual presence in the region or locally, even while operations are run from the single location of the GTC.
Traditionally, it would be counter-intuitive to say that global optimization can support regional or local empowerment as increased centralization and optimization require an organization to relieve local or regional staff of their responsibilities. With the technological changes and the evolution of the centralization paradigm, where the concept now incorporates location with virtualization supporting centralized control and local empowerment, this may no longer be the case.
Adapting to the new environment that incorporates these exponential technologies will require collaboration within the treasury ecosystem — between corporates, their banks, and technology and service providers. Open-mindedness, experimentation, shared experiences and lessons will be critical to the future of treasury, and to allowing highly mature corporate treasuries to optimize their treasuries further and transcend all levels of maturity.
As previously mentioned, each case is unique and requires a structured approach that takes into account any specific requirements and goals supported by best practices.
1) The Future of Corporate Treasury’, Zanders and Citibank, 2019