HSBC's Guide to Cash, Supply Chain and Treasury Management in

HSBC’s Guide to Cash, Supply Chain andTreasury Managementin Asia Pacific 2011

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4 HSBC’s Guide to Cash, Supply Chain and Treasury Management in Asia Pacific 2011

8 Foreword10 Contributors22 Treasury Associations in Asia Pacific

The New Economic Landscape

24 The New Norms of Financial Markets for Corporate TreasurersPeter Wong, Founding Chairman and President, International Association of CFOs and Corporate Treasurers, China and Convenor, Hong Kong Association of Corporate Treasurers

29 Building for Growth: Trends in Emerging AsiaRohit De Rozario, Senior Vice President, and Chuen Yick Lam, Vice President, Markets Management, Global Payments and Cash Management, Asia Pacific, HSBC, Hong Kong

Working Capital Management

36 Treasury Post-NoughtiesDavid Blair, Vice President, Treasury, Huawei, China

41 Effective Cash Management: Key Factors in Addressing Business LiquidityAnkita Tyagi, Research Associate, Financial Management and Governance, Risk and Compliance (GRC) practice, Aberdeen Group, Boston, Massachusetts

45 A Pragmatic Look at Process Centralisation after the Global Financial CrisisAnthony CK Ho, Vice President, and Mohammed Omer Murtza, Assistant Vice President, Product Management, Payments and Receivables, Global Cash Management, Asia Pacific, HSBC, Hong Kong

50 Treasury: Business Process Outsourcing Vipul Agrawal, IT Consultant, and Sumesh Gopurathingal, Business Analyst, ITC Infotech India Ltd, India

55 Factoring: The Smart Way to Fund?Damian Glendinning, Vice President and Treasurer, Lenovo; President, Association of Corporate Treasurers, Singapore

61 Forfaiting: A Solution for Volatile TimesVin Sing Chay, Director of Business Development, Asia Forfaiting Centre, Trade and Supply Chain, HSBC, Singapore

65 Payments STP: A Business ImperativeArthur Tanseco, Vice President and Sarfaraz Ahmad, Vice President, Regional Product Management, Global Payments and Cash Management, Asia Pacific, HSBC, Hong Kong

70 Streamlined Collections for Optimised Working CapitalJemmy Ong, Senior Vice President, Global Transaction Services, Institutional Banking Group, DBS, Singapore

75 The Beneficial World of Virtual AccountsMa-an David, Assistant Vice President, Product Management, Global Payments and Cash Management, Asia Pacific, HSBC, Hong Kong; and Wendel Kwan, Assistant Vice President, Product Management, Global Payments and Cash Management, Asia Pacific, HSBC, Hong Kong

Supply Chain Management

84 Global Trade Management: A Key Import-Export StrategyKeith Ip, Director, Value Chain Management Solutions, Greater China, Oracle, Hong Kong

89 Towards a Solution: A Focused Approach to Supply Chain FinanceAlexander Malaket, President, OPUS Advisory Services International

94 Linking the Physical and Financial Supply Chains: Internal and External ChallengesCarl Wegner, Head, Transaction Banking, Standard Chartered Bank, Taiwan

Contents

Contents


98 Tax-Effective Supply Chain Management in ChinaBecky Lai, Partner, International Tax Services Leader – Greater China, based in Ernst & Young, Hong Kong; Andrew Choy, International Tax Services Partner, Ernst & Young, Beijing, China; and Travis Qiu, Partner, Transfer Pricing and Tax Effective Supply Chain Management, Ernst & Young, Shanghai, China

105 Green Supply Chain Management: Considerations for CFOsSteve Keifer, Vice President of Industry and Product Marketing, GXS, Washington DC

The Power Of Technology

112 The Changing World of Payment ChannelsAnand Mukati, Senior Vice President, Client Integration & eDelivery, Asia Pacific, HSBC, Hong Kong

117 Mobile Banking for the Corporate Treasury Krishna K Ayyalasomayajula, Associate Engagement Manager, Banking and Capital Markets Practice, Infosys Technologies Ltd; Yogesh P Mishra, Senior Principal, Infosys Consulting; and Shaji Farooq, Vice President and Head of Banking and Capital Markets Practice, Infosys Technologies Ltd, US

122 SWIFT for Corporates: What’s Next?Caroline Lacocque, Head of Client Integration Consulting, Global Transaction Banking, Asia Pacific, HSBC, Hong Kong

126 Financial Risk Management in a Hong Kong Corporate TreasuryDavid Woo Kar Wai, General Manager, Corporate Treasury, Hysan Development Co. Ltd

132 Collaborating to Improve Customer ConnectivityCharles Henry Dubarry de Lassale, Head of Direct Channels and Integration, Global Transaction Banking, HSBC Bank plc, UK; David Campbell, HSBC SAP Global Account Executive, SAP UK; and Michael King, Global Client Director for HSBC, SWIFT

Unlocking Asia’s Potential

140 Acquainted Again: Middle Kingdom and the Middle EastAs printed in Week in China

145 A Changing Approach in AsiaMahesh Kini, Head of Cash Management Corporates, Asia Pacific, Deutsche Bank

149 Brazilian Commodities Fuel Boom in Ties with China and AsiaPaulo Silva, Manager, Structured Trade Finance, and Eric Striegler, Head, Trade & International, HSBC, Brazil

155 China’s Changing Priorities: Focus Shifts to Domestic TradeChristopher G Lewis, Head of Trade and Supply Chain, Greater China, HSBC, China

160 China: Issues to Consider Before InvestingIan Lewis, Partner, Mayer Brown JSM, Beijing, China

165 Renminbi Liberalisation: Timeline Compression?Ben Chan, Senior Vice President, Strategy, Propositions & Channels, Commercial Banking, Asia Pacific, HSBC, Hong Kong

Perspectives

170 Forming a New Partnership: Banks as Your Change AgentMarcus Treacher, Head of Client Experience, Global Transaction Banking, HSBC Bank plc, UK

176 Banks and Treasuries: 10 Steps to a True PartnershipViolet Yung, Vice President Regional Sales, Global Payments and Cash Management, Asia Pacific, HSBC,

Hong Kong

Contents

HSBC’s Guide to Cash, Supply Chain and Treasury Management in Asia Pacific 2011 7

180 Streamlining Standards and Processes Across a Large OrganisationCatherine Yu, Asia Pacific Regional Controller, British Telecom Global Services; Bonnie YK Chiu, Senior Vice President, Regional Sales, Global Payments and Cash Management, Asia Pacific, HSBC, Hong Kong; and Kay Huang, Senior Vice President, Client Implementation, Global Payments and Cash Management, Asia Pacific, HSBC, Hong Kong

186 Foundations for Liquidity Management Jonathan Logan, Assistant Group Treasurer, Smith & Nephew

190 It Is Your Business To Know Your Banker’s BankNolan S Adarve, Senior Vice President, Regional High Value Payments and FI Payments and Clearing, Product Management, Global Payments and Cash Management, Asia Pacific, HSBC, Hong Kong

195 The Benefits of Bilateral BankingAman Dalal, Vice President, Product Management, Trade and Supply Chain, HSBC, India

199 Out of Japan: Supporting Overseas Expansion with a Regional Treasury CentreKiyono Hasaka, Vice President, Regional Sales, Global Payments and Cash Management, HSBC, Singapore

205 Japan’s Corporate Culture: The Challenges for Regional TreasurersJun Takane, Vice President, Sales, Global Payments and Cash Management, HSBC, Japan

Market Analysis

211 Australia214 Bangladesh217 Brunei219 China227 Hong Kong SAR231 India236 Indonesia240 Japan244 Korea248 Macau SAR251 Malaysia255 Mauritius259 New Zealand262 The Philippines265 Singapore269 Sri Lanka273 Taiwan277 Thailand281 Vietnam

This year barcodes have been added for easy access to additional reference material. Please go to getscanlife.com from your mobile phone browser to download the free barcode reader application.


Welcome to the 14th edition of HSBC’s Guide to Cash, Supply Chain and Treasury Management in Asia Pacific, which this year incorporates a new layout. The Guide provides a trusted resource for professionals in these three disciplines, with valuable editorial contributions from recognised experts on industry best practice and innovation.

The main theme from my foreword to last year’s Guide remains equally true today – “much has changed over the past year”. One of the most striking of these changes has been the growing global awareness that conventional wisdom about the interaction of economic regions may no longer be valid. The traditional assumption that emerging markets are dependent upon consumption in OECD countries for their growth now looks increasingly obsolete.

The most compelling evidence for this lies in trade figures that highlight the way that these countries have quickly responded to stagnation in their traditional markets by boosting trade activity among themselves; referring to “emerging markets” as the world’s “faster growing economies” may therefore better describe their status in and contribution to the global economy going forward.

This situation is also strongly reflected in forward-looking trade statistics. Since its launch in 2009, HSBC’s Trade Confidence Index has consistently demonstrated that these faster growing economies (and Asian ones in particular) have been the most optimistic about their future trade prospects – often by a very significant margin. This trend is reflected in this issue of the Guide, which includes a variety of articles that address topics relating to this shift in global economic activity. We hope that you will find these and the many other articles and resources in the Guide a valuable reference and of assistance to you in unlocking the potential of Asia Pacific. As always, we welcome your comments and any suggestions you may have for the 2012 edition of the Guide.

Finally, I would like to extend my sincere thanks to the clients, cash management practitioners and treasury professionals whose insightful and expert contributions made this Guide possible.

John LaurensHead of Global Payments and Cash Management, Asia Pacific, HSBCTel: (852) 2822 2860E-mail: [email protected]

Foreword


ViPUL AgrAWALIT Consultant, ITC Infotech India Ltd., India

Vipul Agrawal joined ITC InfoTech India Ltd. in July 2008 and works for the BFSI cluster of the organisation. He is responsible for managing a team of banking domain consultants for ITC Infotech’s biggest client. Prior to this, he was part of the Global Payments and Cash Management product team at HSBC, India. He has also worked on the commercial and retail lending systems of European and US banks. He has more than nine years of experience and has worked for some of India’s top software companies. He gained a Master’s degree in Business Administration from Symbiosis India.

SArfArAz AhMAD Vice President, Regional Product Management, Global Payments and Cash Management, Asia Pacific, HSBC, Hong Kong

Sarfaraz Ahmad is a member of HSBC’s regional product management team responsible for high value payments and receivables. He has close to 10 years of experience in banking, technology, and FMCG sectors and in functional areas of finance, operations, supply chain, and technology services. Prior to joining HSBC, he worked for Procter & Gamble and Hewlett-Packard. Mr Ahmad holds a Master’s degree in Electrical Engineering and an MBA in Finance from the National University of Singapore.

NOLAN S ADArVESenior Vice President, Regional High Value Payments and FI Payments and Clearing, Product Management, Global

Payments and Cash Management, Asia Pacific, HSBC, Hong Kong

Nolan S Adarve is responsible for High Value Payments and FI Payments and Clearing across 20 markets in Asia Pacific. His 15 years in cash management are supported by his strong experience in running cash management business and product management as well as his familiarity in the diverse payments infrastructures operating across Asia Pacific. Mr Adarve has been a member since 2004 of the SWIFT Payments Maintenance Working Group. He was also a member of the ISO Payments Standards Evaluation Group that harmonised the ISO 20022 Universal Financial Message Scheme in 2006.

KriShNA K AyyALASOMAyAJULAAssociate Engagement Manager, Banking and Capital Markets Practice, Infosys Technologies Ltd., US

Krishna K Ayyalasomayajula is an Associate Engagement Manager with Infosys. He manages Infosys engagements in the treasury and payments portfolio for a large US bank. He is a Certified Treasury Professional and focused on core banking transformation initiatives for corporate banking and treasury.

DAViD BLAirVice President, Treasury, Huawei, China

David Blair has 25 years of treasury experience, starting his career with Price Waterhouse, then founding ABB’s World Treasury Centre in Switzerland. After setting up Nokia’s global treasury centre in Switzerland, he set up Nokia Treasury Asia in Singapore before becoming Nokia Group Treasurer in Finland. He is now Vice President, Treasury, at Huawei in China.

DAViD CAMPBELLHSBC SAP Global Account Director, SAP UK

David Campbell is Global Account Director, SAP and has global responsibility for managing the HSBC account. He has over 25 years of experience in the financial service sector. Prior to joining SAP, he held a number of senior management positions in American Express, Visa and NatWest Bank and also held a board position of a Nasdaq quoted company serving as Sales and Marketing Director. His main responsibilities have involved accountability for direct sales, marketing, business partner sales and strategic alliances. His main areas of expertise lie in credit risk, fraud management, commercial cards and banking strategy.

Contributors

Contributors


BEN ChANSenior Vice President, Strategy, Propositions & Channels, Commercial Banking, Asia Pacific, HSBC, Hong Kong

Ben Chan is Senior Vice President, Business Planning and Strategy in HSBC, primarily responsible for the development of the bank’s offshore RMB business. He has been engaged in the RMB Trade Settlement Project since early 2009. He has served as the Deputy Chair of the Hong Kong Association of Banks RMB Trade Settlement Committee. He maintains regular contacts with the regulators in Hong Kong and mainland China. He is also driving the international RMB business in overseas offices of HSBC. Since joining HSBC in 1996, he has held a number of positions in Corporate Banking, SME Banking, Trade Services and Retail Banking. He completed his MBA at INSEAD, France, where he graduated with Distinction. He is also an Associate of the Hong Kong Institute of Bankers. In addition, he serves as a Government Appointed Member of the Public Affairs Forum.

ViN SiNg ChAyDirector of Business Development, Asia Forfaiting Centre, Trade and Supply Chain, HSBC, Singapore

Vin Sing Chay has worked in the banking industry for more than 17 years. For the last 12 years he has worked for HSBC. He is responsible for originating forfaiting business in South and South East Asia.

BONNiE y K ChiUSenior Vice President, Regional Sales, Global Payments and Cash Management, Asia Pacific, HSBC, Hong Kong

Responsible for providing consultative cash management solutions and advice to clients in diversified industrial, resource and energy sectors, Bonnie Chiu brings a strong understanding of the challenges faced by industry clients and a thorough understanding of the Asian market landscape and operating environment. She also served as Vice President, Regional Sales, with HSBC from 2002 to 2005, responsible for promoting regional cash management solutions. Prior to that, she was Relationship Manager, Commercial Banking, for five years, managing a lending portfolio of mid-cap corporate clients in Hong Kong. Ms Chiu holds an MA from the University of Cambridge and an LLB from the University of London, as well as the Association of Corporate Treasurers’ Certificate in International Cash Management.

ANDrEW ChOyPartner, Ernst & Young, Beijing, China

Andrew Choy is a China tax partner in Ernst & Young’s Beijing office. He recently finished a two-year secondment to the firm’s New York office, where he led the China tax desk. He specialises in structuring cross-border transactions and pre-acquisition tax analysis for PRC investing clients. He has extensive knowledge of post-acquisition restructuring and integration for multinational companies. He was previously based in Hong Kong and moved to Beijing in 2004. He obtained his Bachelor of Business Administration from the University of Washington, US, and is a member of the Washington State Board of Accountants.

AMAN DALALVice President, Product Management, Trade and Supply Chain, HSBC, India

Aman Dalal has more than nine years of experience with HSBC and Standard Chartered Bank, handling various functions and responsibilities in trade and supply chain, payments and cash management and finance related areas, among other roles. He is a Chartered Accountant by profession and graduated from MLS University, Rajasthan, India.

Contributors


MA-AN DAViD Assistant Vice President, Product Management, Global Payments and Cash Management, Asia Pacific, HSBC, Hong Kong

Ma-an David has nearly 12 years of experience in cash management, working in various areas including product management, business implementation, client service and operations. She is currently a member of the Payment and Receivables Solutions team for Asia Pacific. Prior to HSBC, she worked for two local banks in the Philippines. Ms David holds a Bachelor’s degree in Management Economics from the Ateneo de Manila University.

rOhiT DE rOzAriOSenior Vice President, Market Development, Global Payments and Cash Management, Asia Pacific, HSBC, Hong Kong

Rohit De Rozario has more than 12 years of banking and consulting experience, covering business strategy, mergers and acquisitions, human resources, cash management, marketing and analytics across Asia Pacific and the Middle East. He joined HSBC in 2004 and has managed markets management and business planning for payments and cash management in Asia Pacific. Prior to that, he gained extensive experience with Arthur Andersen, where he was a senior consultant in the Middle East. He is an engineer with a post graduate qualification in Management.

ChArLES hENry DUBArry DE LASSALEHead of Direct Channels and Integration, Global Transaction Banking, HSBC Bank plc, UK

Based in London, Charles Henry Dubarry de Lassale is head of Direct Channels and Integration for HSBC’s Global Transaction Banking business. He is responsible for host-to-host and SWIFT connectivity and complements the client integration process and packaging of end-to-end solutions.

ShAJi fArOOqVice President and Head of Banking and Capital Markets Practice, Infosys Technologies Ltd., US

Shaji Farooq is Vice President and Head of the Banking and Capital Markets Practice at Infosys Technologies Ltd. He has over 22 years of professional experience. His areas of expertise include business and IT strategy, business process redesign and value management, with significant focus on the financial services industry.

DAMiAN gLENDiNNiNgVice President and Treasurer, Lenovo; President, Association of Corporate Treasurers, Singapore

After 21 years with IBM, Damian Glendinning joined Lenovo in 2005 as Group Treasurer, following the acquisition of IBM’s personal computer business. He had spent four years as IBM’s Asia Pacific treasurer in Singapore, and was their Director of Global Treasury Operations in New York. Mr Glendinning is a member of the ACCA, and has a degree in French and Italian from Oxford University. He has been President of the Association of Corporate Treasurers (Singapore) since June 2010 – a position he also held from 1999 to 2003.

SUMESh gOPUrAThiNgALBusiness Analyst, ITC Infotech India Ltd., India

Sumesh Gopurathingal currently works as a business analyst with ITC Infotech India Ltd in their BFSI vertical. He holds an MBA degree in Finance from S P Jain Center of Management. He is also a Certified Associate of the Indian Institute of Bankers. Prior to his MBA, he worked with a leading public sector bank in India. During his tenure with the bank he gained extensive experience in the areas of retail banking operations and payments systems, including direct debits, credit transfers, cheque clearing and RTGS and cash management services.

Contributors


KiyONO hASAKAVice President, Regional Sales, Global Payments and Cash Management, HSBC, Singapore

Kiyono Hasaka has more than 11 years of experience in cash and treasury management. She is currently responsible for promoting HSBC’s payments and cash management solutions in the Asia Pacific region. Prior to HSBC, she worked for Bank of America’s Global Treasury Services in Tokyo and Singapore, and Bank of Tokyo-Mitsubishi in Singapore. She holds a Bachelor’s degree in Social Science from City University, UK, and an MBA from Deakin University, Australia.

ANThONy CK hOVice President, Product Management, Payments and Receivables, Global Cash Management, Asia Pacific, HSBC, Hong Kong

Anthony Ho joined HSBC in 2006 as a Regional Payments and Receivables Product Manager. Prior to moving into banking, he was with Accenture and Unisys, servicing the financial services sector. During his time with Unisys, he was a key member in supporting the rollout of the Cheque Truncation Project for Hong Kong Interbank Clearing Limited (HKICL). He holds an MBA from Hong Kong Polytechnic University.

KAy hUANg Senior Vice President, Client Implementation, Global Payments and Cash Management, Asia Pacific, HSBC, Hong Kong

Kay Huang has been a banker for over four years in Payments and Cash Management at HSBC. She is responsible for leading and managing the implementation of domestic, regional and global cash management solutions for HSBC’s corporate and financial institutional customers around the world. She is experienced in leading and delivering global cash management solutions to a wide array of customers. Previously, she worked for LG Philips Displays International Limited as an audit manager, planning and performing reviews on business processes and IT controls for complex, high-risk sites worldwide. She has also held consultancy positions with Oracle Systems HK Ltd and Deloitte & Touche. She holds a Master of Business Administration from the Chinese University of Hong Kong and a degree in Mathematics from the University of Hong Kong. She also holds the Certificate of International Cash Management from the Association of Corporate Treasurers, UK.

KEiTh iPDirector, Value Chain Management Solutions, Greater China, Oracle, Hong Kong

Keith Ip is Sales Director of Value Chain Management (VCM) Solutions for Oracle Greater China. He leads a team of specialists in providing value chain and global trade business consultation to companies across different industries in the Greater China region. In his previous careers, Mr Ip drove high-profile supply chain initiatives and provided business consultation for Fortune 500 companies including Hewlett Packard and Boeing in the US. He holds Executive MBAs from Kellogg School of Management, Northwestern University and Hong Kong University of Science & Technology. He also holds a Master of Science degree from Stanford University and a Bachelor of Science degree with honours from the University of California, Berkeley.

STEVE KEifErVice President of Industry and Product Marketing, GXS, Washington DC

Steve Keifer is the Vice President of Industry and Product Marketing for GXS, based in Washington DC. Steve leads the global strategy and marketing for GXS’ vertical industry programmes in the automotive, high tech, consumer products and financial services sectors. In recent years, he has spearheaded multiple initiatives to build awareness of the benefits of B2B e-commerce to ERP project success, emerging markets growth and corporate sustainability programmes. He maintains a popular blog entitled EDInomics (http://blogs.gxs.com/keifers) in which he discusses news, trends and strategies for B2B in the physical and financial supply chains.

Contributors


MiChAEL KiNg Global Client Director for HSBC, SWIFT.

Michael King is SWIFT’s Global Client Director for HSBC. In this role, he is responsible for representing HSBC’s interests into SWIFT and SWIFT’s interests into HSBC. Prior to assuming his current role, he was Regional Director for UK and Ireland. In this role, he was responsible for SWIFT’s sales and marketing activities in the region and maintaining senior relationships within member firms and appropriate industry groups. Before his current role, he was Director e-commerce, responsible for delivering SWIFT’s e-commerce portfolio. Prior to this, he held the positions of Regional Director for SWIFT’s North America operations and Regional Director for the Asia Pacific business operations based in Singapore and Hong Kong. He has more than 30 years of experience in the international finance arena. Before joining SWIFT, he held various roles with a global bank and previously had his own company.

MAhESh KiNiHead of Cash Management Corporates, Asia Pacific, Deutsche Bank

As Head of Cash Management Corporates, Asia Pacific, Mahesh Kini is primarily responsible for the sales, business management and strategy for cash management in the region. He is also responsible for building the regional cash management corporates portfolio. He first joined the bank in 2007 as Head of Cash Management Corporates, Singapore. Prior to joining Deutsche Bank AG, he held different roles in cash management sales and product management at HSBC in Singapore. With over 15 years of structuring regional and in-country cash management solutions, he has taken on various sales positions in financial institutions, including ABN AMRO Bank and Bank of America. He first started his career as a senior officer in cash management sales at HDFC Bank, India. He holds a Master’s degree in Management Studies and a Bachelor of Commerce from Mumbai University, India.

WENDEL KWAN Assistant Vice President, Product Management, Global Payments and Cash Management, Asia Pacific, HSBC, Hong Kong

Wendel Kwan is part of HSBC’s regional payments and receivables team for Asia Pacific, managing mainly the business and development of regional collection platforms. Prior to joining HSBC, he worked as an auditor in one of the big four firms. He is a Certified Public Accountant and holds a Bachelor’s degree from the London School of Economics.

CArOLiNE LACOCqUEHead of Client Integration Consulting, Global Transaction Banking, Asia Pacific, HSBC, Hong Kong

Based in Hong Kong, Caroline Lacocque’s role is to develop HSBC’s global leadership position in the corporate connectivity field, with a particular focus on SWIFT-based solutions, providing strategic advice for key emerging multinational clients in Asia on their integration projects. Before joining HSBC, she was Head of Corporates at SWIFT and responsible for successfully rolling out the corporate offering in Asia Pacific. Prior to that, she was based in New York with the Treasury and Cash Management division of SunGard, where she was responsible for introducing new cash and treasury solutions to Fortune 2000 customers. She is a Belgian citizen and holds a Master’s degree in International Law from the University of Brussels, Belgium.

Contributors


BECKy LAiPartner, International Tax Services Leader – Greater China, based in Ernst & Young, Hong Kong.

Becky Lai has over 25 years of experience in tax advisory gained in Hong Kong, Toronto, and Beijing. She concentrates on international tax for inbound and outbound tax structuring and financing. She has extensive experience in manufacturing, financial services, energy and resources, media and communications. She maintains frequent dialogues with the tax authorities on new trends in tax development. She is a council member of the Taxation Institute in Hong Kong, a member of the Hong Kong Institute of Certified Accountants, the Certified General Accountants of Canada and the American Institute of Certified Accountants.

ChUEN yiCK LAMVice President, Markets Management, Global Payments and Cash Management, Asia Pacific, HSBC, Hong Kong

Chuen Yick Lam joined HSBC’s business transformation team in 2002 and has worked with the Personal Finance, Corporate Banking, and Global Markets businesses. His role extends over business planning, front office support, and product development. Currently he is a member of the business planning team for Payments and Cash Management in Asia Pacific. He received his MBA degree from the University of Hong Kong in 2006.

JOhN LAUrENSHead of Global Payments and Cash Management, Asia Pacific, HSBC

John Laurens has more than 23 years of banking experience, covering cash management, relationship management, sales, structured finance, operations and product management in Europe and Asia Pacific. He joined HSBC in 2001 as the Regional Head of Product Management and led the development and management of HSBC’s integrated cash management solutions throughout the region. Prior to that, he gained extensive experience with Citibank, where he was the Head of Corporate Banking in Australia. Mr Laurens is an Associate of the Chartered Institute of Bankers.

ChriSTOPhEr g LEWiSHead of Trade and Supply Chain, Greater China, HSBC, China

Christopher Lewis joined HSBC in 1989 and has since worked in a number of lending and trade management positions in North America, Asia Pacific and the Middle East. Previously, he was responsible for HSBC’s transaction banking businesses across the Middle East region. In his current position, Mr Lewis is responsible for the bank’s trade business in Hong Kong and has functional responsibility for HSBC Trade and Supply Chain delivery teams across China, Taiwan and Macau. He holds a degree in Economics from the University of California and is Secretary of the Executive Committee of the International Chamber of Commerce, Hong Kong.

iAN LEWiSPartner, Mayer Brown JSM, Beijing, China

Ian Lewis has more than 22 years of legal experience gained in several Asian jurisdictions, with significant China real estate and commercial law experience. He has undertaken a range of projects throughout the region and has previously worked in Hong Kong, Thailand and Vietnam. Based in Beijing for the last nine years, he has undertaken a variety of work in China relating to foreign inward investment. He is a regular conference speaker on real estate and foreign direct investment topics.

JONAThAN LOgANAssistant Group Treasurer, Smith & Nephew

Jonathan Logan qualified as an accountant with PwC. He then initially joined GlaxoSmithKline’s internal audit function before moving on to Treasury and finally Corporate Development. After eight years with GlaxoSmithKline, he joined Smith & Nephew’s Treasury function in 2007 in his current role as Assistant Group Treasurer.

Contributors


ALExANDEr MALAKETPresident, OPUS Advisory Services International

Alexander Malaket is an internationally recognised consultant in trade finance, with more than 18 years in trade banking and trade advisory roles. He has been engaged by top-tier trade banks, financial services clients and government agencies on assignments covering strategy, business process analysis, technology implementations and project management. Mr Malaket holds a Bachelor’s degree in Economics and Political Science from the University of Toronto and the designation of Certified International Trade Professional from the Forum for International Trade Training, Canada.

yOgESh P MiShrASenior Principal, Infosys Consulting, US

Yogesh P Mishra is a Senior Principal with Infosys Consulting. He is focused on developing and delivering consulting solutions on customer innovation and multi-channel integration for the financial services industry. He has an MBA in Finance from the Indian Institute of Management and ESADE Barcelona.

ANAND MUKATiSenior Vice President, Client Integration & eDelivery, Asia Pacific, HSBC, Hong Kong

Anand Mukati has over 10 years of varied experience including technology sales, corporate planning, consulting and business improvement. He is a certified Six Sigma Black Belt and has considerable experience in driving offshore transformations. In his current role with Global Payments and Cash Management, he heads the Client Integration and eDelivery team responsible for technology consulting and execution for customers.

MOhAMMED OMEr MUrTzAAssistant Vice President, Product Management, Payments and Receivables, Global Cash Management, Asia Pacific, HSBC,

Hong Kong

Mohammed Omer Murtza has nearly 10 years of experience in cash management and supply chain finance and in his current role is managing low value commercial payments and receivables products for Asia Pacific countries. Prior to HSBC, he worked with Standard Chartered Bank in a supply chain finance role and Deutsche Bank in a sales role. He has an MBA in Finance from the Institute of Business Administration, Karachi, Pakistan.

JEMMy ONgSenior Vice President, Global Transaction Services, Institutional Banking Group, DBS, Singapore

Jemmy Ong joined DBS in 2005 and is currently leading the cash management sales team supporting the Enterprise Banking segment of the bank. He has more than 15 years of experience in cash management, having held positions in sales, implementation and client services, handling complex regional sales and implementation for local corporations and multinational clients. Prior to joining DBS, he spent three years at HSBC Singapore and 10 years at Bank of America. He holds a Bachelor of Arts degree in Psychology from the National University of Singapore.

TrAViS qiUPartner, Transfer Pricing and Tax Effective Supply Chain Management, Ernst & Young, Shanghai, China

Travis Qui has 16 years of experience in tax and business advisory and currently specialises in transfer pricing and tax effective supply chain management (TESCM). He has worked for Ernst & Young in both Shanghai and New York. His experience includes advising multinational companies on China investments, mergers and acquisitions, transfer pricing planning, TESCM, and business restructuring. He has also represented companies in negotiations with tax authorities. He is a member of CICPA and holds a Bachelor’s (first class honours) degree in accounting from Victoria University of Wellington and a Bachelor of Economics from Xiamen University, China.

Contributors


PAULO SiLVAManager, Structured Trade Finance, HSBC, Brazil

Paulo Silva has 11 years of experience in financial markets, with particular expertise in credit, commodity markets and structured trade finance deals. He holds a Bachelor’s degree in Economics from PUC-SP and an MBA from IBMEC-SP. He previously worked for a rating agency and then spent six years with retail, wholesale and investment banks, covering a broad range of commodity-related sectors. He joined HSBC one year ago to support structured trade finance expansion in Brazil.

EriC STriEgLErHead of Trade & International, HSBC, Brazil

Eric holds a Bachelor in Economics from UNICAMP, Brazil, and has studied Finance and Management at FGV, Brazil, INSEAD (France and Singapore) and Duke, USA. Since 2008 he has been Head of Trade & International for HSBC Brazil, responsible for the Trade, Export and Commodity Finance Sales, Product, Client Management and Project teams. He deals with a wide range of transactions and clients and is experienced in negotiating structured financing in Brazil and abroad, as well as being a specialist in commodity finance. He joined HSBC Group 13 years ago, having previously worked for Banco Real (ABN AMRO Group).

JUN TAKANEVice President, Sales, Global Payments and Cash Management, HSBC, Japan

Jun Takane is responsible for selling cash management services for multinational and Japanese corporations. He has recently promoted an extensive cash management solution and consultancy in the consumer retail and direct marketing sectors. Prior to joining HSBC, he was an entrepreneur representing a treasury software developer and promoting SwiftNet corporate solutions in Asia, Europe and the US. He holds a Bachelor’s degree in Industrial and Systems Engineering from Aoyama Gakuin University in Japan and an MBA from Baruch College of City University, New York.

ArThUr MiChAEL TANSECO Vice President, Regional Product Management, Global Payments and Cash Management, Asia Pacific, HSBC , Hong Kong

Arthur currently supervises a team of product managers handling payments and receivables propositions across Asia Pacific. He has a total of 14 years of relevant experience across a number of fields, including operations, sales, compliance, marketing, relationship management, product management, working capital management, post-merger integration and corporate treasury. Prior to re-joining HSBC in 2008, he was the Regional Treasury Manager for CEMEX in Asia, managing a regional treasury centre supporting nine countries across Asia Pacific. He holds a Bachelor’s degree in Business Economics from the University of the Philippines.

MArCUS TrEAChErHead of Client Experience, Global Payments and Cash Management, HSBC Bank plc, UK

Marcus Treacher has worked in transaction banking and information technology for more than 25 years. During his career Mr Treacher has held wide ranging positions, including global strategic planning, global product management, major line management and delivering large-scale information technology transformation programmes. In his current role, he is responsible for HSBC’s global Internet and host-to-host banking services, which connect several thousand corporate and financial institution customers to HSBC world-wide, as well as being Head of Client Experience for Payments and Cash Management world-wide. He is a member of the Board of SWIFT.

Contributors


ANKiTA TyAgiResearch Associate, Financial Management and Governance, Risk, and Compliance (GRC) practice, Aberdeen Group,

Boston, Massachusetts

Ankita Tyagi is a Research Associate in the Financial Management and Governance, Risk, and Compliance (GRC) practice at Aberdeen Group. As a researcher, Ankita leverages fact-based research based on PACE (pressures, actions, capabilities and enablers) methodology to provide guidance to companies on best practises and technologies necessary to achieve business objectives and to identify new ROI opportunities. Ankita holds a Bachelor of Science degree in Electrical Engineering, with minors in Mathematics and Business Administration from the University of Maine, Orono, an MBA (specialisation in Finance), also from the University of Maine, Orono and a graduate certificate in Leadership with specialisation in Project Management from Northeastern University, Boston.

CArL WEgNErHead, Transaction Banking, Standard Chartered Bank, Taiwan

Carl Wegner is Head of Transaction Banking in Taiwan, responsible for trade, cash, and custody business in the wholesale bank. He has over 15 years of experience in corporate banking, with nearly 30 years experience of working in Asia. Prior to rejoining Standard Chartered Bank in late 2007, Mr Wegner was the Vice President of Business Development, Asia Pacific region, for TradeCard, a financial services software company. In various postings, he has been based in Taipei, Shanghai, Beijing, Hong Kong and Jakarta. He speaks fluent Mandarin and holds a double major in Chinese and Chinese History from Georgetown University.

PETEr WONgFounding Chairman and President, International Association of CFOs and Corporate Treasurers, China and Convenor, Hong

Kong Association of Corporate Treasurers

Peter Wong is a Fellow of the UK-based Association of Corporate Treasurers and the Chartered Institute of Management Accountants as well as a CFA charterholder. He is a Fellow of the Hong Kong Institute of CPA and has served as an Assessor of the Institute’s CPA examination qualification programme since its inception. He is the founding chairman of IACCT (China) and in 2008 was appointed to an advisory role with the State Administration of Foreign Exchange in China. Mr Wong has served as an Executive Board member of the Treasury Markets Association chaired by the Hong Kong Monetary Authority since 2006. He graduated from the University of Hong Kong with an MBA and a Bachelor of Social Sciences degree, majoring in Economics.

DAViD WOO KAr WAiGeneral Manager, Corporate Treasury, Hysan Development Co. Ltd., Hong Kong

David Woo has been General Manager, Corporate Treasury for Hysan Development Co. Ltd. since August 2009, having previously worked in the treasury department and finance division of PCCW Group from 2000. Prior to joining PCCW, Mr Woo was Vice President (Treasury) of the Hong Kong Mortgage Corporation and a member of the MTR Corporation treasury team. His early career was spent in the Treasury Department of HSBC and First National Bank of Chicago. Mr. Woo graduated from the University of Hong Kong with a Bachelor of Arts degree and completed an MBA programme at the University of Wisconsin Milwaukee in the US. He is a Chartered Financial Analyst, a Financial Risk Manager and a member of the Association of Chartered Certified Accountants.

Contributors


CAThEriNE yUAsia Pacific Regional Controller, British Telecom Global Services

Catherine Yu is the Asia Pacific Regional Controller of British Telecom Global Services, a global telecommunication company. Before she joined BTGS she was the Associate Director, Compliance and Process Improvement, Asia Pacific for Merck & Co. Inc., a global pharmaceutical company. She started her career in Price Waterhouse and has extensive professional experience in different disciplines of finance.

ViOLET yUNgVice President Regional Sales, Global Payments and Cash Management, Asia Pacific, HSBC, Hong Kong

Violet Yung joined HSBC in May 2010 as a project consultant. She is working with the Project Extended Enterprise team carrying out feasibility studies with HSBC’s clients. Violet has 15 years of treasury and corporate finance experience. Prior to joining HSBC, she worked for Tesco PLC as regional treasurer for Asia, CLP Holdings and Pacific Century Cyberworks in Hong Kong.


AUSTrALiAFinance & Treasury AssociationABN 70 006 509 655PO Box 84 Hampton VIC 3188AustraliaPresident: Mike DontschukTel: [61] (3) 8534 5060Fax: [61] (3) 9530 8911E-mail: [email protected] site: www.finance-treasury.com

ChiNA/hONg KONg SAr• International Association of CFOs and Corporate Treasurers (China) • Hong Kong Association of Corporate Treasurers45th Floor, The Lee Gardens, 33 Hysan Avenue, Causeway Bay, Hong KongChairman: Peter WongTel: [852] 3180 7731, 6986 6088Fax: [852] 3180 2299E-mail: [email protected] site: www.iacctchina.com

iNDiAThe Association of Certified Treasury Managers52 Nagarjuna HillsHyderabad 500 082IndiaTel: [91] (40) 2343 5368–74Fax: [91] (40) 2335 2521 E-mail: [email protected] site: www.actmindia.org

JAPANJapan Association for CFOs (JACFO)Shiozaki Building 2F, 2-7-1 Hirakawacho, Chiyoda-kuTokyo Japan 102-0093President: Toyoo GyohtenTel: [81] (3) 3556 2334Fax: [81] (3) 3556 2320E-mail: [email protected] site: www.cfo.jp

KOrEAKorea Association for CFOs7F Borim Building Myung-dong-1-ka 5-1Jung-ku, Seoul, 100-021 KoreaExecutive Managing Director:Robin (Woo-Don) LimTel: [82] (2) 755 8670–1Fax: [82] (2) 755 8672E-mail: [email protected] site: www.cfokorea.org

MALAySiAMalaysian Association of Corporate Treasurers9th Floor, Balai Felda, Jalan Gurney Satu54000 Kuala LumpurMalaysiaContact: Anne RodriguesTel: [60] (3) 240 5201Fax: [60] (3) 298 2677E-mail: [email protected]

NEW zEALANDInstitute of Finance ProfessionalsNew Zealand Inc.PO Box 10 350WellingtonNew ZealandExecutive Director: Paul HockingTel: [64] (4) 499 1870Fax: [64] (4) 499 1840E-mail: [email protected] site: www.infinz.com

SiNgAPOrEAssociation of Corporate Treasurers (Singapore)SecretariatSBF Training & Consultancy (International) Pte LtdC/O Block 51, Telok Blangah Drive #06-142, Singapore 100051 President: Joe CalabroContact: Dennis KohTel/Fax: [65] 6764 6577E-mail: [email protected] site: www.act.org.sg

Treasury Associations in Asia Pacific

The New Norms of Financial Markets for Corporate Treasurers


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The time to complete the deleveraging process in the US and Europe has taken longer than the market had expected. Unemployment remains stubbornly high. Governments are facing a tough

choice between containing fiscal deficits and promoting recovery. Austerity measures are unpopular among voters.

As a financial intermediary, the banking sector is constrained in its ability to finance growth. While quantitative easing has kept the inter-bank rate at historically low levels, banks are not growing their balance sheets. They have concerns over a new round of bad debt should there be a double dip recession, the tendency to avoid new rights issues and the remote chance of another government bailout. The new capital adequacy rules (Basel II and III) also raised the banks’ hurdle rate in approving financially viable lending. The current widening of margins due to low inter-bank rates may not be sustainable when interest rates start to go up. Banks are very cautious.

China’s economic growth provides a strong stabilising force for Asia. Substantial inflows of funds from the US and Europe to Asia have generated excessive liquidity, creating asset bubbles, currency appreciation, inflation and pressure for policy tightening. The ramifications of bursting asset bubbles in Asia create much anxiety in the financial markets. Commodity prices rose in anticipation of the China growth story, the depreciating US dollar and inflation. The reverse outcome may come about should there be a hard landing in China. The consequence may be a significant correction in asset prices resulting in loss in investment confidence and contraction in consumer demand due to the negative wealth effect.

Lessons and Opportunities

The lesson learnt from the financial tsunami is the need to prepare for such black swan events. The behaviour of market participants should reflect these expectations. Unfortunately the market’s view tends be to be one-sided, which exacerbates the speed and magnitude of the swing in market movement. Corporate treasurers need to position themselves accordingly when managing financial risks.

The liberalisation of the RMB market, on the other hand, creates new opportunities for corporate treasurers to manage their liquidity, funding and currency risks. Increasing numbers of Chinese enterprises are transforming into China multinational corporations (MNCs) as they increase overseas direct investment

• Economic recovery is proving slower than expected, and banks’ room for manoeuvre is limited. However, China’s growth has provided stability to the region.

• In a low interest rate environment, financial supply chain integration will grow in importance for corporate treasurers.

• The liberalisation of the RMB offers new opportunities for diversifying liquidity but underlines the need for more sophisticated capital markets in China.

• Sophisticated treasury management systems are vital as overseas direct investment and M&A activity grow in the region.

Peter Wong, Founding Chairman and President, International Association of CFOs and Corporate Treasurers, China and Convenor, Hong Kong Association of Corporate Treasurers




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association’s events on knowledge and best practice sharing in international treasury management.

The expansion of the financial markets in Asia will create increased demand for the treasury and financial market skills required to support the growth of the financial services industry in the region. Through better managing financial risks and achieving treasury efficiencies, treasurers will continue to play an important role in the corporate world to promote profitable and sustainable growth.

The New Dimensions of Risk:Liquidity, Currency and Market Risk

Traditionally, corporate treasurers have focused on perfecting cash forecasts and the pooling of cash to minimise the need to run overdraft balances and to maximise yields from short-term funds. In the post-crisis era most have increased their precautionary balances of short-term cash.

In the current low interest rate environment, high cash balances carry almost zero return. In Asia this has facilitated the growth of supply chain financial integration, where importers or buyers provide the certainty of cash flow to exporters. This is particularly useful for small and medium enterprises (SMEs), which are facing higher trade finance costs post-crisis and the rationing of trade credit facilities by banks. However, bundling financing and business arrangements may magnify the problem for exporters if they have to find replacements for both at the same time.

In managing their payables, treasurers can improve the certainty of cash outflow by achieving a higher degree of integration between their enterprise resource planning (ERP) systems and their treasury management systems (TMS) and by considering the decision to outsource their disbursement arrangements to international cash management banks. The economies of scale and efficiency gained deserve a serious treasury review if the scope is regional (Asia) or global. Many Asian markets have real-time gross settlement (RTGS) electronic payment infrastructures. The Hong Kong Monetary Authority was the first in Asia to introduce RTGS in 1996. The scanning and internet technology available today have made e-payment solutions more affordable.

Managing liquidity risk cannot be isolated from the decision to manage currency risk. Many US and European MNCs have seen their Asian operations growing in significant proportion to the size of their global business. This trend is expected to accelerate, given the virtuous cycle of Asia’s high savings ratio and growing middle class, which support rises in domestic consumption, thereby making Asia less susceptible to sluggish export demand from the US and European markets. Over the years we have seen Asia investing heavily in infrastructure that facilitates the process of urbanisation, particularly in India and China. The mindset of keeping global cash surpluses in USD, EUR or GBP may need a rethink if future investments are going to be made in Asia – Asian currencies stand a much higher chance of long-term appreciation.

The recent liberalisation of the RMB offers a new opportunity for companies to diversify their liquidity pools. The Chinese authorities are encouraging importers to use RMB as a settlement currency for international trade. Hong Kong, for example, is a main benefactor of this new policy, with RMB deposits in Hong Kong more than doubling in recent years and becoming the largest offshore RMB pool in the world. There is still a lot of room to expand money markets and investment products in Hong Kong, but the trend is very promising.



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the US government’s increasing liabilities. This has caused much anxiety among investors who hold substantial USD assets. Given the shift of business to Asia and the future cash flow needed to invest in the region, treasurers will need to evaluate how their cash holdings should be diversified among different currencies to avoid the cost of mismatch. Also, many MNCs use USD as their global cash concentration currency to fund local currency expenditure in Asia. This may need to be revisited as appreciating Asian currencies will result in foreign exchange costs to the payable settlement.

The low interest rates in the US and the weak outlook for the USD have made the USD carry trade attractive. The market risk of a reversal of one or both of these scenarios, and the financial impact if there were, should be evaluated. The challenge for treasurers is how to make the right call when the market is by its nature unpredictable. Here are some suggestions: Treasurers need to be open minded and prepared to challenge the status quo in order to identify all

options. Once due process is done, they should present their recommended option, together with second or third options with different risk-return trade offs.

Treasurers not only need to do it right, they need to do it properly. Sound corporate governance practices require treasurers to obtain proper approval and delegation of authority from the Board before they execute treasury transactions. The Board also has to be kept informed of any material developments. Apart from compliance, treasurers should consider not just short term gain but also how a decision may impact the long term sustainability of the company.

Current mark-to-market accounting rules could cause volatility in financial performance linked to significant treasury transactions. Whatever the outcome, treasurers need to explain it properly to all stakeholders: shareholders (including equity fund managers), the Board, bank creditors, bond investors, regulators, customers, vendors, the media and – of course – the staff. Investor relations and corporate communication skills are vital here.

Emerging Asian MNCs andthe Future Development of Treasury Markets

The dominance of Japan in the automobile and electronics industries has made Japanese MNCs world leaders. Among the Fortune Global 500 list in 2010, 71 were from Japan. This was slightly lower than 81 five years ago. The number of other Asian MNCs on the list is increasing rapidly: from 45 in 2005 to 83 in 2010, with the most impressive growth coming from mainland China, Hong Kong and Taiwan. The number in what is commonly called the Greater China Region rose from 18 to 54 in this period. There were 10 from South Korea, eight from Australia, eight from India and one each from Singapore, Malaysia and Thailand. For comparison, the other two BRIC countries (Brazil and Russia) had seven and six respectively. The threshold to reach the Global 500 list was USD17bn of revenue compared with USD4bn for the US 500.

According to a senior treasurer at a leading Chinese MNC, the main challenges for treasury management in China are the search for experienced talent and the need for a more sophisticated capital market and diversified banking products. The drive to promote international treasury education was high on the agenda at the recent annual meeting of the International Group of Treasury Associations (IGTA) held in Geneva in October 2010. The International Association of CFOs and Corporate Treasurers (IACCT) and the Hong Kong Association of Corporate Treasurers (HKACT) established a strategic partnership in 2006 with the UK Association of Corporate Treasurers to promote treasury education in Greater China. This included the Certificate of International Treasury Management (Cert ITM) and other qualifications



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Ministry of Finance, the China Association of CFOs, the Shanghai Accounting Society and the American Chamber of South China to promote international treasury best practice to their members. Joint seminars and experience-sharing networking events organised with partners including SWIFT, banks, TMS service providers, Thomson Reuters and accounting firms have proved to be popular in Hong Kong and Mainland cities.

Asia has grown in the level of sophistication of its treasury markets, particularly in financial infrastructure (e.g. domestic and regional RTGS) and cooperation among Asian central banks (e.g. contingency swap lines to provide border liquidity). The main financial centres in Asia (Tokyo, Hong Kong and Singapore) have also grown in global importance based upon – to take one example – the 2010 Bank of International Settlement (BIS) Foreign Exchange Survey. Asian governments have responded proactively during the recent financial crisis. Financial regulators in Australia, Hong Kong, Malaysia, Singapore, Taiwan and South Korea swiftly put together their versions of enhanced deposit protection schemes that were the key to maintaining investor confidence at the time. Most of the schemes have since expired without any adverse result in terms of capital outflow. On the contrary, portfolio and foreign direct investments continue to make their way from the US and European markets into Asia. International credit rating agencies have upgraded the sovereign rating of many Asian jurisdictions. For example, recent upgrade action by Moody’s rates Hong Kong as Aa1 (with positive outlook), which is only one notch from Aaa, and China is Aa3 (with positive outlook).

Two Main Areas for Further Development

Against this background of strong economic fundamentals, there are many opportunities for further development in treasury markets. These are important for treasurers in managing their funding, liquidity, investments and risks in Asia.

First of all, there is a need to develop a diversity of long-term funding sources. While the strong growth in the stock markets in Hong Kong and Shanghai has enabled many Asian and Chinese firms to expand their equity capital base and the banking market is highly liquid, with strong capital adequacy and relatively low leverage (loan-to-deposit ratios), there remains room to grow for the corporate bond market: Deepen the market with further increases in the number of high grade issuers, and permit MNCs to

issue bonds on the Mainland. Initially the funds raised by MNCs should be used only in China. Lengthen the maturity of bonds. This may be difficult if investors begin to build in an expectation of

rising inflation, as long durations may magnify market risk. However, certain categories of investor (e.g. life insurance companies and pay-as-you-go pension funds) may prefer certainty of future cash flows.

Promote the corporate bond fund market. Institutional investors (bond fund managers) are professional investors and therefore positioned to evaluate the credit of issues and issuers. They have substantial funds and can provide liquidity to facilitate secondary market trading. Through the QFII scheme, investors in Asia can diversify their long term investment holdings from USD assets to RMB.

The recent development of the offshore RMB corporate bond market in Hong Kong offers opportunities for treasurers to diversify their funding from traditional bank loans to longer term bonds. The duration of these issues will in time be extended from the existing two to three year maturities as the long-dated yield curve develops.



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robust treasury management system for the following reasons: Many Asian and Chinese corporations face the growing need to manage regional or global liquidity as

they increase cross-border M&A and overseas direct investment. The ability to move funds across jurisdictions and keep the cash pools in the right currencies are crucial to managing liquidity and currency risk.

The higher the inflow of funds into the local market, the greater the liquidity risk in the event of a reversal. This could manifest itself in sharply higher inter-bank rates and reluctance on the part of banks to provide credit. A TMS enables treasurers to perform a vigorous funding gap analysis to identify cash flow at risk for different maturity periods and then consider precautionary measures such as interest rate swaps or the staggering of refinancing requirements.

During this present time of zero interest rates, there is a temptation to park cash in higher yield instruments. However the risk-return trade off has to be carefully evaluated and swift reallocation of funds in a stop-loss situation is critical. A good TMS enables treasurers to monitor the credit risk of banks or underlying investments in a holistic way, so that they can report any significant credit deterioration to their Board.

Conclusion

Forecasting is a tool but not a solution. We may not have the answer to how long the US unemployment rate will take to return to pre-crisis levels, or whether China’s economy will have a hard landing should the asset bubble burst. It is futile to time the market, but one has to make an informed decision. Be flexible and adaptive. For there to be good governance, treasurers must be responsible for providing their board and senior management with an assessment of the financial risks in relation to their business and the decisions the companies will make. In good times or bad, treasurers need to master the control of liquidity, as cash flow is the key to survival and growth. There are companies that evolve more strongly after a crisis and we should all aspire to be the ones that do.


The 2008 financial crisis has now passed and emerging Asia1 has bounced back from the financial crisis. Companies are shifting from a strategy of “cost management” to one of “managing for

growth”. There are significant macro-economic trends in emerging Asia that corporates are seeking to follow as they deploy strategies to drive growth. These emerging trends will pose new challenges in the context of technology, processes, marketing and people. which corporates will need to manage to deliver value for their shareholders.

This article outlines seven key trends that the authors believe will play out over the medium- to long-term and which will have maximum impact on future corporate growth strategies. These trends have been identified through engagement with our clients across emerging Asia and validated through secondary research. Our findings indicate a corporate awareness of a number of these trends by our clients and a strategic focus to leverage the opportunities that these trends present.

The East–East Economic Transition

In the last couple of decades, there has been a gradual shift from the East’s dependence on imports by the West to an East–East economic transition. This is evidenced by the Asian trade, which has grown 380% since 1990 and contributed 30% of the 2008 world total, up from 22% in 1990. Asia’s

1 Emerging Asia is defined here as China; the Asian subcontinent (i.e. India, Bangladesh and Sri Lanka); and the Asean 5 – Indonesia, Malaysia, Thailand, Vietnam and the Philippines.

Rohit De Rozario, Senior Vice President, and Chuen Yick Lam, Vice President, Markets Management, Global Payments and Cash Management, Asia Pacific, HSBC, Hong Kong

Building for Growth: Trends in Emerging Asia

• There are several significant macro-economic trends appearing in the countries that make up “emerging Asia”.

• Through engagement with clients in these countries, the authors of this article have identified seven key trends that corporates are seeking to follow as part of their strategies to drive growth.

• These medium- to long-term trends are expected to receive increased visibility as the decade progresses and to affect economic growth across emerging Asia.

• As the impact of these trends will vary according to sector, country and other factors, companies should consider each of these trends as part of their growth strategy in the coming years.



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represents a USD3tr or 440% growth in absolute terms. In other words, Asian manufacturers are selling more in the region than to the rest of the world.

We see three key drivers of this shift: A growth in domestic consumption driven by government policy shifts, i.e. significantly lower yields

on savings and gradually improving social security networks in emerging Asia, which encourages spending;

Emergence of regional bodies, such as the Association of Southeast Asian Nations (ASEAN) and the South Asian Association for Regional Cooperation (SAARC), with a strong focus on free trade agreements within Asia and greater economic integration; and

Evolution of large local corporates with strong brands that enhance their foothold in the region and with a deep knowledge of the local emerging markets.

Further East–East economic acceleration will mean any corporate looking for growth will need a presence in emerging Asia. More importantly, it will require a good understanding of the local markets, with the ability to cope with challenging political landscapes and frequent policy changes. They will also need to operate in highly regulated local markets, successfully integrate local sourcing and distribution channels to ensure pricing competitiveness, and develop local talent to win in the longer term.

The Demographic Shift

Demographics influence both consumption and savings patterns, and therefore have a strong bearing on future growth. A number of research papers are available on this subject. Some interesting extrapolations that stand out are that by 2030 two out of every three people in the global workforce are expected to be Chinese or Indian, while one third of the world’s population will be in emerging Asia. The majority will live in urban areas. In addition, the average worker in emerging Asia will be in his or her late 30s, and an increasing number of females will be participating in the workforce.

This change in demographics translates into: A larger middle class now demanding better quality products and services; Higher disposable incomes as both members of the family join the workforce, driving further

consumption; Reversal of the “brain drain” to developed markets as talent returns to high-growth emerging Asian

markets; and Relocation of manufacturing and service bases to emerging Asia to leverage lower-cost resource

availability.

Over the next couple of decades, we believe, demographics will have a greater impact on corporate growth strategy than any other factor, driving future products and service mix; influencing manufacturing and service locations; and affecting cost of production and brand value.

2 “Intra-regional Trade Key to Asia’s Export Boom”, The International Monetary Fund (IMF), 2008. Available on the IMF web site, www.imf.org.



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Inclusive growth and sustainable development are issues now in focus, especially for emerging Asia. Countries are working towards ensuring that economic growth actually translates into poverty reduction that is sustainable over the long term. The challenge is in ensuring that the poorest communities in the most rural areas are provided with basic healthcare and education facilities; exploitation of resources and people is reduced; effective lending is available to allow for rural enterprise creation; and migration to cities is reduced through enhanced agriculture and small enterprise creation.

As a starting point, the focus is on financial inclusion. A study by the United Nations indicates that approximately 40% of the world’s population live on less than USD2 per day3 and a majority of these people do not have access to a bank account, therefore limiting their ability to save or borrow. While financial inclusion has always been associated with banking, corporates can also play a meaningfulrole in the following ways: Large retail networks can deploy financial capital and

experienced staff for development of products and services to drive financial inclusion.

Efficient cash management and retail outlet monitoring systems may be advantageous in driving collections of savings and borrowing.

Corporates’ retail agents cover significant geographies as part of their distribution networks.

Corporates can ensure continuity of services more than individuals.

We expect that financial inclusion will be a significant growth driver, presenting an opportunity to companies that have established distribution networks to source and sell in rural emerging Asian markets (e.g. retail, telecom, non-banking financial companies, cooperative societies). It will also result in companies having longer term plans for emerging Asian countries, as governments provide tax reductions and other incentives for companies that work towards development of rural education, healthcare and resource regeneration as part of their corporate participation models.

The Connectivity and Infrastructure Transformation

Emerging Asia is being visibly transformed by the building of roads, ports, airports, housing, railways and telecommunication networks. Governments are focused on creating the connectivity and infrastructure required to deliver rapid growth. This trend is in line with global trends. For example, passenger air traffic increased by more than 25% from 2005 to 2010,4 and Internet conectivity grew by 445% in the last decade.5 Of the enormous amount spent on infrastructure in emerging Asia over the next decade, the majority of the projects will be developed through public-private partnerships.

3 Data computed from Figure II.1, page 14, “Rethinking Poverty: Report on the World Social Situation 2010”, a report by the United Nations.

4 “Air Transport Market Analysis”, International Air Transport Association, 2010. See www.iata.org/whatwedo/Documents/economics/MIS_Note_Jun10.pdf

5 “Internet in Asia”, Internet World Statistics, 2009. See www.internetworldstats.com/stats3.htm#asia.



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Local retailers now have to compete with the delivery services of virtual shops on the World Wide Web because their clients have Internet access.

Local producers of fresh meat and vegetables can now enter the national market with the opening of a new local airport.

Mobile-based payments and fund transfers provide banking services to sectors of the population who are underbanked.

In addition to participating industries (e.g. airlines, shipping and logistics, telecommunications, construction and their supply chains) benefiting from growth opportunities, there are also new opportunities for businesses of all sizes, and across all sectors. Corporates will need to review their longer-term business models and the competitive

advantage impacted by these infrastructure changes, especially their sales initiation and order fulfilment channels, as well as procurement and manufacturing bases.

The “Green” Revolution

The “Green” Revolution is defined by the need to preserve the environment for coming generations. It is estimated that the worldwide potential revenue for green products will reach USD889bn by 2020.6 Another survey in 2008 shows that 75% of Europeans are ready to buy these products even if they cost

more, compared to 31% in 2005.7 Emerging Asia is also expected to follow this trend over the coming decade. For example, in 2008 China rejected projects worth USD69bn because of the pollution they would cause.8 China has also ordered banks to stop extending loans to projects that run foul of the country’s policies of energy conservation and pollution reduction.9

The decision to buy green is currently affected by the bandwagon effect10, similar to that for luxury goods. Significant efforts are being made by companies to

differentiate their products and services on the green platform, with recycled products, paperless transactions, green certification, etc. Governments are also driving education and focus by encouraging waste recycling and water conservation, banning the use of certain non-biodegradable plastics and offering tax concessions for electric vehicles. There is still much that needs to be done by emerging Asia in this regard, but the initial steps are being taken.

6 “Interim Report of the Green Growth Strategy”, Organisation for Economic Co-operation and Development (OECD), 2010. Available on the OECD web site, www.oecd.org.

7 European Commission, via “Environmental Policy in a Differentiated Market with a Green Network Effect”, Dorothée Brécard, Université de Nantes, France, 2009.

8 “China Blocks USD69bn of Polluting Projects to Cut Emissions”, Bloomberg, 8 June 2009.9 “China Banks Told to Stop New Loans to High-Polluting Industries”, Xinhua News Agency, 21 June 2010.10 The bandwagon effect refers to the extent to which the demand for a commodity is increased due to the fact that others

are also consuming the same commodity.



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the rate of adoption of green products and services will increase as this decade progresses with a price premium that can be maintained, which will directly contribute to enhanced bottom-line growth.

The “Here Today, Gone Tomorrow” Product Lifecycle

The product lifecycle is becoming shorter and, while this was typically associated with Western markets, the trend is also being observed in emerging Asia. The growing speed at which manufacturers commercialise new technologies is illustrated by the history of the television.11 The first public demonstration of the TV concept was conducted in 1895. Commercial broadcasting was introduced in 1907. Colour TV arrived two decades later and TV sets remained fundamentally the same until remote control was adopted in 1950. In the last decade the technology breakthroughs12 started with wide availability of flat-screen TVs and culminated with the recent introduction of digital high-definition broadcasting and 3-D display.

Emerging Asia is now willing to upgrade products and services faster to enjoy new product features, thus increasing the speed of product obsolescence. The shortening product lifecycle means that there is a shorter timeframe to capitalise on commercial success and a greater need for smart investment in research and development (R&D) to ensure a competitive advantage. A few interesting facts are: Asia Pacific’s share of global R&D expenditure increased from 24% to 31% between 1996 and 2007

and is expected to grow further driven by emerging Asia.13

Asia represented 41.4% of world researchers in 2007 compared to 37.5% in 2002.14

Global multinationals increased their total R&D sites by 6% between 2004 and 2007, and of those new sites, 83% were in China and India. They also increased R&D staff by 22%; 91% of that increase was in China and India.15

Strategically it will be important for corporates to focus on R&D as part of their growth strategy. Product innovation and differentiation will be critical to creating shareholder value, especially as fewer flagship products will be driving a significant proportion of revenue, thus increasing the “revenue at risk” due to faster product obsolescence.

The “Small is Beautiful” Entrepreneurship Growth

The availability of venture capital and low-cost local funding (an outcome of rate reductions following the financial crisis) as well as technology and a large local consumer base is creating a growth in new entrepreneurs. Embracing the view that “small is beautiful”, more than a million small businesses are set up each year in emerging Asia, and a number of these later develop into medium-sized corporates.

11 For a timeline of invention of television, see www.history-timelines.org.uk/events-timelines/08-television-invention-timeline.htm

12 Many of the new technologies had existed for decades but were adopted for TV for the first time.13 “Global Expansion of Research and Development Expenditures”, Science and Engineering Indicators 2010, National

Science Board, National Science Foundation, see www.nsf.gov.14 www.unesco.org/science/psd/wsd07/Fact_Sheet_2009.pdf “Human Resources in R&D”, UNESCO Institute for

Statistics.15 “Beyond Borders: The Global Innovation 1000”, Barry Jaruzelski and Kevin Dehoff.



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cape This growth in entrepreneurship and the corresponding increase in small and medium-sized enterprises

(SMEs) are expected to be strong contributors to gross domestic product (GDP) growth in emerging Asia. Working in their favour, SMEs: Tend to be faster at innovation due to their specific focus and their small size; May be involved in developing patented technology, especially those in the information and

communication technology (ICT) sector; Have the ability to focus on a specific target segment; Are faster to adopt technology and offer price differentiation; and Are an integral part of large corporate supply chains.

To compete, corporates will need to consider acquisitions of SMEs or direct stake participation in SMEs as a driver of future growth.

Conclusion

The impact of each of these trends, and the extent to which corporates align their future strategies to capture the opportunities that these trends present, will vary by sector, the investment required (especially those trends not focused on cost leadership) and country participation models. Each trend needs to be defined independently by each company, and considered as part of its growth strategy in the coming years.

Treasury Post-Noughties


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Working Capital Management



The conclusions after SWIFT’s SIBOS conference at the end of October are sobering. At best we are over the worst, but the longer term consequences of massive quantitative easing (QE) needed to

get us through the global financial crisis are unclear and unlikely to be happy. With the Federal Reserve having confirmed “QE2”, even the short term is not assured. Ben Bernanke, chairman of the US Federal Reserve, told senators that the economic outlook “remains unusually uncertain”.

At SIBOS, some banks estimated that the unintended consequences of the updated Basel III accords might cut 2% from global trade1 – this at a time when western governments desperately need to grow their way out of debt. “If the regulations are implemented as they are currently written,” said Karen Fawcett, Senior Managing Director and Group Head Of Transaction Banking, Standard Chartered Bank, “we could be seeing a 2% fall in global trade and a 0.5% fall in global GDP”.

Under proposed guidelines from the Basel Committee on Banking Supervision, a 100% capital requirement leverage ratio will be imposed on trade finance, five times higher than the 20% level recommended under existing Basel II guidelines. There seem to be clear risks that Basel III may negatively impact trade instruments by forcing banks to weight them 100%, thereby increasing the cost of trade. This will likely reduce trade, further hampering any recovery. Although it looks like the threat

1 www.swift.com/sibos2010/home_page/publications/sibos_issues/thursday.pdf#page=1


• The global financial crisis is still keenly felt. Measures to cope with it, such as quantitative easing and the Basel III accords, may have unintended consequences.

• China overtaking Japan as the world’s second largest economy is just one indicator of global change in which all treasurers need to do more with less.

• Treasurers need to focus on value-added business support and cash flow needs to be everybody’s concern.

• Recent history has taught us to prepare for the unexpected: scenario planning skills are more important than ever.

David Blair, Vice President, Treasury, Huawei, China



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of corporate foreign exchange (FX) moving on to collateralised exchanges has receded – thanks to the sterling efforts of a few corporations that have lobbied hard for all our benefit – we cannot exclude from our scenario planning the risk of the massive cash flow volatility that collateral on FX would cause. Add to this a large measure of political uncertainty, as governments squirm to find palatable solutions to the basically unpalatable reality that most western economies have overspent.

On the other hand, there are big shifts in the global economy underway. China has overtaken Japan to become the world’s second largest economy. Corporates that have not already established themselves in China are scrambling to catch up with this new reality. Even though China’s rise seems like an unstoppable demographic juggernaut, it is not clear that the road will be smooth – pessimists point to regulatory, political and financial risks, such as the housing bubble and the rapid expansion of Chinese bank balance sheets post-global financial crisis.

We are facing very uncertain times both from a macroeconomic perspective and from a treasury perspective. Our businesses are faced with uncertainties that demand a defensive posture at the same time as we need to aggressively pursue the few remaining growth niches. In treasury, we face uncertainty in terms of funding and even execution of routine transactions because of the pressures on banks.

Facing Uncertainty

The global financial crisis has focussed corporate attention on cash flow and liquidity, putting treasurers in the spotlight. According to the PricewaterhouseCoopers (PwC) Global Treasury Survey 2010, 80% of treasurers feel they have more board level attention and 70% feel more valued. On the other hand, the crisis has made companies frugal: “Only 20% have secured extra resources as a result of the crisis.”2

The tension between uncertainty driving a defensive posture amongst companies and on the other hand the need to aggressively pursue new opportunities makes for interesting times for corporate treasurers. We need to do more with less: in the latest management jargon, we need “jugaad”3 or “frugal innovation”.

Macro Uncertainties Lead to increased Costs

Treasury has to deal with the conflict of resource constraints and potentially stretched requirements. Our businesses’ defensive stance towards macro uncertainties mandates cutting costs. Banks’ defensive stances towards macro and regulatory uncertainties make it harder to get funding and may increase the cost of treasury services and products. On the other hand, we need to be able to move fast to support the business in any opportunities that may arise – such as new sectors, new geographies, acquisitions, and so forth.

This is creating measurable changes in behaviour. For example, in the years before 2007 the annual Association of Corporate Treasurers (ACT) Global Cash Management Survey had shown a clear trend towards smaller bank groups, as treasurers sought to simplify their bank relations. After the crisis, this trend reversed as treasurers added banks to diversify their funding sources and reduce credit risk exposures.

2 PricewaterhouseCoopers (PwC) Global Treasury Survey 20103 Jugaad: A New Growth Formula for Corporate America - Navi Radjou, Jaideep Prabhu, and Simone Ahuja. Harvard

Business Review, 25 January 2010



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Another trend is the strong shift to emerging markets, especially China and India. This creates challenges for treasurers who may not have been familiar with the intricacies of emerging market treasury. This is further exacerbated by the difficulty in finding experienced staff in emerging markets, especially while they are booming.

Adding Value in a New Operating Environment

More than ever, it is incumbent on us as treasurers to work smart – this means eliminating unnecessary work and automating or outsourcing routine work so that we can focus on value added business support. Of course such changes will require an investment of time and money which will be hard to fund in these times. So we will have to be very selective about getting maximum bang for our buck, both in terms of return on investment (ROI) and in terms of positioning.

Different companies will arrive at different answers depending on their own strengths, weaknesses, opportunities and threats (SWOT). In fact, now is an ideal time to review where we stand in SWOT terms. Both the internal and the external environment will have changed substantially in the crisis and its aftermath. And businesses pondering the new normal (whatever it is) may be more open to change than was previously the case.

In treasuries that have been self-contained back offices, it may be a good time to take a wider view of end-to-end

processes to look for possible improvements. Most companies have some kinds of legacies based on historic needs and capabilities that provide fertile ground for enhanced productivity. Companies that have already streamlined internal processes will often find inefficiencies in supply chains.

Supply chain is much discussed, and with increasing urgency, as governments try to boost trade and as bank financing comes under pressure post-crisis and from the unintended consequences of regulation. And there is a lot of activity and innovation in financial supply chains. But integration remains weak despite progress in some Asian trade centres. Singapore, Hong Kong and Taiwan have government-supported trade hubs that help local small and medium enterprises (SMEs) to smooth their trade flows. Forward thinking Nordic governments are pushing e-invoicing by mandating it for government contracts. But SWIFT’s Trade Services Utility (TSU), with its vision of inter-operable trade flows mediated by banks as trusted partners, has yet to gain serious traction.

So financial supply chain innovation tends to remain bilateral, where a bank creates a specific solution for a customer without integrating the customer’s trading partners. This is typically on the payable side, where the buyer and its bank can control the flows with relative ease. This does not allow integration through multiple layers of the supply chain – which TSU does enable – and so falls short of optimal supply chain funding efficiency.

I remain surprised at our lack of progress in holistic supply chain financing, despite the back to basics trend evidenced in the PricewaterhouseCoopers (PwC) Global Treasury Survey 2010: “The proportion of participants rating cash management and working capital management as highly important has more than doubled (from 35% pre-crisis to more than 70% during and after)”.4

4 PricewaterhouseCoopers (PwC) Global Treasury Survey 2010



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The Yin and Yang of Treasury

In the post crisis world, treasurers have to face conflicting requirements such as: Cost versus flexibility; Cost versus risk; Centralise versus distribute; Invest versus make do; Value-add versus cost centre; Cash buffer versus cost of cash; Control versus cost of control; Secure long-term funding versus cheap short-term funding; and Pay hedge cost versus take risk.

For many of these, there are no easy answers and, in any case, the answers will depend on each company’s circumstances. A lack of easy answers does not mean there is nothing to be done, though. Many of the conflicts can be reconciled with judicious process review (eliminating as well as re-designing) and technology – particularly from an organisational perspective.

Centralisation without the Disadvantages

Traditionally centralisation brought lower costs with the disadvantage of lost local knowledge and flexibility. Using now commonly available telecommunications and social technology together with judicious staff rotation, we can have the best of both worlds.

Some companies have centralised and brought regional staff to their headquarters to maintain contact with local counterparties. Best practice for a truly global company might be a distributed organisational model where sectoral responsibility is distributed around the globe but acts as one global function to avoid the cost of hierarchical layers. This is dramatically facilitated by Internet technologies. We can have global functions with local flexibility and knowledge.

The old profit centre versus cost centre treasury discussion has largely subsided. Over the last 25 years I have seen corporate treasuries gradually drop nostro trading for profit (currencies in Scandinavia, stocks in Japan, etc.) as market changes and simple volatility made it unsustainable. But I think there is still a place for value-added treasury as opposed to the cost centre treasury. Value-added forces treasury to think holistically about what is in the best interests of the company, rather than simply looking to cut costs.

Cash Flow is not Just a Treasury Concern

Looking beyond the confines of treasury, now is a good time to review the incentives in the company. Treasury cannot manage cash flow alone: it can lead a discussion about the importance of cash flow. If cash flow is agreed to be important then it follows naturally that cash flow will form an important part of all employees’ incentives – for instance in the form of economic value added (EVA), operating cash flow (OCF) or net working capital ratio (NWCR).

Within treasury, incentives need to be aligned with treasury’s objectives. In a value-added treasury, that means incentives for value added or contribution. These must be structured in a fair and transparent way



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to encourage treasury staff to think more widely about how to create benefits for the company. They also need to be risk adjusted to avoid adding financial risk that is not core to the business (risk adjustment probably has to be complemented with static boundaries such as “no position taking”).

The management system for bank relations might be due for review. I often get the impression that banks track relationship profitability much better than most corporations (though there is undoubtedly wide variance). On the process side, we need to look beyond established habits to find opportunities for value added. Especially among more clerical and less technology-oriented staff, some of my favourite questions are “Where do you spend the most time?” and “What tasks feel most repetitive?” Tasks that fit these questions are often ripe for review and possibly automation. Tasks like re-keying data and copying and pasting from and to spreadsheets are obvious candidates for automation, with the side benefit of reduced operational risk. Also, you might find staff laboriously assembling spreadsheet reports that could easily be put together using the dashboard functionality in most treasury management systems.

Another area to review is work flow, as corporates move from paper to electronic work flow. In the process they may automate controls to switch from manual checking to exception reporting and follow up of exceptions.

Always Expect the Unexpected!

In these uncertain times, many corporates are dusting off their scenario planning skills. Rather than just working with a single business plan, companies are mapping out different scenarios such as a double dip recession, continued slow growth in the US and continued boom or correction in China. Treasurers contribute to the development of these scenarios. Suddenly bank economists are much in demand and we need to have the intellectual discipline to listen to and evaluate contrasting views. As Nicholas Taleb recently pointed out, one man’s

black swan event can be another’s planned scenario: “A black swan for the turkey is not a black swan for the butcher. For someone very naïve, an event may appear to be a black swan. But it is not a black swan if you know it can happen and you hedge against it”5.

Treasurers are also users of the resulting forecasts. We need to address issues around what capital structure is suitable across multiple scenarios, what cash and liquidity buffers are needed, and how much we are willing to pay to hedge the more negative scenarios.

Treasury must also map out scenarios for its ecosystem of banks and markets. What will we do if regulators force corporate FX onto organised exchanges, and how will we fund the possible margin calls? Asian treasurers, who have tended to rely on bank debt rather than bond markets, may need to study bond markets if Basel III really impinges on bank balance sheet availability. Similar risks exist for western companies using bank revolvers to secure commercial paper issuance.

5 www.businessweek.com/investor/content/jul2010/pi2010078_530571.htm


What is cash management and why is it important? At first glance, cash management seems like a simple concept that is not vague enough to elicit the same level of intrigue as, say, business

performance management, enterprise performance management or customer relationship management. As it seems self-explanatory, many organisations feel comfortable overlooking this aspect of strategic management. Corporates assume that, when the need arises, they will be able to swiftly implement cash management initiatives and generate sufficient cash to meet their impending needs. However, this approach has shown itself ineffective over time. To truly benefit from effective cash management, executives should have processes and capabilities in place that align with their strategic initiatives so that they can extract liquidity from their financial value chain.

So what does good cash management practice entail? Cash management refers to the judicious use and retention of cash to meet business needs, including short-term operational needs, and ensuring liquidity to support an organisation’s objectives. Effective cash management also stresses the importance of maintaining optimal cash reserves that support unexpected operational and capital expenditure requirements. In 2008 and 2009 there was tremendous focus on cash reserves and liquidity levels across many organisations. Companies that stood the test of time served as a testimony to having an effective cash management practice in place to address liquidity issues and to sustain businesses in a hostile economic environment. Organisations

Ankita Tyagi, Research Associate, Financial Management and Governance, Risk and Compliance (GRC) practice, Aberdeen Group, Boston, Massachusetts

Effective Cash Management: Key Factors in Addressing Business Liquidity

• Good cash management practice means the judicious use and retention of cash to meet business needs and ensuring liquidity to support an organisation’s objectives.

• Corporates which may have been sceptical prior to the credit crisis are now recognising the strength of cash management capabilities.

• Three key factors – a tight credit market, a no-growth economic environment and concerns over liquidity – have brought cash management to the forefront for many organisations.

• Leading companies are aggressively exploring technological solutions and seeking ways to streamline their existing operations.



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which were once sceptical of investing in cash management solutions are now embracing these initiatives.

A Balancing Act

According to a 2009 report by the business research firm Aberdeen Group – entitled “The 3-Part Balancing Act of Cash Management: Optimising the Financial Value Chain” – 82% of the companies surveyed increased their focus on cash management initiatives to respond to the global financial credit crisis and economic downturn. 41% implemented new technology or software solutions to improve their cash management capability over the previous year as a precautionary measure. The tight credit market was cited as the primary reason for undertaking such initiatives. A no-growth economic environment was the second key driver, especially for small and medium-size companies. Additionally, large-size companies were also grappling with concerns over liquidity, including the ability to secure loans. These three key factors brought cash management to the forefront for most corporates, leading them to re-evaluate their current practices and to adopt measures to reduce costs, especially those related to operations.

Of those surveyed, 31% indicated streamlining and automation of cash operational processes and expansion of the payment cycle by lengthening days payable outstanding (DPO) as the top two strategic actions. By streamlining and automating cash operational processes, companies hoped to achieve a scalable level of efficiency which, in turn, would reduce costs and execution time. The underlying motivation for these new measures was the companies’ desire to optimise their cash conversion cycle times to increase cash in hand and to enable re-investment.

At the time of the Aberdeen study, 42% of respondents relied heavily on manual systems and spreadsheets for cash management. Considering the complex nature of most functions, and the ever-evolving buyer-supplier relationship, spreadsheets are consistently being assessed on their efficiency and reliability in documenting transactions and tallying cash positions. For small organisations with simpler, less intricate operations, spreadsheets may be effective, but for large organisations involving complex workflow structures, spreadsheets may not offer sufficient functionalities. Additional tools

may be needed to increase inter-departmental visibility and access to the organisation’s cash position. In fact, according to the study, overdependence on manual or paper-based processes was viewed as one of the top issues by 36% of the companies. Companies indicated that in order to keep up with evolving markets and expectations, they must embrace automated cash management solutions and employ them concurrently with spreadsheets.

Unfortunately, automation comes with its own set of challenges. Workforce and labour unions often view it as a substitute for, rather than as a supplement to, the workforce. However, the intention in automation is to facilitate work and to limit employee participation in mundane tasks, allowing companies to use their human capital to address more complex, analytical problems which cannot be resolved by technology alone.



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Best in Class

At the time of the study, it was found that only 29% of the corporates had fully automated procure-to-pay – accounts payable (A/P) – systems in place, and only 25% of corporates had fully automated order-to-cash – accounts receivable (A/R) – systems in place. This is further evidence that most organisations still relied on manual processes.

Interestingly, over half (53%) of the respondents were aware of the qualitative value offered by automated A/R solutions and believed in their ability to positively impact cash flow (such solutions enabled companies to collect cash from customers and keep overdue loan payments in check), yet less than a third of these respondents adopted automated A/R solutions. The inability to justify the return on investment was found to be the largest barrier to adoption.

On the other hand, corporates that deployed automated A/P and A/R solutions to support their cash management initiatives emerged as “Best-in-Class” organisations (top 20% of respondents). These companies were notable for possessing a days sales outstanding (DSO) period of 21 days, compared to 53 days for the industry average. In addition, these leading companies had an 84% cash flow forecast accuracy rate, compared with 49% for the industry average.

“Best-in-Class” companies were able to achieve success in cash management initiatives by making prudent investment choices in process and technology. 67% of these leading corporates streamlined and automated operational transactions to establish a more favourable cash position, compared to 42% for the industry average. Most of the leading corporates (69%) also monitored forecast accuracy on a regular basis, compared with only 31% for the industry average. Consequently, 69% of these top corporates were able to perform detailed planning for short-term cash, enabling them to establish more realistic expectations and defining strategic objectives.

The “Best-in-Class” organisations were also found to have a well-rounded approach to different aspects of the business. Besides focusing on process and performance strategies, they also placed strong emphasis on organisational communication. A majority (64%) of these leading companies standardised inter-departmental communication methods related to cash management, compared with only 38% for the industry average. To support myriad cross-functional, inter-departmental layers, top companies understood the importance of having effective communication channels across different departments to support strategy planning and execution.

Smart Investment

According to the study, “Best-in-Class” corporates also led the way in investment in technology solutions. Over half of these top corporates (52%) had cash-reporting and forecasting solutions in place, and about 42% of these corporates also had an integrated workflow compared with only 20% for the industry average. The ability to forecast accurately the amount of available cash at any given point enables companies to better plan and execute organisational initiatives. Corporates unable to do so might unnecessarily keep larger reserves, leading to idle cash which could have otherwise been invested to yield greater returns or to support additional organisational functions.

The study also found that 75% of the leading corporates used online portals for balance reporting, forecasting and account reconciliation, compared with 53% for the industry average. This offered a



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distinct competitive advantage as they were better tuned and equipped to address growing monetary needs. These top companies were also able to effectively handle complexities associated with having multiple banking partners – each of which had its own proprietary connection system – all of which have traditionally been cost-prohibitive and time-consuming.

Despite all these comparisons, top-performing corporates have their fair share of challenges when unlocking liquidity from their financial value chains. And in a macro scheme, there are still some issues that need to be addressed across all industries. While straight-through processing (STP) is becoming more acceptable, it still has a fairly low adoption rate despite its value. Fully automated cash channels such as STP simplify communication between internal systems and financial partners. However, because of the cost involved, this initiative has been placed on hold by many organisations. Many are just gaining their footing in the new economic climate and as much as they would like to undertake new cash management initiatives, have limited budgets to implement or support new processes. Some organisations are aware that investing in such initiatives today can lead to a better cash position tomorrow – but generating cash today remains a top challenge. Forecasting accuracy was another top challenge cited by many companies, once again resulting from lack of sufficient funds to invest in necessary analytical tools.

Conclusion

Cash management has certainly gained momentum in the last couple of years due to an increase in demand by executives to understand their company’s cash position and to achieve greater liquidity forecast accuracy. Leading corporates are aggressively exploring technological solutions and seeking ways to streamline their existing operations. However, corporates still continue to struggle with STP and SWIFT networking. It is hoped that in years to come, more corporates will adopt these platforms to promote standard global processes and achieve greater congruence between reporting and accounting standards. Effective cash management initiatives can offer tremendous value to corporates and their stakeholders by continuing to help them realise profits in challenging financial times.


Asia’s resilience in the global financial crisis has helped to position it as a region of comparatively reduced risk across a range of business activities. This resilience can be attributed in part to the

diversity of the region, which continues to present opportunities as well as its fair share of challenges. For both corporates and financial institutions, this translates into a need for creativity where concepts such as centralisation are concerned.

Corporates have set up operations in Asia for its business potential as well as its low costs. Although the trend towards process centralisation since the turn of the century has thrown up successful and less successful examples, this trend has not abated but has actually taken on new meaning and drive since the financial crisis.

At a time of uncertainty, organisations look inwards for their “golden” profit – that earned by increasing the margin between revenue and costs. Revenues in a recession face high pressures, so the corporate sector is left with little choice but to consider reducing its costs. In fact, the global financial crisis has shifted corporate priorities. Instead of concentrating on business expansion, identifying investment opportunities etc. Post-crisis, corporates have been forced to go back to basics. They have therefore tended to focus more on identifying ways to improve internal risk management at the same time as reducing operational costs and generating margin uplift. Obviously, establishing a Shared Service Centre (SSC) is a strategy that addresses all these objectives.

What is a Shared Service Centre?

An SSC is a centralised unit providing business services to other parts of the organisation. The SSC executes business processes (typically administrative and financial) on behalf of other departments, thus freeing up those departments to focus on their core business activities.

• The trend towards centralisation has acquired a new momentum since the financial crisis.

• During or immediately after a recession is the ideal time for corporates to consider centralisation so as to maximise net profitability arising from any turnover growth.

• Of the top ten countries for centralised activities, seven are in Asia.

• Centralisation reduces cost, tightens risk management and streamlines processes, but also generates numerous other advantages, such as improved cash visibility.

Anthony CK Ho, Vice President, and Mohammed Omer Murtza, Assistant Vice President, Product Management, Payments and Receivables, Global Cash Management, Asia Pacific, HSBC, Hong Kong

A Pragmatic Look at Process Centralisation after the Global Financial Crisis



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The Benefits of Shared Service Centres

Establishing an SSC or a payments factory delivers the following benefits:

improved operational risk management Having a centralised and standardised process flow model allows compliance officers a holistic view

of the business processes within an organisation. In fact, establishing an SSC or payments factory creates a centre of excellence that facilitates the sharing of best practice. This enables the team to identify possible process loopholes and to develop appropriate risk mitigation procedures.

Furthermore, implementing new risk mitigation procedures or introducing new process steps in an SSC or payments factory is far simpler than doing so in a distributed environment.

improved operational efficiency Duplicating the same team across multiple locations is a waste of resources. By contrast, with an

SSC or payments factory model, various operational processes are centralised and standardised. Apart from gaining efficiency from the consistent application of processes across the company, an SSC or payments factory requires fewer interfaces, because it has centralised the processes into one single system.

Depending on the size of the SSC or payments factory, the corporate may achieve a better segregation of tasks. Under a distributed model, individual offices may only have small operational teams and the same person will have to prepare, review, reconcile and perhaps even authorise an instruction, which increases the risk of errors and internal fraud. On the other hand, under an SSC or a payments factory model, the corporate may be able to segregate the process into smaller discrete steps so that different groups of operatives can focus on individual process steps. This will assist in minimising errors as well as improving straight-through-processing (STP) rates and reducing repair fees.

Concentration of expertise The scale benefits of an SSC or payments factory make it viable to employ specialist expertise

that can be shared regionally or globally, which could not be justified under a distributed model. Furthermore, special training or development programmes can be designed to develop such expertise in-house in a cost effective and efficient manner.

reduced cost An SSC or payments factory generates cost savings in a variety of ways. One of the most obvious

is the elimination of labour duplication achieved by centralisation. Rather than multiple departments or business units executing processes individually, scale economies in terms of full time equivalents (FTEs) can be achieved.

Similar rationalisation benefits apply to technology. Centralising the technology associated with a business process reduces the number of interfaces in the corporation, as well as vastly simplifying the development and roll out of new technology and reducing the cost of ongoing in-house IT support. In addition, the concentration of processes in an SSC or payments factory may make it worthwhile to invest in new technology for specific tasks (previously undertaken manually in multiple locations) that will further increase efficiency.



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As regards financial costs, centralisation can be used to align the purchase-to-pay and order-to-cash processes more effectively. This reduces the working capital requirement together with its associated costs, either through better returns from surplus liquidity or through reduced debit interest on short-term borrowings.

There has also been one specific development in the past five years that has made it easier for corporates to work towards centralisation and harmonisation of their activities. This has been in the area of connectivity, where a service such as SWIFTNet, together with the ISO 20022 XML message standard facilitates standardisation. Corporates can now have access to all their account information through one format, as well as the ability to send instructions to various banks in a globally standardised manner.

Five Questions: What, Where, When, Why and How?

Any pragmatic approach for centralising a corporate’s operational processing necessitates correctly answering five key questions – the “four Ws and one H”.

What to Centralise

One of the major lessons to emerge from the global financial crisis has been the value to corporates – in terms of both cost and risk - of centralising their business processes. However, centralisation cannot be applied on an indiscriminate basis; while many processes can be centralised, the level of benefit achieved by doing so varies considerably from process to process. Therefore, any corporate looking to centralise business processes needs to prioritise those that will generate the greatest benefits by being centralised.

When undertaking this prioritisation, the corporate can also cast its net beyond the immediate company. Processes across different entities or subsidiaries within the same group can also be centralised into an SSC or payments factory, thereby further maximising the centralisation benefits to the organisation as a whole.

Where to Centralise

One word: Asia. According to the 2009 “Global Services Location Index™” produced by management consultants A.T. Kearney, of the top ten countries for centralised activities, seven are in Asia. The index takes into account three factors: financial attractiveness, skills and their availability, and business environment. But none of the three factors outweighs the other two; all are equally important.

In our experience, China and Malaysia are the most popular places to establish an SSC or a payments factory, followed by the Philippines. Though India currently ranks outside the top three, we definitely see an increasing number of corporates looking at establishing their SSC or payments factory there.

When choosing a centralised location, the A.T. Kearney index ranks financial attractiveness as a major consideration, but cost reduction should not be the sole reason for centralisation. Other important factors include: Prior experience of the organisation in conducting the activities to be centralised; Integration with corporate infrastructure and culture; Time zone differences;



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Political stability; Transport and technology; and Language skills.

When to Centralise

For corporates looking to reduce operational costs and improve risk management by standardising processes, now is the opportune moment to consider a centralisation strategy. With the financial world undertaking numerous centralisation activities over the past five years, understanding exists in terms of knowledge and experience.

During or immediately after a recession is the ideal moment to consider centralisation, as it will facilitate the increase in the corporate’s transaction count likely to arise as business sentiment recovers. Even if the recovery is slower in developing, any centralised activities will nevertheless assist in the meantime by reducing costs .

Why Centralise

There have been various arguments over the pros and cons of centralisation. While the benefits of centralised processes have been extensively discussed in various research papers, the centralised approach does not necessarily work for all businesses. Even if a corporate has all the characteristics that indicate that centralisation is the right strategy, the benefits achieved ultimately depend upon both the quality of implementation and the organisation’s overall commitment to the change. Furthermore, centralisation is not just about a discrete project; if it is to be truly effective, it has be an ongoing strategy that always evolves to accommodate both the latest best practice and any changes in the corporate business model.

how to Centralise

Although there is no standardised checklist for identifying which processes to centralise and when, a good first step is a detailed review of all corporate activities and their classification as either possible “central process candidates” or as “highly dependent on local expertise”.

A phased approach is always helpful in maximising benefits. Identification of potential “early movers” amongst the “central process candidates” assists in building momentum; once these are successfully implemented they can be a valuable tool for gaining buy-in from business units and departments for centralising further processes.

Some Considerations

For corporates that are interested in establishing an SSC or payments factory, being aware of some of the practical issues that can crop up during the centralisation process will assist the implementation. These include: Short-term discomfort: There will always be resistance to change and discomfort while new

processes are adopted and protocols established. Risk of inadequate fulfilment of service levels: Commitment to the targets of the centralised

approach will help people to feel connected to the initiative and contribute more towards the success of the deliverables.



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Contingency or concentration risk: Although corporates – as well as participating banks –have contingency plans for their IT systems and connectivity equipment, allowance should be made for the concentration risks inherent in centralisation. Any disruptive incident that affects resources on a large scale will result in prolonged service disruption. The key here is to strike a balance between mitigation of risk versus the projected benefits of centralising the activity. For example, splitting personnel across two or more sites will assist with this.

Project overruns – time and/or costs: Perhaps the most critical consideration. Cost overruns can be experienced even with a project that is delivered on schedule, but when a project timeline slips, cost overruns are guaranteed. It should be appreciated that centralisation projects do not happen overnight and that a phased approach of centralising one activity at a time can do much to reduce the likelihood of such slippage.

Conclusion

Developments in connectivity in recent years have made it easier for corporates to work towards centralisation and thereby harmonise their activities. Many have opted to locate their SSCs or payments factories in Asia and have thereby achieved both cost reductions and enhanced risk management.

For those corporates that have yet to take this step, now looks a propitious moment. As economic activity continues to recover, centralisation offers a route to maximising the profit potential of this growth. Grasping that opportunity may not be a trivial task, but it is an eminently achievable one; any corporate with a commitment to change and an understanding of the sort of practical issues outlined above is well placed to succeed.


Treasury is the heart of any organisation, but the cost and effort involved in operating one is enormous. Organisations sometimes find it profitable not to maintain a treasury of their own, so they decide to

outsource their treasury activities to an external vendor. The type of outsourcing depends on various factors, such as the organisation’s competencies in treasury business, its appetite for risk, country regulations and the organisation’s acceptance of outsourcing. Based on these factors the organisation can either go for treasury business outsourcing or treasury business process outsourcing. This article will cover some aspects of business outsourcing and business process outsourcing with more emphasis on the latter. The article will also cover various structures of treasury business process outsourcing in a big conglomerate.

Background

During the mid-1990s many companies, especially in the US and Europe, realised that they should be concentrating on their core business: anything that was not core to their business should be outsourced. High on the list of things that could be performed outside of the corporation were certain treasury activities, notably payments and receivables. Corporations were looking to outsource these activities to reduce expenses (and banks were looking to insource these activities to increase revenues). Many organisations started outsourcing their payable functions to a bank or other financial institution by transmitting a payment file including cheque, wire and automated clearing house (ACH) transactions. The organisations also started receivable outsourcing, the most common of which was use of lockbox services. Organisations in the US were front-runners in outsourcing their treasury functions, though European organisations soon caught up.

The current trend in outsourcing among corporate treasurers is far more positive than a decade ago. Treasurers are increasingly accepting the fact that specialised consultants are the best bet for their treasury functions. They can apply their experience of a wide range of companies in enabling lower operational risks, boosting productivity and aligning IT investments with strategic goals. With this function being outsourced the organisation can then focus on its core business.

• The treasury function has long been a popular candidate for outsourcing by companies.

• Banks have invested heavily in treasury and cash management tools to meet companies’ needs.

• “Treasury business outsourcing” and “treasury business process outsourcing” are the two main types of treasury outsourcing. With the latter, the company will maintain discretion over areas such as funds and risk management.

• Outsourcing does not have to involve a bank: activities can be outsourced to a non-bank treasury specialist or to one’s own parent company.

Vipul Agrawal, IT Consultant, and Sumesh Gopurathingal, Business Analyst, ITC Infotech India Ltd., India

Treasury: Business Process Outsourcing



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During the recent downturn treasurers were mostly concerned with preserving capital and reducing counterparty risk. However, with government backing the global cash management market has been propped up. Taking a cue from this, many banks have invested heavily in their treasury and cash management businesses, rolling out new functionality, particularly in the area of liquidity management.

Companies have also started to feel more comfortable about outsourcing their treasury functions. This outsourcing can be classified as:1. Treasury business outsourcing; and2. Treasury business process outsourcing.

Treasury Business Outsourcing

In treasury business outsourcing, a company outsources all its treasury functions to a bank or some other organisation. Below is a list of activities that are typically outsourced: Inter-company borrowing/lending; Inter-company netting; Cash pooling; Foreign exchange hedging; Administrative and operational functions, such as payment execution and bank account

administration; Accounting and reporting of banking and payment activities; Treasury system operations and administration, and Transaction execution, such as foreign exchange and payments.

Under treasury business outsourcing the company outsources end-to-end treasury activities to an outside entity. The decision to invest surplus funds and to take all the positions is with the outsourced partner. Two examples of companies outsourcing the entire treasury business are IT service companies and new manufacturing units.

Treasury Business Process Outsourcing

Under treasury business process outsourcing, the company itself makes all the decisions with respect to treasury, such as: How and where to invest the surplus funds (funds management); and How to manage the exposures of the company (risk management) etc.

However, the company outsources the process of executing the above decisions to a third party, preferably to a bank. The activities which are outsourced include the following: Executing investment decisions; Completing all necessary paperwork; Confirmation and settlement of deals; and Accounting and reconciliation of treasury activities.

In short, treasury business process outsourcing involves outsourcing the back office operations of a treasury and all the decisions are kept with the organisation.

Outsourced Partner

There are many companies to which treasury processes can be outsourced. They can be either a bank or a non-banking company specialising in treasury process outsourcing (e.g. AIB International Financial



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Services1). The factors which a company needs to consider before choosing a particular partner are as follows: The overall business objectives of the company; The requirements of the company (business or business process outsourcing); The level of experience and expertise of the outsourcing partner; and The cost and benefits of outsourcing.

Benefits of Treasury Process Outsourcing

There are certain benefits which accrue to a company by outsourcing its treasury processes to a specialised vendor. Some of these benefits are: Execution of various decisions of the treasury (deals, investments etc.) involves transaction costs. As

the service provider handles these activities in large numbers, the transaction costs are low when compared to the costs which a company would incur if it executed these decisions individually.

The company benefits from the experience and expertise of the service provider, especially a bank which has the experience of running its own treasury operations. For example, the bank may run huge treasury operations and handle complex deals. As banks are one of the most regulated sectors of an economy, they are also well aware of the regulatory requirements that need to be complied with. By outsourcing treasury activities to such a partner, the company is assured of regulatory compliance, where required.

In certain countries, non-financial entities are barred from operating in certain markets. For example, in India non-financial entities are not permitted to participate in call money markets. In such a scenario, outsourcing the treasury processes to a bank would help these entities to tap the call money market.

Another important benefit to a corporate is the reduction in costs, both direct and indirect. The company saves on costs such as that involved in hiring capable individuals to staff various aspects of the treasury. It also saves the huge cost involved in creating and maintaining IT systems.

Outsourcing also provides the company with the necessary adjustability to ramp up or down the scale of operations based on its business requirements.

Challenges

There are certain challenges or concerns related to the outsourcing of treasury operations. As mentioned at the beginning of this article, as treasury is strategically vital for any company, one of

the biggest challenges is to decide the level of outsourcing, or whether to outsource at all. Another challenge is the perceived loss of control due to outsourcing. This can be addressed by a

well structured relationship with the outsourcing partner. The roles and responsibilities (reporting, management information system [MIS] etc.) should be well defined and agreed upon.

For companies with offices in different locations, especially overseas, finding an outsourcing partner with expertise in all these countries might be difficult.

1 Headquartered in Dublin, Ireland, AIB International Financial Services is a provider of outsourcing services to corporate treasuries internationally. See www.aibifs.com.



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Outsourcing of Treasury fromSubsidiary to Parent Company

Despite the above-mentioned benefits from treasury process outsourcing, many large conglomerates operate their treasury in-house. It is interesting to study the manner in which the treasury of some large conglomerates, especially those with multiple subsidiaries, is organised.

The treasury structure of a big conglomerate can be either centralised or de-centralised. Traditionally, companies implemented de-centralised structures with a global treasury office and number of regional offices. The global treasury office would publish general guidelines and compliance requirements to be followed by regional offices. However, soon companies started to consider centralised structures.

In a centralised structure there is a centralised treasury department which makes all the decisions on its own. Regional offices have little say in decision making. A centralised treasury department has its own advantages and disadvantages, which fall outside the scope of this article. However, this article will cover one of the structures between a parent company and subsidiary treasury department, which can be described as a “hybrid centralised treasury”. In this system the treasury departments of the parent company and subsidiary have distinct roles to play.

Treasury department of subsidiary Corporate treasury department

The treasury (in some cases simply called the finance department) makes all the important decisions, such as: Where surplus funds need to be invested;

and How to hedge the exposure of the subsidiary,

or risk management. That is, it decides the type of cover it wants for its exposure (forwards, options etc.).

The role of corporate treasury is to execute the decisions of the subsidiary’s treasury. This includes: Taking the necessary cover for the exposures

taken by the subsidiary; Doing the necessary documentation; Accounting, settlement and reconciliation of

all the transactions; and Providing the necessary MIS to the

subsidiary.

Source: ITC Infotech India Ltd

figure 1: roles in a hybrid Centralised Treasury

Once the treasury of the subsidiary has made its decisions it communicates the same to the central or corporate treasury, along with information such as expected inflows and outflows. Communications between the treasury of the subsidiary and the corporate treasury can be done via an interface provided by the corporate treasury, which is linked to the systems of the corporate treasury. This interface allows the subsidiary to promptly send requests to the centralised team. It also allows the subsidiary to receive reports periodically and on an as-needed basis.



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The structure between a subsidiary and its corporate treasury can be represented in Figure 2.

There are certain benefits arising out of this kind of hybrid centralised system: As the subsidiary has a better control of its inflows and outflows, it is in a better position to decide

about the cover it needs for its exposures; The transaction costs can be reduced as the corporate treasury can execute multiple transactions

together; and The cost of IT systems and manpower is reduced as these are located at one place i.e. corporate

treasury.

Conclusion

There are multiple factors which a corporate (subsidiary or otherwise) needs to take into account before deciding on the model of outsourcing. If the organisation has or can afford to employ competent individuals, then it can go for treasury business process outsourcing. Otherwise, it is better to choose treasury business outsourcing. A large conglomerate with many subsidiaries and a treasury of its own should find it beneficial economically and in terms of process to adopt a hybrid centralised treasury structure.

The financial crisis and the credit crunch that followed may have forced many corporates not to choose outsourcing for their treasury operations. However, with the world economy slowly getting back on its feet and with advancements in the field of cost-effective web technology, treasury outsourcing may be back in companies’ strategic plans.

Source: ITC Infotech India Ltd

figure 2: hybrid Centralised Treasury

1. Investment of funds2. Taking the covers for exposure

1. Provides exposure2. Details of inflows and outflows3. Documents for cover4. Type of cover

1. Treasury System Interface2. MIS

Markets

Corporate Treasury

Treasury of Subsidiary


The global crisis left the financial services industry scrambling for new solutions. Or, in many cases, looking to re-apply old solutions that had sometimes been discarded in favour of more recent

inventions – inventions that, with hindsight, we might have been better without.

Factoring is one such product. In the heady years of easy credit, a corporate seeking to use its receivables as a source of funding would tend to go for receivables securitisation. Under this approach, a corporates’ trade receivables would be sold into a special purpose vehicle (SPV), which would then issue bonds. Careful selection of the receivables being put into the vehicle, and a degree of over-collateralisation, would enable the SPV to secure a credit rating considerably higher than that of the corporate seeking funding, and therefore cheaper funds than were available through most forms of direct borrowing.

Does this sound familiar? Do the words “sub” and “prime” come to mind?

Although the underlying process used here is similar to the packaging of sub-prime mortgages into AAA-rated securities, the receivables securitisation market was less risky and better structured. There were no major defaults or scandals around it. Despite this, the market basically disappeared with the financial crisis. A very high percentage of these programmes were cancelled or reduced to nothing. Securitisation continues to be used for credit card receivables – despite several scares – but this form of funding is having a problem making a comeback.

So what are corporates doing if they want to use their receivables as a way of securing funding – and why do it at all?

Damian Glendinning, Vice President and Treasurer, Lenovo; President, Association of Corporate Treasurers, Singapore

Factoring: The Smart Way to Fund?

• Factoring is an old – and not very glamorous – approach to funding.• For a long time, it was viewed as expensive and inefficient.• But more and more corporates are doing it – and banks want to join in.• There can be significant benefits for both sides.



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Cheaper Funding

It is easy to say why corporates use funding sources backed by receivables. The logic is simple. Providing security has always been a way of securing larger lines and increasing credit limits. With receivables, if your customers’ credit rating is better than your own – and this is true for many corporates – then why not use their credit ratings rather than yours? With receivables-backed financing, investors have a double security. They rely on your own credit worthiness, but they also have a back-up: if you fail to repay, they can access your receivables. The benefit is obvious.

For financial institutions in a post-financial crisis world, the additional layer of security is one way of meeting the more stringent requirements placed on them by their credit committees, under pressure from the regulators. It also fits well with the new mantra: as banks seek to demonstrate that they are funding real assets in a real world, this activity comes under the category of trade financing.

Other Benefits

So there are clear benefits for both parties. But receivables-backed funding has several other potential benefits – for simplicity, the focus here will be on factoring, rather than other vehicles such as securitisation.

flexibility

One of the main challenges in funding is fitting the sources of cash to the needs of the company. Most sources of funding, other than bank overdrafts, provide cash for a pre-determined period. But the company does not necessarily need the cash for all that time. The objective of most treasurers is to only borrow funds when they’re actually needed: the spread between the cost of borrowing and the return on idle cash, or cost of carry, is a prime inefficiency in cash management. With any form of term borrowing, there will be periods when borrowed cash is sitting idle, causing negative carry. With a five-year bond, for example, negative carry can be incurred for quite long periods: you receive the cash when you issue the bond – and you start paying the coupon on it – but your actual cash needs may occur at a different time.

Factoring, on the other hand, varies directly with the business cycle. Usually, an increase in volume will drive higher cash needs, as the business has to pay for raw materials and components to manufacture the goods being sold. At the same time, the higher volumes will drive increased levels of receivables, as these same goods are sold. Factoring almost automatically adjusts the level of funding to the cash needs of the business: the higher receivables level will automatically increase the funding, thereby making cash available to pay for the increased purchases. As business declines again, the funding will automatically reduce – no cost is incurred paying for funding which will not be used.

improved Balance Sheet ratios

When factoring without recourse, the receivables are considered sold and are removed from the balance sheet. Even if the factoring is fully disclosed, so users of the financial statements can adjust both debt and receivables to undo the effect of factoring, in practice most banks and observers tend not to. The result is a lower level of gearing and greater financial flexibility.



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Provision of Credit insurance

Again, with factoring without recourse, the factor is taking the credit risk. The factor will often be buying credit insurance – but both the factor and the credit insurance company will usually be looking at your receivables as part of a much larger overall portfolio. This enables both of them to take advantage of natural risk diversification to reduce cost and, potentially, handle risk concentration issues that can be quite thorny. By these means, it can be possible to achieve a higher level of risk transfer than may be available by keeping the receivables on the books.

Collection Services

This service is not provided by all factors or receivables financing companies. But if they do provide it, it is worth looking at. Many corporates find it a challenge to collect their receivables. Often, there is an unwillingness to potentially damage customer relationships by appearing to be too aggressive in pursuing customers for timely payment. A third party that has bought the receivables as a purely financial transaction will tend to be much less influenced by this kind of relationship issue. The result is a better payment timeliness performance. This usually comes at some cost to customer relationships – but the fact that the collections are being performed by a third party allows the corporate selling its receivables to distance itself, to some extent, from the activities of the factoring company.

Creative Use of Factoring

Above are the traditional benefits of factoring. But there are other, more imaginative ways of using it.

Providing Extended Payment Terms

Your own company might not be able to fund extended customer payment terms, or might not want to, for example, to preserve certain balance sheet ratios. A factoring company might be willing to provide the extended payment terms, without recourse – at a cost, of course. This can be a big plus for the business.

Monetising the Cost of receivables

For most treasurers, it is a challenge to get the business units to understand the cost of carrying receivables – particularly extended payment terms. Factoring means that the cost of the receivables is turned into a charge, which can easily and accurately be allocated back to the business units, and which the business units understand. The decision to offer extended terms, or to improve relations with a customer by not insisting on timely payment, now has a cost that can be integrated into a simple business case.

Smoothing irregular Payment Patterns

Some customers insist on paying according to certain patterns – for example, on a specific day each month. Factoring can be a way of avoiding the negative impact on days sales outstanding and cash flow caused by this behaviour – and, again, the sales team get to see the cost.



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freeing up Sales Teams’ Time

This benefit is not always immediately obvious. As most companies end up having to involve their sales teams in credit and collection issues, using a factoring company to outsource the credit and collection decisions can save up to 20% of the time of the sales team, and free them to do what the company really needs – sell.

Downsides

So, what are the drawbacks to factoring?

Cost

People traditionally view factoring as expensive – and it can be. Many considerations go into determining the price, but, as always, it helps to break the price down into its components: cost of funds; credit insurance; collections service; and administration and profit for the factor.

Most factors will resist providing this breakdown. If they do, the usual tactic is to do your own estimate of how the numbers are made up and tell the factor this is what you will use if they don’t give you something better. More important, when looked at this way, a number that can seem large in absolute terms starts to look more reasonable – especially if it enables the company to achieve a lower level of gearing.

Measurement System

As with many such products, the use of factoring can cause distortions in the measurements. For example, it can cause funding costs, which may not normally be part of what a business unit is measured on, to appear in their expenses line. While this is clearly appropriate for the credit insurance and collections portions of the factoring charge, it may be necessary to adjust the measurements for the interest component.

Negative Customer reaction

This can be an issue – especially if the customers intend to pay late and the factor will not let them do this. This is when you see what really matters to the company – and remember, if you have a lot of late payers, the sales team will be spending a lot of time trying to get them to pay. Freeing them from this task is a big plus.

Dependency on the factor

If the agreement involves outsourcing the collections and the credit insurance, it can be a major issue if the service is suddenly withdrawn and the processes have to be brought back in house quickly. This happened when some factoring companies abruptly withdrew their funding during the recent financial crisis. There is no easy answer to this – it is important to maintain good relations with the factoring company and be alert to any signs of disengagement.



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Pitfalls and Areas to Watch Out For

There are always things that can go wrong. One of the biggest challenges can come, ironically, from the corporate’s own management and measurement system. Many corporates reduce their exposure to receivables by giving early payment discounts. When looked at from the treasury point of view, these are often extremely expensive: a figure often quoted is 0.5% for 15 days – that works out at 12% annualised. This is extremely expensive funding and risk management. But, in many corporates, this is accounted for as a revenue reduction, while a factoring fee will show up as a controllable expense item. Usually, the expense line receives the most focus – so, a potentially cheaper solution will often be ignored in favour of a more expensive one.

It is important, as with any supply contract, to have a clear understanding with the factor as to what will be done by whom. Regular reviews and reporting are essential: this has to be viewed by both sides as a partnership.

Finally, if a corporate opts to use factoring without recourse, it can find that the factor’s credit appetite for its customer’s risk may become a limiting factor in its own growth. A factor, like any financial institution, will almost always have a lower credit appetite for a given customer than the manufacturer. As many bankers put it: “If you, the manufacturer, are not prepared to take the credit risk when you are earning the gross profit margin, why would I, the banker, take it when all I am earning is the spread?”

Menu-Driven Approach

The solution to a lot of these problems is to be clear on what your own objectives are and to be flexible. Factoring services can be tailored to the customer’s needs: it can be with, or without, recourse. It can even be with partial recourse: the factor takes the credit risk up to a predetermined level while the seller takes the risk beyond that. It can involve a collections service but it does not have to. Many customers prefer to do the collections themselves, so they do not have to involve a third party in the relationship with their customers. In this situation, the factor buys the receivable but appoints the seller as his collection agent. The factor can settle the invoices immediately when they are issued, thereby maximising the funding period. Or he can settle on the original due date – or on any other date agreed by the two parties.

In short, factoring can be a surprisingly flexible tool. Naturally, many providers prefer to sell their pre-existing structure – for very good reasons, they prefer to have a standard product with standard processes and documentation. Some have systems that are more flexible than others – this is an important consideration when looking at potential providers.

But, in the end, as with most things, it is surprising what can be achieved if you are prepared to challenge, negotiate and innovate.



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Conclusion

Factoring may seem unfashionable – frankly, it even has a somewhat negative connotation, as it is not considered to be an advanced funding technique, and it even suggests that the corporate that uses it may have problems funding itself.

However, a closer examination, linked with some hard negotiating with the suppliers, can reveal a surprisingly flexible and cost-effective funding tool. It may not be the right tool for all corporates in all circumstances, but it is definitely worth a close examination.

In today’s volatile economic and political environment, a situation that has long been regarded as stable and safe can suddenly turn negative. Consider the various “mini” hot spots that occurred

between 2009 and 2010 when there were credit concerns regarding Dubai that began to spread to other countries, including Portugal, Italy and Greece, while countries such as Thailand went through a period of political instability.

These are unknowns and, during such times, exporters involved in international trade feel vulnerable. On the one hand, these exporters have signed contracts and are committed to delivering their goods, while on the other, if the buyer’s country experiences volatility in its political or economic environment, then the exporter is exposed to the risk of default, thereby jeopardising years of hard work and profitability as a result of perhaps just a few non-payments.

In addition to the risk of buyer default, exporters also face a host of related issues including liquidity constraints, bank borrowing and foreign exchange exposure. It is therefore essential for exporters to find a financing solution that will provide business continuity and ensure confidence that they will not be exposed to the risk of non-payment after they have fulfilled their delivery responsibilities.

A Mistaken View

A common view among Asian corporates with established businesses and long-standing relationships with their buyers is that they need not worry about customer default or other risks. However, this is unfortunately not the case. Exporters try to manage credit risk by choosing their buyers very carefully, either through referrals or personal contacts. However, in order to grow the business, corporates have to diversify into new markets, which involves finding and dealing with new buyers overseas.

Furthermore, exporters also need to minimise operating costs. This can be achieved via economies of scale – for example, by increasing production – but some exporters will try to reduce financial costs by avoiding the use of traditional letters of credit or standby letters of credit and instead opt for less expensive and more convenient forms of settlement such as open account.

While it is reasonable to assume that the greater the risks, the higher the profit margins for the exporter, the risks involved can be varied and unpredictable. For example, risks such as currency fluctuation,

• In periods of economic and political instability, exporters involved in international trade can feel vulnerable.

• A mistaken view among some Asian corporates with established businesses is that they need not worry about customer default or other risks.

• Corporates have to diversify into new markets in order to grow, which involves finding and dealing with new buyers overseas.

• The risks involved can be varied and unpredictable – a tried and tested solution to managing these risks is forfaiting.

Vin Sing Chay, Director of Business Development, Asia Forfaiting Centre, Trade and Supply Chain, HSBC, Singapore

Forfaiting: A Solutionfor Volatile Times


Forfaiting: A Solution for Volatile Times


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imposition of capital controls and political upheaval all add to the uncertainty. Natural disasters such as flash floods and earthquakes are also very real risks that can affect the buyer’s ability to pay. The net result is that any of these risks can cause a sale to go bad, which, if substantial, could potentially wipe out an entire year of profits – or even threaten the corporate’s continued existence.

A Solution

Fortunately, there is a tried and tested solution to managing these risks economically, which has been available from leading banks in Asia Pacific for more than 25 years. That solution is forfaiting, a name derived from a French word meaning to surrender or relinquish the rights to something.

When using forfaiting, an exporter delivers goods or services to an importer and, in return for a cash payment, surrenders to the bank (the forfaiter) the rights to any claim for payment. The exporter receives the cash payment on a without-recourse basis and all the risks associated with the transaction are essentially transferred to the bank. This forfaiting arrangement delivers several important benefits to the exporter: The exporter is relieved of all political, credit or commercial risks associated with the transaction. By receiving cash up front, the exporter has improved its cash flow and access to funds. As payment is made on a without-recourse basis, the receivable is now removed from the exporter’s

balance sheet. The exporter’s financial statements also benefit, as no additional bank borrowings are required.

Most importantly, by using forfaiting, the exporter gains a competitive edge by being able to grant or extend the credit terms required by buyers without worrying about the cash and other risks associated.

How Forfaiting Works

An acceptable forfaiting risk usually originates from one of three areas: sovereign risk; commercial bank risk; and prime corporate risk.

Subject to the final obligor’s risk from any of the above groups being acceptable to the bank, a forfaiting transaction can be effected by using one of the following commonly encountered debt instruments: bills of exchange; promissory notes; usance documentary credit (DC, also known as letter of credit); standby letters of credit and letters of guarantee; deferred payment DC (without drawing of drafts); and aval on negotiable instruments.

The credit term of a forfaiting transaction can vary widely from as little as 90 days all the way up to 10 years, if the underlying country and credit risk is acceptable.



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Advantages

Forfaiting is unique in that it provides more complete risk protection than any other trade finance instrument. Most alternatives only offer partial credit protection and therefore the exporter is still left with some residual credit risk on its balance sheet. By contrast, forfaiting offers the exporter a 100% complete risk cover and funding solution, as well as removing all credit, country and commercial risks from its balance sheet.

Forfaiting is sometimes confused with DC discounting – the key difference is that DC discounting is typically conducted with one of two options, the second one being the most common solution offered by most banks: Full recourse – the exporter is ultimately responsible for all non-payment risks associated with the

receivable. Limited recourse – the exporter is only covered for credit and/or country risks, but not for commercial

risks such as court injunctions. Applications and Limitations

Forfaiting is typically used by corporates involved in international trade that are dealing with buyers in either existing or new markets who need extended credit facilities. However, reputable banks are only likely to be prepared to offer forfaiting facilities if the intended transactions pass stringent due diligence checks. In particular, such banks will refuse to provide forfaiting where there is no genuine underlying trade transaction.

Forfaiting transactions also need to be of sufficient size and longevity to cover the associated costs to the provider. A typical minimum size for many banks is around USD500,000 or equivalent and with a credit term of at least 90 days. The financing currency will usually also need to be one that is internationally traded, such as USD, JPY or EUR.

Market Size and Trends

A lack of comprehensive published market data makes it difficult to estimate the total size of the forfaiting market in Asia Pacific, but a reasonable estimate of annual activity is probably in excess of USD30bn. At present the most active markets where exporters use forfaiting are China, Korea, Japan, Taiwan, India and Indonesia.

However, because forfaiting helps exporters to safely explore new markets, while simultaneously making the necessary extended credit period available to buyers, the range of markets showing an interest in forfaiting is expanding.



Conclusion

All the indications are that the use of forfaiting will continue to expand in Asia Pacific. As a comprehensive risk and financing proposition, it leaves exporters secure in the knowledge that they can focus on building their businesses.

A further indication of forfaiting’s potential is that its use is no longer confined to international trade. In some markets, it is now also being used for domestic trade involving letters of credit denominated in a local currency.

Taken as a whole, it is hard not to conclude that the prospects for forfaiting in Asia Pacific are bright – as they will also be for sellers who use it.

Case Study

A cotton exporting company in India has been selling regularly to various Chinese textile-weaving and fabric-making factories that ultimately supply to garment manufacturers for retail chains in member countries of the Organisation for Economic Cooperation and Development. The sale terms have either been letters of credit at sight or short-term open account credit of 30 days.

The Chinese buyers are under pressure from the garment manufacturers to extend longer credit terms to meet the buying terms imposed on them by their customers, who are not prepared to offer supply chain financing. This has eventually resulted in the Indian cotton supplier being requested to grant longer credit terms, which is met with reluctance because of the additional risks and financing required.

Forfaiting is the obvious solution in this situation as it will allow the exporter to accept a 180-day usance letter of credit (instead of sight or 30-day letter of credit) issued by the buyer’s bank. In addition, through forfaiting, the exporter will receive payment up front after shipment at a pre-determined cost, without incurring additional risks as the additional financing cost is passed on to the buyer by adjusting the contract price.

All parties benefit in this situation. The Indian cotton trader is able to secure more orders from the Chinese buyer because of the longer credit term granted, which allows it to meet the garment manufacturer’s trade cycle.

Much has changed in the financial landscape since the economic crisis. The dramatic reduction in the availability of external finance has seen corporate treasuries radically revising their working

capital strategies. The disappearance of inexpensive liquidity has led to a far tighter focus on reducing the figures for, say, days sales outstanding. This in turn has led to rigorous enforcement of credit terms by accounts receivable (AR) departments – for many, 30-day credit terms now really are exactly, not approximately, 30 days.

Implications of Payments STP

This puts a considerable onus on accounts payable (AP) departments to achieve consistent straight-through processing (STP) on supplier payments. If they do not, there are immediate commercial consequences in the form of suspended shipments, as suppliers’ AR departments take an increasingly firm line on late payments. These AR departments make no distinction between a payment that is late because of an innocent error by the buyer’s AP department regarding a bank account number and one that is late because the buyer lacks funds to settle. From their perspective, a late payment is a late payment.

The knock-on effects of this should not be underestimated. Shipments that are suspended because of late payment affect operational continuity – shop-floor production may be disrupted or even suspended, significantly affecting profitability. In addition, this may have a subsequent effect on customer relationships, such as an inability to meet agreed delivery dates.

The longer-term effect on supplier relationships, particularly if payment errors occur more than once, may be severe. In the current credit-conscious times, one late payment may result in a delayed shipment, but two or more may result in the suspension of credit altogether. The working capital consequences of being forced onto pro forma terms speak for themselves.

• A deeply credit-conscious commercial environment makes it essential that payments are made punctually to ensure supply continuity.

• Manual paper processes increase the risk of this not being achieved, with negative commercial consequences – such as suspensions of shipments by suppliers.

• Now is therefore an excellent time to focus on achieving straight-through processing (STP) for payments, which also fits well with other market trends such as the use of shared service centres.

• Achieving this payments STP is challenging but definitely not impossible – especially if a methodical approach is adopted and partner banks give feedback on data quality to minimise future errors.

Arthur Michael Tanseco, Vice President, and Sarfaraz Ahmad, Vice President, Regional Product Management, Global Payments and Cash Management, Asia Pacific, HSBC, Hong Kong

Payments STP:A Business Imperative


Payments STP: A Business Imperative


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On a more positive note, payments STP is also a major opportunity for the payer to improve efficiency and reduce costs. Minimising manual intervention and paper processes to achieve this delivers both, which in a more austere economic environment is essential.

What is STP?

Historically, STP was only relevant to processors of transactions, as this was one of the key performance indicators that back-office units were measured on. In practical terms, STP actually denotes a transaction that has been successfully processed, end to end, in a fully electronic fashion without any manual intervention, measured across the entire processing chain.

Why is STP Critical for an Organisation?

The basic concept of STP revolves around delivering efficiency across the entire transaction processing chain, which in turn results in the following key benefits: increased throughput and reduction in transaction rejection rates; reduction in costs associated with manual intervention and transaction rejections; continuity in business operations due to timely delivery of essential goods and services; improved buyer and supplier relationships and future business opportunities; seamless transaction execution and reconciliation; improved working capital management; and optimisation of system resources and human capital.

In today’s economic environment, where many organisations are still struggling with working capital pressures and others are trying to deal with permanent correction in the market, it is imperative for them to improve efficiency in their operations and manage their costs. From a payments processing and treasury operations perspective, ensuring STP is vital to achieving these objectives.

Appropriate Timing

At present, any corporate drive towards payments STP also fits well with other treasury trends. Increasingly, corporates in Asia are beginning to appreciate the potential benefits of a centralised financial processing model conducted in shared service centres. This typically goes hand in hand with investment in enterprise resource planning (ERP) systems, which dovetails neatly with streamlining existing payment processes to deliver payments STP.

This is particularly apposite where companies are trying to standardise on one ERP system. In the aftermath of the spate of corporate acquisitions that took place in the run up to the financial crisis, this is relatively commonplace. Many corporates now find themselves dealing with a mish-mash of vendor data of extremely variable quality and inconsistent formats. This situation is almost a recipe for failed vendor payments and so the need for a data and process clean up that will support payments STP becomes paramount.



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The direct cost savings inherent in payments STP have already been mentioned, but there are further derivative cost savings that can be made in line with another current trend – improved cash-flow forecasting. As the pressure to improve the use of liquidity has mounted, this has in turn driven a need to sharpen forecasting accuracy – and payments STP is one of the factors that can assist with that.

Getting it Right the First Time

The business case for payments STP is compelling but achieving it requires resources and effort – especially at the transaction initiation stage. This is by far the most critical in the entire processing chain and warrants extreme care in its execution so that all payment rules – in terms of both formatting and completeness of data – are strictly adhered to.

Payment rules include: Validation requirements of the channels and systems involved in processing the transaction; Formatting standards prescribed by industry bodies and boards, such as SWIFT, domestic payment

operators and regulators; Regulatory guidelines in the respective jurisdictions of the originating and receiving parties – for

example, foreign exchange reporting, anti-money laundering or counter-terrorist financing; and Requirements imposed by domestic inter-bank clearing systems or market infrastructures.

Once these are properly defined and documented, the likelihood of achieving straight-through processing is significantly higher.

Validation Requirements of Channels and Systems

From the point of initiation to the time of final settlement, a single payment goes through a complex web of channels and systems, each having to communicate seamlessly with one another through a common language and unified logic.

The challenge here is to ensure that critical data is handed over from one system to another, while retaining data integrity along the processing chain. As ever, “garbage in, garbage out” applies, with most of the responsibility for avoiding this being on the preparer of the payment instruction, which obviously has to be formatted correctly to ensure that all mandatory data required to process the payment is provided at first point of contact. Any shortcomings here that cause the transaction to fall into repair will incur additional costs and penalties.

The following information is usually mandatory for payments initiation: debit and credit party location; remitting and beneficiary bank details; account details for both parties of the transaction; transaction currency and amount; and a valid value date.

The above is part of the first-level validation that will be built into the channels and systems. Usually, the corporate will store more of the static details of the payment for future use, in the form of templates or pre-formatted instructions, and thus only the transaction amount and value date change. At the point of



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initiation, it will also be very important to determine any local language or special characters required to support the transaction.

Once the instruction is passed on to the back-end processing system, other rules are applied to further validate the instruction. Threshold amounts and/or cut-off times may come into play, as these rules are built into the processing systems and market infrastructures.

Industry Rules and Standards

SWIFT is the primary standards organisation that prescribes payment rules across the global financial community. Although these standards are primarily used for cross-border transactions, SWIFT has started to expand these standards to domestic clearing systems as well.

This expansion clearly has a direct bearing on payments STP, since corporates and payment service providers have to keep abreast of these developments in order to deliver it. There is more pressure for banks and service providers to be quick on their feet, while corporates have the luxury of maintaining the status quo on their existing file formats. However, this may come at a price, as the corporate may not be able to benefit from new technology and may find it more difficult to link with payment service providers and local clearing infrastructure that have already moved on to the latest version or the next level.

Regulatory Considerations

Regulatory changes are seen globally as a primary cause of STP failure. In fact, the cost of complying with these regulations has become so high that even banks have already started to outsource work to larger payments processors.

In recent years, the most common areas of regulatory focus have been: foreign exchange controls; anti-money laundering; and counter-terrorist financing.

All of these regulatory considerations are extremely important in the context of payment rules as they have to be accommodated in a real-time electronic payment environment. Banks have to ensure that the information required by regulators in each country is provided, as steep penalties are imposed for non-compliance.

As banks become more stringent in their payment screening to comply with this, there is commensurate pressure on their corporate customers to adhere to these guidelines. Therefore, it is critical for regulators to keep abreast of regulatory changes and make necessary adjustments, as required.

Domestic Clearing Systems

The clearing systems used in Asia are as diverse as the countries themselves, each having a list of rules that must be observed. Although a number of countries have already migrated to global standards, most



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Asian countries are still running on domestic, proprietary messaging protocols. This is the case for the larger markets such as India and China and for more advanced markets such as Japan and Korea.

While it may be convenient for a domestic customer to use in-country formats for their domestic payments, the situation is less straightforward for a corporate with a multi-country presence. Such a company will have to maintain multiple formatting rules within their payment system, which contributes to higher costs and a higher probability of error.

Bank Assistance

All the above hurdles to payments STP may appear daunting, but a corporate’s choice of transaction banking partner can have a major influence in reducing the scale of the challenge. A bank that can offer payment repair facilities is one thing, a bank that can build on that to deliver an information feedback loop that will avert the need for future repairs is quite another. Such a feedback loop may range from a phone call to an artificial intelligence engine, but the end result is the same – the corporate client ends up with more accurate data and is a step closer to payments STP.

figUrE 1: rules and Standards for implementing STP

System Validation industry Standards1. Debit and credit party location2. Remitting bank and beneficiary bank details3. Account details, e.g. name and account number4. Transaction currency and amount5. Value date6. Support of special characters7. Bank holidays

1. File format structure2. Local and regional industry standards, e.g.

IBAN3. Message exchange protocols, e.g. SWIFT or

proprietary formats

regulatory guidelines Clearing requirements1. Foreign exchange controls2. Anti-money laundering guidelines3. Counter-terrorist financing measures

1. Domestic clearing requirements, e.g. bank codes, routing numbers, sort codes

2. Processing cut-off times3. Local market practices

Conclusion

Corporates should consider the four categories of payment rules as they define their own payment processes and interface with the banks for achieving STP. These include, but are not limited to, those mentioned in Figure 1.

At the same time, banks and payment service providers should continue to forge partnerships with their customers to ensure smooth and complete integration of the processes associated with achieving payments STP. With the help of specialist teams that are well equipped to support the deployment of individual enhancements and industry-wide changes, it is also critical for banks and payment service providers to inculcate the requisite flexibility and agility in their operations that enables them to adapt to the ever-changing market and customers’ evolving needs.


As the economy is recovering, there is still unpredictability in the environment where corporates operate. It is still important for corporates to maximise their working capital and manage their cash

flow for the smooth running of their operations.

Managing collection efficiently is an increasingly important part of the accounts receivable (A/R) process. It helps release cash tied up in the order-to-cash cycle, which contributes to the cash flow that is important to sustain operations.

There are options available to corporates to further streamline collection processes to optimise their A/R management. This article explores collection techniques available to corporates today.

What Makes a Good Collection Solution?

The key drivers for a good collection solution are as follows:

Speed

The time taken for accounts receivable to be converted to cash has a big impact on corporate cash flows. Companies should look at solutions that can streamline the collection process to accelerate the realisation of accounts receivable to cash.

Convenience

If corporates make it more convenient for their customers to pay them, they will get paid more promptly. To achieve this, corporates should look at expanding collection channels to facilitate the payment process.

Cost

This is one of the key factors in the decision making process for corporates. There are two key points that corporates should take note of. Firstly, though cash and cheques are the most reliable and important instruments used for collection today, the cost of handling cash and cheques are high for both parties. Corporates should consider going electronic, as this will result in lower processing costs for the banks, who will be more willing to pass back some of these savings to encourage corporates to adopt these cost effective alternatives. Secondly, corporates should be realistic in assessing their internal costs,

• Maximising working capital remains as important as ever, especially in an unpredictable economic environment.

• The efficient and timely collection of cash is an important part of the accounts receivable process.

• The use of new platforms, including Internet and phone banking, can accelerate the authorisation of direct debits. This, in turn, will help ensure accurate remittance information and smoother reconciliation.

Jemmy Ong, Senior Vice President, Global Transaction Services, Institutional Banking Group, DBS, Singapore

Streamlined Collections for Optimised Working Capital



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particularly if they are considering outsourcing collection functions to the bank. Outsourcing is a zero sum game, which means that the cost does not disappear. The bank will be able to offer a lower price by leveraging the economies of scale of some of the existing operational processes within the bank.

information

Information is necessary to facilitate reconciliation, which is a key aspect of the accounts receivable management process. Without the necessary information, application of payments will be difficult, and this will have implications for client relationships. Delay and errors in the application of payments can affect credit limits allocated to clients. However, the challenge here is that it is difficult to ensure that the customer includes all payment information. Banks can address this issue by having certain channels that can help identify the customer that is paying the invoice and applying the funds to the right account.

How Banks Can HelpStructure a Good Collection Solution

Offering a Better Alternative

Cheques have always been the most convenient way of settlement as the cheque clearing infrastructure is mature and very efficient. However, processing such payments within a company is very manual and can delay the crediting of proceeds into the account. Companies can provide their account number and request that customers pay electronically, through an automated clearing house (ACH). The issue with ACH payment is the limited remittance information that can be forwarded to the beneficiary due to the 12 character remittance advice field that is inherent to giro payments. Beneficiaries, with limited remittance information, cannot apply the funds if they have no idea which customer is paying them and for which invoices. Payment solutions offered by banks nowadays include remittance advice that can be sent to the beneficiary via email, fax or mail. There are normally charges associated, but email is usually the most cost effective.

Collecting from customers by direct debit is definitely a good alternative. As the data comes directly from the accounts receivable database, the company has full control and details of the collection, which helps reconciliation. Banks can provide a remittance advice to the customer to inform them of the purpose of the collection. Unfortunately, the use of direct debits to collect in the business-to-business (B2B) field is limited, unless the buyer can convince the seller of the benefits or if it is an inter-company collection. For the latter, DBS has set up a direct debit arrangement where a company in Singapore collects franchise fees directly from its franchisees. The initiation of the collection is automated through a file upload feature on an Internet platform, further streamlining the collection process.

Companies with large cash proceeds as a result of retail operations can consider alternatives to depositing at bank branches. Banks like DBS offer a tamper-proof cash deposit bag service that enables a corporate representative to drop bags at the counter without the need to queue. Each bag has an indicator that alerts bank staff if the bag has been tampered with. The bag also has an acknowledgement slip that is returned to the corporate representative immediately to confirm receipt. The cash is deposited for same-day value. Companies can also make use of cash acceptance machines (CAMs), which also reduce time spent queuing and allow deposits outside branch operating hours.



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As discussed, accounts receivable information is crucial to facilitate reconciliation and the application of proceeds. But how can banks ensure that remittance details are consistently included in payments? Some banks offer a virtual accounts service, allocating each payer their own virtual account number to credit to. There is sufficient information embedded in the crediting account number to allow the bank’s back-end system to pick up the reference number when the transaction hits the account. The bank’s system generates reports to allow the customer to map the information back to their customer database. The virtual account structure is not restricted to any particular payment type and allows the company to always identify the source of a payment.

Automation

In the bank-to-consumer (B2C) space, banks with a good base of consumer accounts can offer various solutions to automate collection from these accounts. The benefits to companies or billing organisations are the various channels customers can use for direct debit authorisations (DDA) and faster turnaround time for getting the DDA approved.

The more channels a bank can offer consumers to sign up to on GIRO, the greater the success. At DBS, besides normal paper-based DDA applications, consumers with DBS accounts can apply for DDA through eDDA (by swiping the card through the network for electronic transfers electronic fund transfers at point-of-sale [NETS EFTPOS] terminal), iDDA (through the DBS Internet system) and xDDA (through AXS self service terminals). The turnaround time to set up the DDA application if the consumer account is with DBS is as follows: Manual: 2 weeks; eDDA: Instant; iDDA: Next day; and xDDA: Next day.

Once the DDA is approved, the information is usually sent back to the company/billing organisation as a file that can be uploaded directly to their A/R database. The collection process can be further automated by sending the GIRO file through the internet banking platform or via a host-to-host channel to the bank.

Another convenient channel for B2C collection is the bill payment service. The benefits to companies are convenient channels for consumers and the ability to ensure that payers include full details. For most banks, the bill payment channel allows consumers to pay through a personal Internet banking platform, automated teller machines (ATMs) or by mobile phone. Reach can be further extended through AXS self-service terminals. Payers have to set up the transaction on the bill payment system by selecting the billing organisation and inputting the payment reference. This ensures that when it is time to pay the company, the payment reference information will be included, facilitating the matching/ reconciliation process.

Outsourcing

Lockbox has always been the preferred channel used by companies to outsource cheque collection to banks. The retail lockbox solution has been successful mainly for B2C collection. The benefit to companies is that cheques and remittance stubs are efficiently processed so that the cheques are sent for clearing and the remittance information is captured. The company gets the information back as a file, which can be uploaded to the accounts receivable system for reconciliation. The process is somewhat similar for corporations under the wholesale lockbox. However, it becomes more complicated due to the fact that companies tend to settle multiple invoices in one payment. More information capture is required to facilitate the returning collection data and to help reconcile these items from their accounts



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receivable. It also may not be realistic to expect corporations to mail the payment to a PO Box. Payments are usually collected by an account manager or corporate representative directly. To cater to this, some banks offer a hybrid solution, where instead of collecting the payments at the PO Box, the cheques are collected at the company and sent to the bank by courier. Once they reach the bank, processing takes place – irregular items, such as out-of-date cheques or cheques with no signature, are returned to the company; post dated cheques are warehoused; key required information is captured on the system, and cheques sent for clearing. This information will be returned to the company as a data file to upload to their accounts receivable system.

Conclusion

The importance of accounts receivable management cannot be underestimated in these times of economic uncertainty. Corporates must continue to review their internal processes to ensure they accelerate collection and ensure that the accompanying remittance information is accurate to optimise working capital. Banks with cash management expertise are in a unique position as they are able to share industry best practices in collection techniques. Though the requirements of each company may be different, companies benefit from shared experience and, together with ongoing investment in new technologies and platforms, banks will help corporates achieve their working capital targets.



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Case Studies

These case studies show how DBS provides collection services to its customers:

Top Tier Local Corporations

The collection solution for these companies has to address collecting from companies and consumers. For B2C collection DBS uses all channels available, including retail lockbox services for cheques and direct collection from consumers’ accounts through GIRO collection. For bill payment, consumers with DBS Internet banking access can set up these companies as payees and use all DBS self-service channels, such as Internet banking, ATM and mobile banking for payment. At the corporate level, the bulk of payments are by cheque. DBS offers some of these companies detailed cheque deposit reports to allow them to match incoming payments.

Child Care Centres/Schools

The bulk of collections are of monthly fees. Multiple channels are provided for parents/students to automate collection of fees. The eDDA channel provides instant approval while the iDDA channel allows them to set up payment over the Internet. The child care centre/school sends a GIRO collection file to collect the fees from these accounts on a monthly basis.

On the B2B side, DBS uses GIRO collection to help the head office collect fees from its subsidiary child care centres.

Taxi Companies

Taxi companies need to collect rental fees from their drivers on a daily basis. For the collection turnaround to be one day, all drivers maintain an account with DBS. The DDA set-up is instantaneous via eDDA. The taxi company sends a giro collection file to the bank each day. The rental fees are debited from the drivers’ accounts and credited to the corporate account the following day. For taxi drivers, it is convenient to use the extensive network of DBS cash acceptance machines outside bank branch hours.

retail Chains

Most retail chain collections are by credit card, but they may still need to make daily cash deposits. The solution is to provide them with convenient channels to deposit the cash without having to waste too much time at bank branches. The cash bag solution allows them to drop off their cash at the counter without queuing. Bank staff ensure that the bag has not been tampered with before returning an acknowledgement slip.

Many food retail outlets need to deposit their cash after the close of business, when bank branches are closed. These companies can use cash acceptance machines to deposit cash at their convenience. DBS has also structured a cash consolidation sweep arrangement to consolidate the cash from individual branch accounts. This allows management to track the collection of individual branches.

One of the many consequences of the credit squeeze has been reduced availability of liquidity from external sources. As a result, companies have sought to replace this by sourcing additional internal

liquidity. A relatively popular strategy is to centralise cash previously held in local business units through some form of liquidity structure. However, another method for companies of all sizes is simply to improve the accounts receivable (AR) process.

Accomplishing this is partly about improving processes – for example, ensuring that communications with customers are timely, so that there are no outstanding queries and that payments are made according to agreed terms. But such improvements are dependent on the quality of the data relating to customer remittances. It is essential that the AR team have the most accurate and up-to-date information possible.

Faced With Reality

Sadly, for many cash managers, the reality is different. Every day they will see thousands of payment transactions credited to their collection bank account. For most of these transactions, information on who paid what invoice is not available. This means the payment cannot be reconciled, which in turn results in an inaccurate cash position and increased day sales outstanding (DSO).

In an effort to close their AR records, the managers will send reminders to all customers who have not paid – reminders that are based on inaccurate records. They will then receive phone calls from customers claiming they have already paid. This situation has several undesirable implications: Increased DSO translates into an increased working capital requirement and funding costs. The company’s reputation among customers suffers because they are wrongly chased for invoices

they have already paid. If it is a quoted company, investors will be unimpressed if its DSO and other working capital figures

lag behind its competitors. If it is a private company, sources of external liquidity – banks, for example – will be similarly unimpressed.

Therefore, improving the quality of customer remittance information is the foundation upon which wider AR improvements can be built, which in turn delivers business benefits across the organisation in terms of improved availability of liquidity.

• Information is key in reconciling collection transactions against outstanding accounts receivable records.

• Lack of information results in delayed reconciliation and inefficient working capital management.

• A virtual account, as a collection tool, has become an integral part of banks’ information management solutions.

• Collection channels, customised account numbers and bundled service packages make virtual accounts a viable proposition.

Ma-an David, Assistant Vice President, Product Management, Global Payments and Cash Management, Asia Pacific, HSBC, Hong Kong and Wendel Kwan, Assistant Vice President, Product Management, Global Payments and Cash Management, Asia Pacific, HSBC, Hong Kong

The Beneficial World of Virtual Accounts




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A Treasury Manager’s Priorities

The payment instruments that customers use to send remittances have a significant effect on a company’s ability to improve its AR data. Put simply, paper is a bad idea. Cheques are inherently inefficient and processing them, even via an efficient lockbox operation, inevitably raises costs and introduces delay. Therefore, the cash manager has a strong incentive to encourage customers to switch from cheque payments to electronic methods such as wires or an automatic clearing house.

To some extent, the market in Asia is gradually moving in this direction anyway, though there are obviously some specific local exceptions. But some companies are taking a more direct approach in encouraging this behaviour. One method is to make electronic payment a business condition for new customer accounts. In the case of existing accounts, some companies will offer a small initial discount or other incentive for customers switching from paper to electronic payment methods.

Any reduction in the volume of paper remittances from customers eases the transition from manual to electronic matching methods. Remittance information gathered electronically can be fed into an automatic matching system, which reconciles remittances with the right outstanding invoices. This is not only far less expensive than manual reconciliation but is also faster and more reliable, which can be critical at the beginning or end of a month when remittances are at their highest levels. An AR department under this sort of volume pressure and still using manual matching can easily develop a backlog or make errors, resulting in customers being incorrectly placed on stop.

Maximising electronic remittances also helps to justify new investment in technology to support treasury processes. Where such systems are already in place, more extensive and cost-effective use can be made of them to automate reconciliation. This, in turn, pays dividends in terms of transparency when it comes to control and audit, which are both areas where companies are keen to improve their performance. To some extent, this is due to an internal desire to manage risk more tightly, but there are also external pressures in the form of regulation such as Sarbanes-Oxley, which imposes stringent requirements in respect of control and accountability.

The combination of these factors creates a compelling need for AR managers to focus on improving AR reconciliation through better-quality remittance information. This also dovetails neatly with a broader business trend, namely the migration of AR activity in Asia to a shared service centre (SSC). Historically, only payments have been processed in Asian SSCs, as Asian collections were deemed too difficult and diverse to centralise. As the payment infrastructure in Asia continues to evolve, this is beginning to change, but the success of such change is, of course, heavily dependent on the quality of remittance data.

Information is the Key

So, what criteria determine whether remittance data is of sufficient quality to achieve straight-through reconciliation? Completeness is an obvious requirement – if a payment covers multiple invoices, how will all those invoices be identified in the data provided by the remitter? A long-standing issue here is the truncation of such data. Many electronic clearing systems have limitations on the number of characters permitted in the reference field of the payment message. As a result, only the first few of a batch of invoice numbers might survive transmission through clearing. Similar limitations can also apply to the electronic banking platforms that remitters may be using.



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A further consideration is that any incoming data must be in a format that can be handled by the recipient’s enterprise resource planning (ERP) or accounting application. Given the progress made on standardisation in recent years, this is generally less of a problem than in the past, but on occasions some intervention or assistance by the recipient’s bank may be necessary to deal with issues such as interpretation of local language characters.

If the remittance data is both complete and in a comprehensible format, then (assuming the ERP or accounting system includes suitable functionality) the basic requirements for automated delivery and reconciliation matching are in place. Depending on the bank’s technology, the remittance data may be streamed in real time or the company’s application may instead poll the bank application for data on a scheduled basis.

Even with extremely clean remittance information, the percentage of auto-matching achieved can vary considerably. One factor that can reduce this percentage is the deduction of bank charges by the remitting bank, or any correspondent banks along the payment chain. Some ERP and accounting applications can allow for this by hard-coding bank fees associated with remittances from regular remitters or by automatically assuming that any minor discrepancies are attributable to bank charges levied in transit.

The New Frontier in Collections

The growth of electronic clearing systems in Asia represents a considerable opportunity to improve AR management. As the convenience and cost savings inherent in electronic payments become more widely appreciated, the number of customers remitting electronically will consequently increase. However, as mentioned above, the reference data field provided in many electronic clearing systems is often too short to accommodate a full list of all the invoices covered by a single payment. In addition, the field may be needed for other purposes – such as the customer account number to which the payment relates. As a result, while electronic clearing systems are an opportunity to improve AR management, fully capitalising on that opportunity requires something more.

One such “something” is the virtual account, which is rapidly growing in popularity as a means of streamlining automated AR reconciliation. Under a virtual account arrangement, the bank provides its corporate client with a range of virtual account numbers. The client can then assign these numbers to its individual customers. When customers make a payment through paper or electronic channels, they only need to quote the virtual account number as the crediting account number. In reality, this virtual account number does not physically exist. The bank’s virtual account engine will deduce the crediting account number from this virtual account number, and the respective virtual account number will be captured on the statement so that the customer can use it to immediately identify the remitter (see Figure 1).



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Business Benefits

Virtual accounts offer a number of important practical advantages: Reduced administration costs: because virtual accounts can be used to automatically identify

remitters and are not dependent on the quality of remitter details provided in the payment reference field, the costs of hiring personnel to manually reconcile receivables can be saved.

Reporting quality: virtual accounts speed up operations turnover and improve management reporting because transactions are captured and displayed on statements in real time.

Stronger credit control: virtual accounts enable timely and accurate reconciliation of collection information, thereby delivering a clearer individual and overall credit picture of customer accounts.

These advantages translate into material business benefits. Faster, more accurate reconciliations deliver reduced DSO, working capital requirements and funding costs. They also minimise damage to the business and its reputation caused when delayed reconciliations trigger the wrongful suspension of shipments to customers that have actually paid. By the same token, they reduce credit risk through the early and accurate identification of accounts that are delinquent. Finally, treasury control of both process and available liquidity is also improved, which gives an opportunity to improve investment returns as well as making regulatory compliance easier.

Bank Dependency

While virtual accounts have much to offer when it comes to enhancing AR performance, the exact level of benefit achieved is heavily dependent on the provider bank’s capabilities. A case in point is collection channels. As a virtual account is not a collection channel in itself, its effectiveness will depend on whether a bank’s collection channels can recognise the virtual account number as the depositing account number. These channels include the bank’s branch counters, automatic teller machine network, cash and cheque deposit machines, Internet banking and high- and low-value collection systems. It is therefore important to have an understanding of customers’ payment behaviour and, based on this knowledge, equip the appropriate collection channels to accept virtual account transactions.

Another consideration is the method used by the bank to generate virtual account numbers. By default, banks tend to use system-generated numbers for virtual accounts. However, corporate clients are ideally

figUrE 1: how a Virtual Account Works

Buyer ABC pays USD500 to company XYZ via virtual account number 123400000001

Company XYZ’s bank will be able to deduce the crediting account number and payer information from the virtual account number

“1234” = bank a/c 123456789012

“00000001” = Buyer ABC

On company XYZ’s bank account 123456789012 statement, it will show:

“Buyer ABC Cr USD500”



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looking for a more intuitive approach, such as customised account numbers that use reference numbers that are already familiar to the company’s customers. For example, an insurance company might want to use its policy numbers as virtual account numbers, as this information would already be available to its customers. If the bank is able to offer this facility, this obviously streamlines the implementation – and uptake – of using virtual accounts.

Although virtual accounts have considerable potential, for various reasons they may not be universally applicable to all customers. Nevertheless, the company still needs a complete picture of all its collection activity. Therefore, if the bank is able to plug virtual account transactions into its centralised reporting engine, then the company’s clients will benefit from a consolidated picture of both virtual and non-virtual account activity.

Future Developments

Partly in connection with the need to make virtual account numbers intuitive to the corporate client’s customers, there is a growing demand for flexibility. For example, rather than just numeric virtual account numbers, there is an increasing need for alphanumeric alternatives. Also, some companies are now looking for dynamic virtual account numbers where only part of the number will be pre-registered and the remainder can vary.

This last innovation is particularly important when it comes to identifying not just the remitter but also the invoice numbers the remitter is paying. For example, the first few digits of the virtual account number might be specific to the remitter but the last few might be used to indicate the invoice number being paid.

Conclusion

Information is key to an efficient accounts receivable management process and the virtual account’s ability to deliver 100% accurate identification of the remitter makes it a necessary reconciliation tool. However, as it continues to evolve, the virtual account also has the potential to deliver accurate, quick and cost-efficient end-to-end reconciliation down to the individual invoice level, with all the attendant business benefits that that implies.

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Case Study 1: Virtual Account Solutionfor a Financial Services Provider

The Company

An Indonesian company is offering general and life insurance. Its products include life and non-life products, unit-linked products and Sharia insurance. The company has about one million policy-holders, which includes individual and corporate customers. Collections for insurance premiums are received from agents and policy-holders through various payment methods – credit card, electronic transfers and cheques. The policy number, which is coded in accordance with the insurance product type, is the key reference used in reconciling payments.

The Challenge

The company’s main AR challenge lies in the reconciliation of payments from its policyholders because:

• Policy-holders often fail to provide full transaction information and the same policy-holder may use multiple channels for remittances, making it extremely difficult for the company to reconcile the transactions back to the accounting records.

• The company maintains just one collection account to which all policy-holders and agents remit. This results in payments for different products being mixed up in a single account, which only exacerbates the reconciliation problem.

Because of the above, a high level of costly manual processing is required to trace unidentified payments.

The Solution

The company opted for a virtual account service. Figure 2 illustrates how this was arranged so that the company could improve its identification of payments from policy-holders. Each remitter code represents a policy-holder, while each remitter sub-code indicates the specific product the remitter is paying for, so the company can immediately reconcile each remittance accurately.

figUrE 2: remitter Codes for Policy-holders and Sub-Codes for Products

Mr A (00001) Mr B(00002)

Life products (001) 805-00001X-001 805-00002X-001

Non-life products (002) 805-00001X-002 805-00002X-002

Unit-linked investment (999) 805-00001X-999 805-00002X-999

Assign remitter code

Assign remitter sub-codes



The Benefits

With a virtual account solution, the company benefited as follows:

Reduced personnel requirements: with close to 100% identification of payments, the work to follow up and resolve unidentified transactions was significantly reduced.

Automated AR reconciliation: all virtual account transactions go directly through the company’s back-office system, thereby streamlining report delivery and reconciliation.

Reduced DSO: Faster reconciliation of funds and AR records reduces the company’s DSO and increases its working capital.

Case Study 2: Virtual Account Solution for a Petrochemical Company

The Company

A Taiwan-based conglomerate has diverse interests in the fields of biotechnology, petrochemical processing and the production of electronic components. Its customers are mainly manufacturers that buy the company’s products to serve as raw production materials.

The Challenge

The company’s AR challenge is the reconciliation of customer payments. It has about 1,000 active customers who settle their invoices using electronic payments, specifically telegraphic transfers. The key concerns are:• lack of information to identify remitters of incoming telegraphic transfers;• manual downloading of reports; • delays in reconciliation; and• delays in key business actions (e.g. releasing goods).

The Objectives

The company’s objectives are:• 100% remitter identification;• automated AR reconciliation; and• improved customer service by quicker release of goods.

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The Solution

The structure of the virtual account is shown in Figure 3.

The Benefits

With a virtual account solution, the company achieved the following:

• 100% remitter identification: virtual account numbers, a portion of which refer to the actual remitter reference, are reflected in bank statements and collection reports, thereby ensuring remitter identification.

• Lower personnel requirement: with improved data accuracy and automation of report delivery, the number of full-time equivalent staff required to manually process reconciliations fell from two to 0.5.

• Quicker release of goods: improved reconciliation meant that the company was able to release goods on the same day that payment was received, compared with the previous two-day lag.

The opportunity to define its own remitter references made it easier for the company to disseminate its virtual account numbers.

figUrE 3: Company Defines its Own remitter reference Numbers

8 8 8 8 1 2 3 4 5 6 7 8 9 1

4-digit bank-assigned cutomer code

Check-digit9-digit customer-defined

remitter reference

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Supply Chain Management


Before the global financial crisis, international trade had experienced a continuous boom for at least a decade. Worldwide exports grew from USD5.7tr in 1999 to more than USD12tr in 2009. Trade

volume increased in all territories and regions around the world, particularly those associated with China and Asia. This is directly reflected in the number of containers passing through terminals in Singapore, Hong Kong, Kaohsiung in Taiwan or Shenzhen in China.

Whether the current focus of international trade is on ways to increase revenue or reduce costs, modern companies have been taking initiatives to move beyond their home country borders, exporting products to new markets and importing raw materials from low-cost countries. While such moves provide these companies with new growth, they make the enterprises’ supply chains longer and more complex and incur many potential uncertainties and risks. To meet these challenges and stay ahead of the competition, companies have been regularly adjusting their value chain strategies to ensure more visibility, control and efficiencies.

As an exporter or importer dealing with an increasing number of trading countries, parties and volumes, any company involved in cross-border trades has to think about how to put in place an integrated management framework, process and system as quickly as possible. For this reason, in recent years, the topic of “global trade management” has moved towards the top of the agenda for business executives.

Global Trade Management

Global trade management is not just about managing trading transactions – it requires a company to centrally manage all perspectives of international trade, including finance, compliance and customs, security and landed cost, as shown in Figure 1.

• In a global economy, exporters and importers are deploying a variety of value chain strategies to meet the challenges of extended supply chains.

• Trading with different countries requires new capabilities, including managing compliance and customs, trade finance, security and transparency of total landed cost.

• Trade compliance is a must-manage item for all exporters and importers. It has to be fully executed during the global transport process.

• An effective global trade management practice needs to consider overall landed cost so that executives can make the right sourcing decisions.

Keith Ip, Director, Value Chain Management Solutions, Greater China, Oracle, Hong Kong

Global TradeManagement:A Key Import-ExportStrategy

Global Trade Management: A Key Import-Export Strategy


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This must be an integrated process as a trade cannot be transacted successfully if a company fails to manage any one of these aspects. For instance, if products are held at customs because of non-compliance with local import rules, this might delay the whole delivery to important customers, resulting in loss of sales, obsolescence and penalties. The cost of the trade unexpectedly increases and there is customer dissatisfaction. This occurred when, after the terrorist attacks of September 2001, the US imposed more rigid security procedures on all US imports. A simple mishandling of a container seal number, for example, could prevent goods from entering the US. Initially caught out, exporters had to tighten their processes accordingly.

The company’s trade management system must also be integrated with sales, procurement and finance processes. For example, a letter of credit (LC) is a key financial instrument for international trade, which is not required for domestic trade. Most companies manage them manually. A procurement team has to communicate extensively with a logistics team during the purchase order fulfillment and delivery process, while a finance team is required to be involved for interactions with LC-issuing banks. This means inefficiencies and potential human errors. An integrated computerised approach for processes and systems to manage the whole lifecycle of the LC would greatly improve matters.

It is important for global enterprises to have a complete and centralised perspective on worldwide trade management. This will set a corporate standard for all regions involved in import-export businesses.

Trade Compliance

One important component in global trade management is trade compliance. In different countries, government bodies and regulatory organisations have imposed a variety of regulations and rules for

figure 1: global Trade Management

Source: Oracle Corporation

Trade finance Business Drivers:■ Post-Entry reconciliation & Audit■ Trade settlement■ Optimise use of strategic

financial instruments (Letters of Credit, Open Accounts)

Landed Cost ManagementBusiness Drivers:■ Visibility to profitability■ Optimise margins■ Strategic sourcing decisions

Compliance & Customs Business Drivers: ■Risk mitigation & penalty avoidance

■Efficiency & process automation■Achieve best practice

Security Business Drivers: ■Secure supply chain strategies

for customs preference■Maintain compliance with

security initiatives■Supply chain risk mitigation

Global Trade Management

Compliance & Customs

Security

Trade Finance

Landed Cost



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import and export trades. If any of these are violated, goods will not be allowed to move across the border. A licence might be needed beforehand or penalties and fines paid.

Trade compliance is an integral part of the transport process. Figure 2 shows how two perspectives are interconnected in the export operation.

When just a few items are traded to a few countries, the challenges might not be so significant. However, complexity increases dramatically when the number and variety of trading products and territories rises.

There are two key areas that a company needs to pay attention to when setting up a framework and system for global trade compliance. First, the company needs to establish a centralised platform so that staff in each country have a complete and up-to-date set of rules for each trade route (for example, Japan to US, Japan to Europe). Second, staff involved in various trade processes must be able to check systematically against these rules during the transport cycle. If the trade compliance process is separate from the transport process, then the compliance and logistics teams might not have the same information, which can lead to costly consequences in delays and bad fulfillment rates. To achieve higher on-time delivery rates in a global trade context, companies have to maintain visibility of all transport and compliance checking milestones. It must be a holistic approach.

Total Landed Cost

To reduce costs, a large number of companies source supplies from overseas. However, it is difficult to compare costs between different sourcing options as international trade involves higher transport

figure 2: global Trade Compliance


Party Creation

global Export Process

Sales Order Creation

Party Screening

Export Controls Screening

LicenseDetermination

Ship goods

Export Declaration

Tender to Carrier

Create Export Documents

Pick/Pack

Oracle gTM offers:Product ClassificationCompliance Screening

Export DocumentsExport Declarations



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expenses, duties and brokerage charges. As Figure 3 illustrates, total landed cost can be 40% more than the direct materials cost.

Duties, for example, can be complicated to calculate for sales of thousands of products to dozens of countries. Each product item will have different “harmonised system codes” in different countries.1 Duties will be determined by how the goods are classified in these codes. More often, companies will have local customs declaration teams or use external customs brokerage services in each country. Either way, it involves a lot of manual work and depends on human familiarity with local rules for its execution. It lacks control and adds risks.

There are also multiple types of duties that need to be paid, each requiring a different calculation formula. Some, such as value-added tax in certain markets, can be very complex and it can be a challenge to make sure the right amount of money is being paid each time when relying on people to perform the calculations.Last but not least, most of the charges are based on order, shipment or customs-entry level and are not directly broken down to the line item. To obtain accurate landed cost information, it is necessary to know how to allocate each cost component down to line level. It is not possible for companies to do this by human effort as the number of items is just too large in a big corporation. Instead, what is required is a well-designed computer system in place to calculate total landed cost for each line item. The system can provide a holistic cost structure on which a company can base its sourcing decisions.

Few companies truly understand the landed cost for each of their sourcing items without having a global trade management solution in place. To have such valuable information provides a significant competitive advantage when it comes to the pricing and marketing of products.

1 For more information about the Harmonized Commodity Description and Coding System, see the World Customs Organization web site, www.wcoomd.org.

figure 3: Landed Cost


Landed Cost Overview

An additional 40% is added on to the purchase price

China manufacturing

$100PO item price $2 $3 $20 $3 $2

$5Broker fees

$5Duties

$140Total landed

cost

BuyerKansas

City US portVessel carrier

hong Kong port

Shipment to hong

Kong



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Conclusion

As the business world evolves, it is inevitable that more and more companies are going to operate globally. Although trade conflicts and wars will continue to exist, the World Trade Organisation, as a liaison body or as a mediator, tries to remove persistent roadblocks by working with different nations. Almost all governments impose, from time to time, new regulations to protect their own country’s interests. Importing and exporting companies need all of their staff to be fully informed about new regulations and how they affect their business, and to fully comply with them. To achieve this, they should look seriously at their overall global trade management methods, processes and information systems, for then they will have a key competitive advantage – provided they put in enough effort and pay enough attention to it.

Trade finance has emerged from the global financial crisis as an area of interest at all levels of government, business, banking and international institutions. While a focus on trade finance has

long been common practice for a few global financial services organisations, it is atypical in most other contexts and this new level of interest is seen either as a welcome shift or an unwanted spotlight, depending on the organisation.

Whatever the case in individual organisations or, indeed, among individual executives in leading trade finance businesses, this heightened focus must, at industry level, be seized as an opportunity to better articulate, and to further develop, the value proposition that is represented in the provision of trade finance.

The industry responded to pre-crisis risks of a reduction in intermediaries (resulting from a near-global shift away from traditional instruments to open account trade) by focusing on supply chain finance as a “next generation” model for trade finance within the context of integrated transaction banking businesses. For some, this has been perceived and presented as a significant evolution, while others have argued, convincingly, that supply chain finance is little more than a repackaging of a set of existing and familiar transaction banking products, primarily for marketing purposes.

An Opportunity Exists

Whether trade financiers as a group genuinely intended to innovate and to provide net new value to their clients, or whether supply chain finance was little more than a marketing tactic, is all but irrelevant at this stage.

The value of trade finance has been undeniably demonstrated over the course of the global financial crisis; the evaporation of pre-export finance, and the resulting 40% drop in trade flows from Asia to Europe and the Americas as reported by various international institutions in mid-2009, together with the effective disintegration of the shipping industry, with rates dropping by over 90%, were directly linked to the large gap in trade finance. The global crisis focused attention on such figures, regularly updated through the World Trade Organization, the World Bank, the International Monetary Fund and others –

• Trade and supply chain finance has been largely integrated into transaction banking lines of business.

• Within that context, the nature and relative contribution of trade finance is being refined across the globe.

• A back-to-basics view arising from the global financial crisis is necessary and timely but ought not to preclude innovation and evolution in trade and supply chain finance.

• The value around trade and supply chain finance will be at the solution level and it will require a holistic, solution-based approach, with trade and supply chain finance leading when appropriate.

Alexander Malaket, President, OPUS Advisory Services International

Towards a Solution: A Focused Approach to Supply Chain Finance




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even shining light on obscure, market-specific data such as the Baltic Dry Index1 as a proxy to reflect the impact of the crisis through the flow of commodity goods and the related cost of shipping.

At the same time, clients and bankers were reminded that a key element of the value of traditional trade finance – the proven capability to mitigate international risk – had been wrongly neglected in efforts to respond to requirements around open account trade. This “lesson” continues to command attention, alongside the ongoing demand for timely, fairly priced and dependable financing.

The combination of increased positive focus on trade finance, together with some lessons learnt by trade financiers as an outcome of the global financial crisis, present an opportunity for trade finance to evolve in the context of nascent programmes and solutions developed under the umbrella of global transaction banking – and, more specifically, under supply chain finance.

Back to Basics in a New Reality

The greater focus on the value of trade finance – coupled with increased appreciation among bankers about the relatively low risk profile of trade finance at a portfolio level – presents an opportunity for innovation to trade finance executives with the required leadership skills. Neither, however, eliminates the need for trade financiers to take a back-to-basics approach, at least to some degree.

Trade finance, from the simplest transactions to the most structurally complex, is fundamentally about four things: facilitating cross-border payment, securely and in a timely fashion; providing financing options and solutions to one or more parties in a trade deal; mitigating a variety of risks related to the conduct of business across borders; and providing information related to the financial and physical flows linked to a transaction.

A renewed focus on these four fundamentals, with the intention of using them as complementary building blocks in the development of next-generation trade finance, may be a useful and effective way to maintain a link to proven elements of the trade finance business, while exploring ways in which trade finance can evolve in the context of supply chain and transaction banking.

There is significant expertise and market value in trade finance as an element of financial services – value that ought to be used for advantage and actively developed, as opposed to being allowed to fade from view by inaction.

Certain leaders in the industry are deconstructing lines of business into solutions – eliminating product ownership and product-based organisational silos, with varying degrees of support and success. Such initiatives, meant to encourage a solution focus as opposed to a product focus, may well prove effective and viable. Even under such models, however, it remains critical to ensure that the core value proposition – and capabilities – of trade finance are preserved and expanded.

In this sense, trade finance, too, can benefit from a focus on the basics but only as a means of evolving – not as a justification to revert to passive status quo.

1 A daily index of global shipping prices of various dry bulk cargoes, published by the Baltic Exchange.



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So, Where’s the Opportunity?

The opportunity is in exploring and understanding the business in which trade financiers are truly engaged. Is this a business about payments, paper and political risk?

On a certain level, it certainly is. On another level, it is a business that facilitates, through effective instruments and processes, and through expertise, the movement of goods and services from one corner of the globe to another. Just as leading brands across the globe work to communicate that they are more than the sum of their products and services, so, too, the business of trade finance is about far more than facilitating payments across borders or verifying documents against letters of credit.

The value and impact of trade – and therefore of trade finance – has been undeniably demonstrated to link directly to international development, economic prosperity and standards and quality of life across the globe. With such a view, leaders in trade finance can perhaps take the opportunity to apply ambitious vision to the future of this vital business.

But, to be effective in business, vision must inevitably connect to action and to operational and market realities.

Can trade finance – as an area of expertise or an organisational entity – serve as a “hub” to respond to the requirements of clients engaged in international commerce? All relationship bankers understand credit and lending – relatively few understand these disciplines in the context of international markets. In a product-agnostic environment, where the focus is entirely on client requirements and solutions, the argument is perhaps amplified, in that expertise and advisory capabilities become even more important than in a product-based environment.

When trade finance (as a product or organisation, or as a solution) is viewed in the context of increasingly complex and increasingly global supply chains, the argument in favour of an expert hub represented by a trade financier, becomes even more compelling, particularly when we note that 80% to 90% of global trade flows are supported by some form of trade finance. In addition, lack of adequate financing is identified almost universally by small and medium-sized businesses (SMEs), as being the single greatest obstacle to growth and sustainable success. This appears to hold true across continents and in commercial environments ranging from the most advanced to the most rudimentary.

The important role of SMEs as suppliers to the largest multinationals is gaining greater appreciation and, accordingly, solutions that support SMEs will tend to enhance the efficiency and success of global supply chains.

Moreover, the likelihood of pursuing opportunities in international markets is far higher today, and at an earlier stage in the lifecycle of a business, than might have been the case even five years ago. Textbook advice on expanding internationally suggests that businesses select a market that is similar to their home market and proceed gradually, one market at a time. However, commercial and competitive realities often demand a more aggressive and far-reaching approach to market development. In that new reality, the role of a skilled adviser in international business is critical and will only become more important in the coming years.



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Next-Generation Trade and Supply Chain Finance

As more businesses of all sizes and across all industry sectors engage internationally – Asia providing an excellent illustration of the trends likely to shape global commerce – the importance of effective advisory and solution support will only increase.

Chinese businesses, for example, are increasingly in search of resources and opportunities across the globe, and it is widely acknowledged that the sheer scope and breadth of commercial activities will require a range of solutions and support that cannot, today, be provided entirely by domestic financial institutions. India, similarly, is in growth mode and is internationally focused after a period of domestically powered recovery. Likewise, Indian businesses are in need of a portfolio of solutions related to international commerce and would benefit from the services of an internationally oriented trade financier acting as a hub in managing their relationships and accessing resources and solutions from across the spectrum of transaction banking capabilities.

In complementary fashion, a trade finance and international business specialist knowledgeable in the needs and challenges of supply chain finance would be an extremely valuable asset to the client organisation, particularly in the early stages of international expansion or initial stages in a new market.

Looking at this approach from the top down, the notion is that a trade financier can serve in an advisory capacity as a hub resource to corporates engaged in international business and can do so with an eye to both the supply chain domain and the broader context of transaction banking, from which complementary solutions can be drawn, to respond to the requirements of commercial clients of all sizes.

Solution orientation is based on two primary considerations: An intimate knowledge and understanding of a client’s business, including its competitive

environment; and Expertise in the domain and subject matter related to international trade and trade finance.

Just as trade operations staff have been challenged to expand their outlook to better appreciate the importance of client relationships and to take a more commercial view of operations activities, so must trade financiers in the middle and front offices be challenged to better understand the broader commercial context within which trade finance provides its value. The ability to do so will ensure success in the increasingly important advisory role and will enable trade financiers to conceive and craft better financing solutions across global supply chains, drawing upon resources in the broader financial institution.

In the context of international trade and cross-border commerce, the opportunity in trade and supply chain finance need not be in wholesale redesign of the business but may be discovered in turning the conventional model on its head, while remaining focused on the fundamental “pillars” of trade finance (payments, financing, risk mitigation and information). A modular approach to assembling solutions related to trade and trade finance – based on expertise and an advisory focus – will serve commercial clients well in all markets, and will cement a relationship while allowing for evolution in the organisational models adopted by financial institutions over time, from silo- and product-based to product agnostic and client-solution-centric.



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Conclusion

The foregoing is not intended to position or advocate an internal battle for territory among executives leading various businesses in transaction banking or, indeed, in international banking.

Trade finance clearly has an opportunity to benefit from its positive profile, to better articulate its value to commercial clients, the financial institution within which it operates as a business and to other stakeholders (including governments and regulatory authorities) interested in international commerce.

This opportunity must be fully exploited, to ensure a robust, dynamic and evolving trade finance capability across the globe – and such a process must begin with the largest players in the business of trade finance – financial institutions on the supply side and supply chain anchors (large retail and manufacturing clients) on the demand side.

Once the model is inverted to drive from expertise and an understanding of client needs, the modules or components of eventual solutions can be drawn from a variety of sources (internal and external to a financial institution), and tailored to meet the specific circumstances around a client or transaction.


In the wake of the global financial crisis, the challenge for many businesses is no longer just survival but how to thrive. This in turn will lead to renewed interest in winning market share and beating

competitors by being efficient – and increasing supply chain efficiency will be the key. Success is not just about well designed products; it is also about having the right products available at the right time in the right place, and of course at a price point that is competitive.

Advances in the Physical Supply Chain

Over the years, the concentration of management resources on improving the physical supply chain, which is responsible for the delivery of traded goods, has yielded rapid development and streamlined processes. However, the challenge has increased in complexity as more and more goods are sourced overseas, especially from low-cost, less sophisticated locations. As a result, returns have varied depending on the levels of collaboration and cooperation between the different companies and service providers in the chain.

Today, it is not unusual for large multinational corporations (MNCs) to have a chief supply chain officer (CSCO) reporting directly to the chief executive officer (CEO) or president. The focus of this position is to build efficiencies into the existing business process. As part of this, the team focusing on supply chain management has to translate the traditional supply chain metrics into business impact and financial improvement metrics. This is an effort that the senior management can understand and therefore continue to support in the hope of seeing an improvement in the bottom line.

In most cases, creating efficiency relates to streamlining the physical supply chain – the planning, ordering, and delivery, receipt and use of goods. Some of the benefits can include shorter time to market, reduced production or delivery costs and reduced inventory levels, which also reduce costs.

Although there has been tremendous progress in this area, there is always room for improvement as the sourcing and geographic expansion of business adds different layers of complexity with each additional business partner involved in the transaction. As noted before, sourcing internationally instead of domestically brings added complications: customs, overseas delivery and, of course, import/export

• Post financial crisis, as businesses start to focus on growing sales rather than just survival, attention has returned to the opportunity for improvement in returns offered by better supply chain management.

• However, the biggest challenge is linking the two parallel supply chains: the physical and financial.

• Internal silos and gaps of information between logistics operations and finance departments can be a major barrier to success.

• There is potential for banks to bridge the gap, as they have visibility of different transactions, but they need to step up their understanding of the physical supply chain.

Carl Wegner, Head, Transaction Banking, Standard Chartered Bank, Taiwan

Linking the Physical and Financial Supply Chains: Internal and External Challenges



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procedures. But companies that make this a priority compete not only in terms of the quality of their products. The efficiency of their supply chain also becomes a differentiating factor.

What makes this challenge a little easier is that there are organisations in this area that have helped to set standards for excellence, which means that there are tangible goals and specific targets that can be benchmarked against industry standards. Some organisations are global in scope, such as the Council of Supply Chain Management Professionals (CSCMP), which encourages education on both sides of the transaction for better communication. Based on input from organisations like this, the CSCO can set his or her team’s goals and continue to track progress of goods in the physical supply chain. However, this also often means that the CSCO’s attention is focused solely on the physical supply chain rather than the equally important financial supply chain.

The Financial Supply Chain and Silos

The financial supply chain involves managing bank credit lines, fees for bank services and the timing of payments and receivables to optimise the benefits and lower the financial costs to the company. For large companies with large banking groups, already managing this is a challenge, especially recently with the increased focus on the stability of financial institutions.

However, when a company looks at the costs of the goods as they move through the whole supply chain and the cost of working capital, then the idea of a “financial inventory” to complement the physical one that most CSCOs focus on may be helpful. If CFOs can bring that mindset of connection with the physical supply chain side, then the combined benefits to the company may bring it ahead of its peers, as it is a very small group of companies that are operating at this level.

As everyone is working hard in their respective silos, there has been limited opportunity for collaboration between the financial and physical supply chains. Dr Thomas Speh at Miami University, US, and a former chairman of the CSCMP has noted that “linking the financial supply chain to the physical supply chain could build tremendous benefits for efficiency, but is rarely done as the managers of each area do not speak each other’s language.” Another issue, according to Dr Speh, is that besides not speaking the same language, financial and supply chain executives rarely collaborate – they tend to work within their own silos, each with a focus on disparate outcomes that are uncoordinated.

This can happen if the CSCO has come from the logistics side of the business rather than from the financial side or if the CFO or the accounting professionals do not fully understand the logistics side of the business. While the CFO may have an understanding from a risk perspective of the suppliers, they need to liaise with the purchasing department to use this knowledge to manage payment terms, and the financial department needs to explain the trade-offs that different payment terms would make. An example would be the ability to change payment terms based on production and shipment metrics on an automated basis, via a scorecard updated in real time. Some companies may be able to do this already; however, often only those with the scale to set up their own proprietary systems do, which means that most companies are not capable of this level of sophistication.

This also means a change in sourcing parameters: a supplier might be chosen not only for the quality of its products but also for the quality of information it can provide on its production processes. This information may be almost as valuable as the products. The depth of collaboration and trust that would allow this information to be shared between traditional adversaries – buyers and sellers, means that disclosure often only happens when there is a long history between the trading partners. In addition, that



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information has to be combined with data from other providers for a fuller picture, raising the questions of whether responsibility for this lies with the physical or the financial supply chain and who is going to track it – the CFO or the CSCO?

Some MNCs have addressed this issue by changing their organisational structure. This has included appointing a finance executive to the supply chain team, which might include representatives from logistics, manufacturing, sourcing and marketing. The finance executive can play a critical role by helping to provide a financial focus to supply chain decisions. The finance executive helps explain the financial ramifications of physical supply chain decisions – anything from constructing a new warehouse to adding manufacturing capacity or attempting to reduce the days of receivables outstanding.

In this way, supply chain decision makers not only see decisions from the financial perspective, they also become educated on how best to modify them to improve financial performance. Several world-class firms have taken this step to reorganise their supply chain organisations, through inclusion of the financial perspective in supply chain decisions, and they have been rewarded with supply chains that are not only responsive but also making positive impacts across a wide range of financial parameters: cash-to-cash cycle reductions, reductions in working capital, improved return on investment (ROI) on supply chain assets and many other financial dimensions.

Looking on the positive side, this gap also means there are great opportunities for collaboration and cost savings throughout the complete network of business partners, including raw materials procurement, manufacturing, logistics providers and, now, financial institutions.

Systems Challenges

For the coordination of this information inside a company, an enterprise resource planning (ERP) system is the obvious tool to connect the different data needed by various business functions into one consolidated database. However, being able to leverage the data is a much greater challenge. Often due to historical business processes, there may be information silos that keep the logistics and financial divisions from communicating with each other. For example, traditionally the CFO or accounting department just want to know when they are going to have to pay for raw materials or finished goods. They do not need to know the processes it took to reach that payment point; but, if they did, they might see additional leverage points to reduce the overall financial costs to the transactions.

In addition, larger companies have ERP systems, while smaller suppliers may not. To make this information process work smoothly there has to be electronic links, as paper ones will not provide information in a timely enough fashion to take advantage of opportunities. Furthermore, both sides usually have separate banks for trade services. These factors make it harder to link the different parties together to manage a complete purchasing, production, shipment and payment transaction from beginning to end. The best way to coordinate all this information is electronically, but workflow management and security are both concerns. ERP systems may provide a solution, but only if the buyer and seller use the same ERP, which is a big limitation. If a trading company sells to multiple buyers, it would clearly be impracticable for it to purchase, install and maintain multiple ERP systems.

Another possibility is a single bank system, and some banks have been offering systems that provide financial collaboration benefits to their customers. However, banks have to be willing to work with each buyer and seller from the credit perspective, and have the geographic and legal capability to work with all of the sellers. Some banks do have this capability; however, the vendors would still be required to



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change their banking relationships and carry out integration with the same bank as their buyer. In cases where there is a heavy sales concentration on one buyer (the goal of many buyers is to focus purchasing on a smaller universe of sellers), this solution is feasible and can be rolled out as a requirement for new procurement decisions.

Financial Institutions as the Mediators?

Information is the key and there is a unique opportunity for banks to play a role in bringing customers to the next level, as they have access to the details of various related, but separate transactions. For example, every trade transaction, whether open account or under a letter of credit (LC), also has a payment linked to it. If the bank is financing that transaction, then it is likely to be looking at both buyer and seller in order to review their credit. The bank will do its due diligence and review transactions via UCP 600 if it is using an LC and through its own internal credit guidelines for an open account transaction. So the bank may have the right information to better understand the timing of the payment. From a cash management standpoint, the reporting and tracking, certainty and transparency of the timing of that payment is of value to many different members of the chain. As banks continue to develop their factoring and supply chain business models to accommodate the increasing amount of open account transactions, the value of the information acquired through linking the financial supply chain to the physical one will be a potential risk mediator that can help them do more business in the whole ecosystem. However, they will also have to develop methods of managing some of the physical supply chain touch points to bring it all together.

Conclusion

As electronic information gathering and management gets easier, there is less and less reason not to link these two supply chains for the value they can produce. The banks that learn to leverage this first will be the winners by learning the most about transactions to reduce risk and by helping customers reduce costs. They may also have the advantage of banking with all the companies in the ecosystem to build scale and understanding of that particular business and to really know their customers.


In the last two years, China has undergone major changes to its tax regime – including the unification of corporate income tax laws in 2008 and reforms to value-added tax (VAT) and business tax in 2009

– and a current study to converge VAT and business tax is expected to be implemented in 2013. These developments have changed the tax landscape in China. Investors are evaluating the implications of the current system and the impending changes in order to structure their Chinese operations to manage the overall tax costs of doing business in China. Many corporates are constantly redesigning their supply chain models in response to the rapidly evolving Chinese tax environment – a process that is known as tax-effective supply chain management (TESCM).

Considered below are the challenges that foreign corporates now face in China from a tax perspective and the key factors involved in a successful TESCM project.

Impact of Corporate Income Tax Reform

During the past three decades, the Chinese government has been attracting foreign direct investment (FDI) as a priority to drive the country’s economic development. The government has introduced significant preferential tax policies to encourage foreign corporates to invest in China. Under the 2008 reform of corporate income tax (CIT), two sets of policies that had separately applied to foreign and domestic corporates were unified. Also, tax incentives shifted from being purely based on production to energy preservation, high-tech or projects encouraged from time to time by the State Council. The incentives are applied equally to foreign-invested or domestic enterprises. On tax connected with turnover, the actual VAT burden hinges on the current policy of encouraging or discouraging exports – for example, there could be VAT export costs on certain products not encouraged for export by the state, such as wood.

Most of the preferential tax policies previously available to foreign investment enterprises (FIEs) in the production and export-oriented sectors have been taken away, although there are grandfather provisions to reduce the immediate impact. But when these FIEs gradually emerge from the transitional period (to

• It is the third year since the introduction of corporate income tax (CIT) reform in China and most corporates realise that they will face a higher tax burden.

• A tax-effective supply chain management (TESCM) structure can mitigate the tax cost arising from the reform of CIT, export of VAT leakage and other unfavourable factors.

• Good planning includes realignment of different functions under different parts of the overall supply chain, along with profit drivers and risk factors.

• While business restructuring can result in tax savings, the changes should be for reasonable commercial purposes and adhere to the arm’s length principle as required under the CIT law.

Becky Lai, Partner, International Tax Services Leader – Greater China, based in Ernst & Young, Hong Kong; Andrew Choy, International Tax Services Partner, Ernst & Young, Beijing, China; and Travis Qiu, Partner, Transfer Pricing and Tax Effective Supply Chain Management, Ernst & Young, Shanghai, China

Tax-Effective Supply Chain Management in China



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end by 2013), in general, they will be subject to much higher tax costs under the new CIT regime. Figure 1 highlights some common changes following the CIT reform.

figUrE 1: Some Effects of the reform of CiT

Pre-2008 Post-2008

Statutory CIT rate 33% 25%

Common preferential CIT policies

15%, 24%, etc.

Tax holiday – production FIEs 2-year exemption and 3-year 50% reduction

No

Reduced CIT rate – export-oriented FIEs

Continue 50% reduction No

Dividend withholding tax – FIEs Exempted 10% (normal rate) or 5% (reduced by tax treaty)

Though the statutory CIT rate used to be 33%, when generally available preferential treatment policies were taken into account, it was common to see the effective rate for many FIEs (especially in the production and export-oriented sectors) at only 12% to 15%. So, because of the exemption of dividend withholding tax, foreign investors needed to pay only 12% to 15% tax on the operating profits of their Chinese subsidiaries in order to repatriate cash out of China in the form of dividends.

Possible Planning Opportunity (1)

With the CIT reform, the overall effective tax rate on dividend repatriation can be as high as 32.5% – i.e. CIT plus dividend withholding tax – which is more than double the previous effective income tax rate. It would, therefore, be worthwhile for foreign corporates to revisit their Chinese operations and see whether there is an opportunity to reorganise their business functions – for example, manufacturing in China, with the principal trading function elsewhere, and research and development in another location.

This realignment of functionality and risk concerning Chinese entities in order to justify a corresponding profitability in China is at the heart of TESCM. Tax benefits arise when there is a transformation of the operating model so that profit drivers such as value added functions and risk are assigned to a low-tax jurisdiction – for example, Hong Kong (see Figure 2).



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The overall CIT costs of operating in China for foreign investors were lower before the reform. When the profit drivers were kept in China, together with corresponding profitability, the CIT costs were not high after including all the preferential treatments then available to FIEs. That said, multinational corporates were not motivated to limit the extent of the functions undertaken in China and very often their Chinese manufacturing bases were structured as “fully fledged manufacturers”, which bore most of the risks and carried out major functions in the overall supply chain.

To achieve tax savings by justifying a lower profitability in Chinese manufacturing operations, such entities may limit their corresponding risks and functions through conversion into “toll manufacturers” or “contract manufacturers”, which are generally compensated with pre-determined profit levels on a cost-plus basis. Under these arrangements, Chinese manufacturers, which are located in a high-tax jurisdiction, only undertake functions directly pertaining to the production cycle, such as production scheduling, manufacturing, quality control and local sourcing. Key functions and profit drivers such as marketing, distribution, research and development, and their corresponding risks within the supply chain, are migrated to the “principal company” located in a low-tax jurisdiction (see Figure 3).

figUrE 2: Value-Added functions and risk Assigned to a Low-Tax Jurisdiction

identify profit drivers#

Current structure

Centralise management profit drivers#

Future structure

Risk based profit

Risk based profit

Risk based profit

Value-added profit

Value-added profit

Value-added profit

Profit from core operations



China26%

Statutory tax rate

Hong Kong18.6%

Statutory tax rate

China36%

Statutory tax rate

Risk based profit

Value-added profit

Risk based profit

Risk based profit

Value-added profit

Value-added profit



Manufacturer26%

Statutory tax rate

Hong Kong Principal

18.6%Statutory tax rate

Distributor36%

Statutory tax rate





# For illustration purposes only



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By having different functions in different areas of the supply chain, the principal company assumes most of the profit drivers and risk factors. It is responsible for strategic management and business decisions in relation to sales, distribution and research and development. Together with proper transfer pricing, the principal company is able to retain residual profits. And being in a relatively low-tax jurisdiction, the migration of functions and related profits will ensure considerable tax savings.

Conversion Considerations

In the above example, the Chinese manufacturing companies that are converted from fully fledged manufacturers into single-function or limited-risk toll or contract manufacturers would have different levels of functionality and risk factors, as well as their own asset profiles. This would result in a drop in profitability and such changes would potentially attract challenges from the Chinese tax authorities. The more important question is whether or not such a conversion would trigger tax exposure known as “exit tax upon business conversion”. In this regard, it is important to observe the related implications under the Chinese General Anti-Avoidance Rule (GAAR) and general transfer pricing principles in the existing CIT regime.

figUrE 3: Migrating Key functions and Profit Drivers to a Low-Tax Jurisdiction

Headquarters

Suppliers

Shared services

Hong Kong Hub Co

Manufacturing

R&D

Sales companies

Customers

Management services

Ownership of materials

Sale of finished goods

Product sales

Processing and warehousing

servicesDeliver

materials Deliver goods

Services

Product development

services

Administration services

functions• Business strategy and

planning• Marketing strategy and

brand management• Strategic sourcing• Supply chain managementrisks• Market and credit risk• Inventoryreturns• Residual profit• Intangibles

functions• Production scheduling• Quaility control• Recruitment and training• Local sourcingrisks• Capital investment• Operating efficiencyreturns• Cost plus

functions• Local market analysis• Channel management• Recruitment and training• Local salesrisks• Cost control• Operating efficiency• Sales effectivenessreturns• % of sales

Legal title

ServicesPhysical flow



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Under the existing regime, there is no specific provision that requires the imposition of tax on business conversion or restructuring. Nonetheless, the CIT law and its detailed implementation rule provide the GAAR provisions that are used by the Chinese tax authorities to undertake special tax adjustments on transactions entered into for tax avoidance purposes. For business transactions undertaken between companies and their affiliates that are not in compliance with the “arm’s length principle”, the Chinese tax authorities have the right to adjust these transactions based on reasonable methods. The arm’s length principle requires unrelated parties to conduct business transactions with each other at a fair market consideration and as per business norms. Relevant tax regulations also provide the basis for the authorities to assess tax if there is any valuable intangible – e.g. customer lists or distribution channels – being transferred from one party to another.

In light of the above, it is important to note that while business restructuring under TESCM would result in tax savings, any changes should be for reasonable commercial purposes and must adhere to the arm’s length principle. Potential exit charge implications should also be analysed and monitored carefully in the planning process.

Effects of the Reform of Business Tax

There are three major types of turnover tax in China: value-added tax – mainly levied on sales of tangible goods; business tax – mainly levied on service income or transfer of intangible properties; and consumption tax – mainly levied on a selected list of luxury or polluting products.

The Chinese government revamped and reissued provisional regulations on VAT, business tax (BT) and consumption tax (CT), which took effect in 2009. One of these changes has had a profound impact on foreign corporates doing business with China.

Under the previous regime, for income derived from the provision of taxable services, BT was imposed on income to the extent that the related services were rendered in China. In principle, foreign corporates were not subject to BT if they performed the relevant services outside China. However, under the current provisional regulations, BT is imposed on income derived from the provision of services where either the service provider or service recipient is in China. Such a change in the definition of “taxable services” has significantly expanded the taxable scope on income from the provision of services for BT purposes (see Figure 4).

figUrE 4: Changes to the Business Tax regime

Locations of services rendered Previous BT regime Current BT regime

In China by non-Chinese service providers Taxable Taxable

Outside China by non-Chinese service providers to Chinese service recipients

Non-taxable Taxable



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The above change may not have an actual impact on Chinese service providers. However, in the case of cross-border service arrangements entered into between non-Chinese service providers and Chinese service recipients where the related services are rendered outside China, the transactions (or the non-Chinese service providers) would be subject to an additional tax of 5% on the gross service income derived from China.

In the example shown in Figure 5, under the previous BT regime, the sales and marketing support company would not have been subject to BT on its service fee derived from the manufacturer provided that all the necessary services were not rendered in China. However, under the current BT regime, the related service fee would be subject to 5% BT notwithstanding the location where services were rendered. Note that unlike VAT, BT is neither creditable or refundable and there is no reverse charge mechanism that may enable the passing on of BT costs.

figUrE 5: Example of Change in Business Tax

Suppliers Chinese manufacturer Customers

Sales and marketing support

Raw materials Finishedgoods

Provision of marketing and

promotion services

Purchase order – settlement

PRC Non-PRC

Customerssolicitationand liaison

Service fee

functions• Business strategy and

planning• Marketing strategy and

brand management• Strategic sourcing• Production scheduling• Qualilty control• Recruitment and training• Local sourcingrisks• Market risk• Inventory• Capital investment• Operating efficiencyreturns• Residual profit• Intangibles

functions• Local market analysis• Customer relationship• Marketing and promotionsrisks• N/Areturns• Cost plus

Legal title


Possible Planning Opportunity (2)

To mitigate the additional BT cost, it is necessary to transform the operating model. Given the proximity of the sales and marketing support company to customers, the conversion of this company into a distributor would effectively eliminate the 5% BT costs imposed on the service fee (see Figure 6). Instead of earning a service fee – taxable for BT purposes – from the Chinese manufacturer, the related entity would earn income from the trading of finished goods with customers. Operationally, such a transformation would have a minimal impact from the customers’ perspective as they would continue to receive the finished goods delivered directly from China and they would continue to deal with the same personnel – now under the distributor – on a day-to-day basis.



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In addition to the 5% BT saving, if the distributor is located in a low-tax jurisdiction relative to that of the manufacturer, the change of business model may achieve even more tax savings by migrating additional functions and profit drivers to the distributor, as explained earlier. Note, however, that apart from tax, there are other considerations – for example, customs, foreign exchange controls and preference of customers – that would need to be considered to formulate an operationally feasible and tax-optimal supply chain structure.

Conclusion

TESCM can deliver greater benefits than tax or supply chain initiatives in isolation. Tax planning incorporated into reform of the business model allows greater flexibility to tailor new business operations in order to maximise tax benefits. China provides a variety of advantages that are not tax-related: cheap labour costs, a mature and broad-scope manufacturing base, more than a billion consumers and high-quality services. These characteristics make China one of the more favoured countries for setting up manufacturing-based FIEs. With a thorough consideration of the particularities of Chinese practice, an effective TESCM structure can mitigate to some extent the tax costs arising from the country’s reform of CIT, the export of VAT leakage and other unfavourable factors.

figUrE 6: A Transformation of the Operating Model

Suppliers Chinese manufacturer Customers

Distributor

Raw materials Delivery of finished goods

PRC Non-PRC

Purchase order –

settlement

Sales of finished goods

Sales of finished goods

functions• Production scheduling• Qualilty control• Recruitment and training• Local sourcingrisks• Inventory• Capital investment• Operating efficiencyreturns• Residual profit/Split profit• Intangibles

functions• Local market analysis• Customer relationship• Marketing and promotions• Business strategy and

planning• Marketing strategy• Brand management• Strategic sourcing• Supply chain managementrisks• Market risk• Credit riskreturns• Split profit

Legal title



The Environment – both scientists and politicians describe it as the greatest challenge of our generation. How can we financially incentivise industry to take a more sustainable approach towards

maintaining the health of the planet? The costs present a seemingly insurmountable financial burden to corporations. But where some see cost, others see unparalleled revenue potential. A growing number of entrepreneurs and venture capitalists describe green business as the greatest economic opportunity of our lifetime. Which view is correct? The answer is both. CFOs must understand both the costs and challenges of sustainability in order to minimise costs and maximise opportunity from green initiatives.

Perhaps no country can have a greater impact on the environment than China. With the second largest economy and the largest population in the world, China’s influence over global affairs is growing by the minute. China is well aware of its potential to rebalance the impact of industry on the environment. Consequently, the Chinese government has been aggressively promoting the concept of sustainability for over a decade with various subsidies, incentives and research grants. But how have these government policies influenced the opinions of private-sector business leaders throughout China? To better understand the attitudes and priorities of Chinese business leaders, the Global Supply Chain Council and GXS conducted a study of 150 executives on the topic of green Supply Chain Management (SCM).1

The results of the study were encouraging. Almost half (47%) of all the companies surveyed plan to implement green SCM practices in the next two years. Complexity and cost considerations, unsurprisingly, were cited as the main barriers to further investments in sustainable business practices. Many financial executives would probably agree. Green business practices are often viewed as a cost that must be absorbed to avoid negative publicity in the media, to comply with government regulations and to reduce the risk of potential litigation.

1 Global Supply Chain Council - Green Supply Chain Management in China Study http://www.supplychains.com/en/sur/?15

• The Global Supply Chain Council and GXS conducted a study of 150 executives on the topic of green supply chain management (SCM) in late 2009.

• Almost half of surveyed companies plan to implement green supply chain management practices within procurement and sourcing; warehousing and distribution; production and manufacturing functions.

• Most financial executives view green measures as a cost burden necessary to comply with government regulations and to reduce risk of potential litigation.

• Beyond compliance, green SCM programmes provide numerous financial benefits, including cost reductions, revenue growth opportunities and long-term competitive advantage.

Steve Keifer, Vice President of Industry and Product Marketing, GXS, Washington DC

Green Supply Chain Management: Considerations for CFOs



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However, the executives surveyed also perceived many benefits to be gained from a green approach. Over 50% of Chinese corporates expected cost savings to be achieved through increased supply chain efficiency and reduced waste. Perhaps more interesting is that a high percentage of respondents view strategic incentives to a green approach, such as enhancing the company’s brand (53%) and creating a competitive advantage (43%). These results suggest that there is more to sustainability than compliance and risk mitigation. What are the true financial benefits of green SCM practices? And why should CFOs, treasurers and other financial executives be supportive of sustainability initiatives?

Cost Reductions from the Green Supply Chain

Over half of the Chinese survey respondents stated that green SCM practices promote efficiency and reduce waste, which implies cost reductions. How do green measures reduce cost in the supply chain?

Sourcing and Procurement

Popular green procurement initiatives included using electronic sourcing processes (43%) and reduced use of paper in contracts (29%). Such techniques not only lower a company’s carbon footprint, but also reduce manual processing costs through automation. Another popular green sourcing strategy was transferring the cost burden for sustainability to suppliers through formalised guidelines (39%) or audits (30%). Perhaps the largest cost saving opportunities can be generated from green product design and lifecycle management (42%).

Consumer electronics offer an excellent case study into the potential of green product design. Due to their short product lifecycles, products such as TVs, personal computers and mobile phones are being replaced and upgraded at rates much faster than other products, generating large amounts of waste in the process. Consequently, electronics have been a target of legislation on recycling and materials composition. Japan enacted a Law for Recycling of Specific Kinds of Home Appliances (LRHA) in 2003,

10%0% 20% 30% 40% 50% 60%

Source: Green Supply Chain in China Study by Global Supply Chain Council, 2010

figUrE 1: incentives for implementing green Practices

Brand building to promote as green company

Compliance with corporate sustainability

Increase supply chain efficiency

Competitive advantage for doing business

Complying with customer requirements

Save cost through implementing efficiencies

Motivating suppliers to perform better

There is no motivation

Other



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which mandates that consumers recycle with the assistance of retailers and manufacturers. The EU took a more aggressive stance with its Waste Electrical and Electronic Equipment (WEEE) Act, which effectively transferred the burdens of environmental responsibility and recycling from the consumer to the manufacturer. The strategy behind “producer responsibility” is to provide financial incentives for investing in environmentally-friendly designs. However, the financial incentives are not limited to cost avoidance. Designing products for recycling and reusability creates long-term cost reduction opportunities as well. The greater the percentage of content from retired products that can easily be recovered and reused, the less need there is to purchase raw materials for future production.

Warehousing and Distribution

The most popular green initiatives for warehousing included reduced inventory (61%), order consolidation (51%) and optimising the location of distribution hubs (29%). All of these green distribution initiatives reduce the carbon footprint of the supply chain and reduce costs. In fact, many of these programmes merit implementation independent of their environmental benefits. However, one green initiative cited by survey participants which is often overlooked as an opportunity for cost savings is the recycling (48%) or reduction (47%) of packaging materials.

Packaging has a significant impact on the environment. In some countries product packaging represents up to 30% of household waste. There has been significant focus in recent decades on consumer recycling programmes to increase re-use. There have also been additional efforts to minimise the case and pallet level packaging used in warehousing and transport functions. Reducing packaging lowers costs in several ways. First, there are fewer materials which need to be purchased. Second, smaller dimensions and lower package weight enable more efficient warehousing and transport of the goods. For example, a smaller packaging footprint may enable higher density and increased load rates during transport.

Transport

The most popular green transport initiative was route optimisation (44%) to reduce “empty miles.” Other popular initiatives included reducing expedited shipments (44%) via air freight, reducing truck idle time (36%) and migration towards more aerodynamic trucks (9%). Perhaps the two most promising areas are alternative transport modes (27%) and new engine technologies (11%).

An increasingly popular alternative to land-based trucking is short sea shipping, which refers to transport of goods on the sea but between end points on the same continent. Over 40% of all freight moved in Europe occurs via short sea shipping. Similar coastal approaches are popular in Australia, Japan, Korea and increasingly China. Sea shipping provides numerous benefits, including alleviation of congested motorways and decreased air pollution. In many cases, short sea shipping also provides lower costs and faster transport of goods.

A variety of new engine technologies (advanced internal combustion, hybrid-electric, fully electric) and alternative fuels (compressed natural gas, biofuels and hydrogen) are emerging in the market, each with differing levels of increased efficiency and reduced emissions. The cost advantages of these new technologies vary depending upon factors such as the price of fuel and level of government tax incentives. Consequently, many CFOs have postponed investments in electrification due to concerns about how quickly the new technologies will be adopted and which ones will become the leader. However, major international freight and logistics operators such as UPS, FedEx and DHL have not waited. Each has announced programmes to use alternative fuels and new engine technology which



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studies confirm save up to 30 miles per gallon2. Corporates concerned about using their own capital to purchase electric vehicles can outsource to third-party logistics providers to gain the advantages of lower costs and lower carbon footprint while incurring significantly less risk.

Revenue Growth from the Green Supply Chain

The previous sections explained the many supply chain efficiencies and cost structure advantages to be gained through green SCM initiatives. However, many of the survey respondents also view green SCM as creating opportunities to strengthen brand equity and increase competitive advantage.

New Products

One of the biggest opportunities that exists is to launch new products which appeal to buyers seeking to reduce their carbon footprint. The consumer products industry has been one of the most successful with green products. Consumer packaged goods and food companies have introduced a variety of popular product lines such as compact fluorescent light bulbs, high efficiency detergents and organic fruits, vegetables and dairy products. An entire “clean tech” industry has emerged in the manufacturing sector to build energy generation, storage and infrastructure technologies to support renewable wind, solar and hydroelectric power sources. Telecommunications companies offer advanced video-conferencing, virtual events and telepresence suites to reduce the need for travel. Financial services companies have introduced electronic banking, electronic payments and credit cards with green rewards.

Market Share and Customer relationships

Increasingly, large buying organisations are factoring green considerations into purchasing decisions. An AT Kearney and the Institute for Supply Management survey in January 2007 found that 60% of

2 UPS 2009 Sustainability Report – A 12 month study of hybrid diesel electric delivery vehicles by the US Department of Energy’s National Renewable Energy Laboratory found improved on-road fuel economy of 28.9%.

figure 2: Three financial Benefits of green Supply Chain Management

Cost reductions

Reduced wasteLower energy consumption

Lower regulatory risk

revenue growth

Carbon credit marketNew product offerings

Premium pricing

Competitive Advantage

Strength of brandAvailability of capital

Growth of market share



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corporates had deselected suppliers for failing to meet sustainability criteria3. Large multi-national corporations, particularly in the US and Europe, are focused on building strong brands based upon corporate social responsibility. Government ministries concerned about public opinion have also adopted sustainability mandates. Suppliers to these large organisations that lack green products or sustainability programmes risk loss of market share and customer revenues.

The Carbon Credit Market

New carbon trading markets, which are emerging around the world, offer an opportunity for corporations to monetise the benefits achieved through sustainability programmes. Regulations limit a corporate’s right to emit pollutants to a specified quantity. If an individual company is not able to make the necessary reductions, they must purchase credits from another company via a carbon exchange. Conversely, if a corporate exceeds its target emission reductions it can trade credits with others for a financial gain. Buyers of credits are paying a financial penalty for not adhering to specified emission targets. Sellers receive monetary rewards for exceeding the government’s specified environmental goals. The largest carbon markets today are designed to facilitate the buying and selling of offsets for the EU’s Emissions Trading Scheme (ETS), but new “cap and trade” programmes are being implemented in Australia, New Zealand and other countries around the world. Carbon credits are becoming an increasing liquid instrument as new market participants such as hedge funds have begun to actively trade them in an effort to diversify their portfolios. The world’s largest marketplace, the European Climate Exchange, experienced an 82% year-on-year growth in volume in 2009, surpassing 5bn tonnes of CO2: equivalent to EUR68bn of trading.

Availability of Capital

A focus on sustainability is increasingly a factor in the availability of commercial loans. Consider the Equator Principles, which have been adopted by over 50 of the world’s largest banks, such as ANZ, HSBC, Mizhuho, Standard Chartered and Bank of Tokyo Mitsubishi UFJ. The Equator Principles apply to complex capital projects, such as the construction of power and chemical processing plants, mines and transport, environmental and telecommunications infrastructure. Prior to loan approval, projects are assessed for social and environmental impacts. Projects which pose a high or medium risk may require loan covenants to ensure compliance with the sustainability principles.

A growing percentage of investors take the view that companies which embrace corporate sustainability are best positioned for long-term shareholder value. Investors believe that these companies are best positioned to capture the market potential for products and services based upon sustainability principles. Furthermore, investors anticipate less downside as these companies are proactively managing risks associated with environmental or social developments. Several stock market indices have been created to rank socially responsible corporations, such as the Dow Jones Sustainability Index and FTSE4Good. The indices are utilised by certain asset managers who are increasingly focused on sustainability as a factor in portfolio strategies. For example, large pension funds that manage retirement assets for public sector employees are tending to avoid investments in companies with potential environmental issues or human rights violations. The trend is noteworthy, as these socially responsible investors have some of the largest amounts of capital to invest.

3 AT Kearney and the Institute for Supply Management - True and Profitable Sustainability Management http://www.ism.ws/files/SR/SustainabilityReport.pdf



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CFOs seeking to raise capital in the global markets or commercial lending segments may find that the demand for their new debt or equity offerings is increasingly dependent upon their sustainability position.

To download a copy of the Global Supply Chain Council study, visit www.supplychains.com.

To learn more about Green Supply Chain Management, visit www.greensupplychain.com.

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The Power of Technology


In the last 10 years, there has been a visible trend towards electronic payments in most countries in the Asia-Pacific region. The increasing use and development of electronic payments helps to improve the

efficiency of the entire financial system by improving liquidity and cash visibility throughout the supply chain as well as reducing the cost of processing cash payments via traditional channels.

Traditionally, for commercial transactions between one business and another (B2B) and between businesses and consumers (B2C), payment portals and direct connection channels have been used extensively. Now, the speed with which mobile technologies are being adopted shows no sign of relenting. According to the International Telecommunications Union, in 2007 there were three times more mobile telephone subscribers than fixed-line users1. In developing countries, even people without bank accounts often own mobile phones and have incorporated them into their way of life.

With strong mobile phone penetration rates and large rural populations, Asia-Pacific’s emerging markets offer abundant opportunities – especially for transactions access to the “unbanked”. The recent introduction of authorising payment transactions, account enquiry and bill payment services on smart phones by banks in Asia Pacific is a recognition of the “app-based” innovation in the market today. This is making it easier for businesses to make their payments. Payment access through Apple’s iPad, Dell’s Streak and other tablet computers cannot be far away.

Innovation in Electronic Channels

The introduction of breakthrough electronic channels in the last few years has also spurred innovation. For example, to bring banking services to villages, telecommunications entrepreneur Anurag Gupta distilled a bank branch down to a smart phone and a fingerprint scanner. A bank representative goes directly to a village and sets up shop. Savers line up and give an identification number, have their fingerprints scanned and then deposit or withdraw small amounts of rupees. The transactions are recorded through the phone and the representative later visits a bank branch to pick up or drop off rupees as needed. Indian banks are already using this system to open millions of new accounts – 22 banks across 21 states, including the State Bank of India, have already opened 3.7 million accounts, with a target of 80 million by 2011. The system is called Zero, after what Mr Gupta says is India’s most important innovation – the number zero – which many believe was invented by Indian mathematician Aryabhata in the sixth century. The Zero system is already helping Indian construction workers in Bahrain open bank accounts and send money home.

1 http://www.itu.int/ITU-D/ict/statistics/ict/index.html

• Electronic payments continue to evolve, improving convenience, visibility and risk management.

• A number of channel innovations are changing the payments landscape. Their adoption in the corporate environment will further improve visibility and efficiencies.

• Speed, security and standards are the core factors driving innovation.

• Corporations can take advantage of this change through a structured move towards electronic channels.

Anand Mukati, Senior Vice President, Client Integration & eDelivery, Asia Pacific, HSBC, Hong Kong

The Changing World of Payment Channels



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The key aspects of innovation are increased speed of execution of payment transactions and improved convenience to customers who did not previously have any means to make such payments. Speed in making payments, from acquisition through to the settlement of funds to the beneficiary account, is determined by multiple factors. Payment acquisition has outgrown the bricks-and-mortar banking environment and moved to other channels, reaching out to customers at their convenience. Customers can now originate payment instructions, which flow immediately into a bank’s back-office system. Where before, access was restricted to a desktop computer in the office, this has changed to smart phone applications from banks that allow for the authorisation of payments and balance and account enquiries. The access and convenience that these channels provide have been critical factors in changing the way customers organise their payments.

Thinking Ahead

Looking to the future, the very nature of innovation will need to be rethought. Most people equate innovation with technological breakthroughs, embodied in revolutionary new products that are taken up by the elites and eventually trickle down to the masses. But many of the future electronic channel innovations will consist of incremental, but significant, improvements to products and services that enhance speed and access.

There are three areas where channel innovation is likely to take place: through customers who might look to other providers to help build their connectivity options; through sellers of enterprise resource planning (ERP) systems who are using their industry and process knowledge across numerous projects to build best practice into their systems; and through ERP sellers who are including integration tools within their systems that seamlessly link with the SWIFT network. As customers demand more robust and standardised electronic communication between their financial management systems and their banks, ERP sellers are streamlining banking communications into a single, efficient channel that makes payments and deposits to the customer accounts simple and direct.

Another potential area of innovation is the use of existing technology in imaginative ways. The use of mobile phones and tablet computers to provide anytime, anywhere access to customers’ financial systems is already well under way.

In India, Tata Consultancy Services is looking at using mobile phones to connect televisions to the Internet. Personal computers are still relatively rare in India, but televisions are ubiquitous. The company has designed a box that connects the television to the Internet via a mobile phone. It has also devised a remote control that allows people who have never used keyboards to surf the Web. The new product, called Dialog, has immense potential for retail businesses and small and medium-sized enterprises to reduce their use of cash and improve the collections cycle by introducing a completely new electronic channel to communicate with banks. Consumers can connect their mobile phones to televisions in retail outlets and directly transfer funds without the need for cash.

Another existing but underused electronic channel is SMS (short messaging service) for sending texts via telecom operators. Research firm Gartner says global sales of standard mobile phones stood at close to 315 million units in the first quarter of 2010. This compares with just over 54 million smart phones sold in the same period. If SMS payments and collections were used, vendors could invoice their customers electronically and follow up with an SMS message asking for payment. Confirmation of the message could trigger a transfer of funds from the bank, which, once the funds are received, sends remittance information back for reconciliation.



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Security and Standards

Customers, technology sellers and banks will, however, need to keep two key things in mind when considering channel innovations: security and standards. Security is closely linked to a customer’s use of an electronic channel. Trust and confidence in payment channels is of particular importance in ensuring mainstream usage.

Because a payment system is an external interface to a customer’s internal core applications, there are more security challenges. The use of industry-strength security protocols with electronic channels builds trust and confidence. Banks that can offer secure solutions that are easily deployed with minimum integration will become market leaders. For regulators, maintaining confidence in the payment system is of paramount importance. Regulators across the Asia-Pacific region want to ensure that an adequate security infrastructure is built into the national payments systems. Systems that suffer from compromises in security could lead to financial management problems in key institutions in the payment system, which in turn could spread instability throughout the wider financial system.

On average, companies integrate as many as 10 proprietary electronic banking systems to transfer information between their financial applications and their banks. These systems may use widely different protocols and data formats, which often results in an overwhelming amount of complexity and system maintenance that drives up the cost of electronic banking for companies. Introducing a standards-based access point for managing customers’ electronic communications with multiple banks is therefore critical.

Reacting to Innovation

The centrality of cash within a business raises the importance of innovative changes in systems – and their increasing use within the business community. Payments innovation can be traced back to 1999 when the first breed of payment providers, such as PayPal, Netella and WorldPay, were launched. The impetus behind these payment platforms was the rise in B2C transactions, coupled with new and consumer-centric methods of meeting the need for fast and convenient online payments. Momentum has increased in recent years due to further innovation and the launch of platforms such as Google Checkout and Bill Me Later. With these, a steady increase of B2C technologies within the B2B space can now be seen.

Customers need to re-engineer business processes to reduce operational costs. Streamlining payments, either though centralisation or a payments factory, ensures the optimised use of resources. Integrating corporations with banks through “closed user group” channels or other secure alternatives will enable banks to automate procedures from origination to processing and for inward payments from reception to settlement and finality of payment.



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Benefits of Innovative Channels

reduced Costs

With the use of improved electronic channels, customers can expect to reduce costs. Reductions in staff and the use of paper are two of the most prominent areas of cost reduction. Printing and stationery costs can also be significantly reduced, while at the same time the overall administrative burden of managing large quantities of paperwork is less.

Simpler Payments

Moving to electronic channels can simplify the payment process by streamlining operations. Efficiency gains are also achieved through the easy identification of billing errors and other inconsistencies within the payment process.

improved Cash Visibility

Treasury managers have a better visibility of their cash across countries where they operate. This helps them with cash pooling and reduces their overdraft burden, further reducing costs. Having real-time access to cash positions, treasury managers are also better placed to make cash forecasts.

fewer Errors

Having an efficient payment process and improved visibility of the overall cash position in a business has the added advantage of reducing the number of errors in the process. Approvers of transactions are in a better position to validate them and reduce the occurrence of fraud within the entire process.

figUrE 1: Customer Transition roadmap

identify strategic objectives

identify payables/receivables

identify process improvements

Customers and vendors education

Planning and testing pilot

Business as usual (BAU)

Reduce costs.

Improve process efficiency.

Improve cash visibility.

Checks paid/received in-house.

Checks paid/received from vendors and customers.

Checks paid for tax.

Map processes.

Perform value-add (VA) / non-value add (NVA) analysis.

Redesign the process.

Terms and conditions definition.

Communication for migration.

Collection of bank and other information.

Pilot countries.

Testing plan.

User entitlements.

Fraud management.

User and production testing.

Roll-out to all countries.

Post-Implementation review.

Confirmation of achieving strategic objectives.



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Other Advantages

The move from paper to electronic procedures will go a long way to building a sustainable and environmentally responsible company. According to Pay It Green, a non-profit alliance, paper cheques require more than 500 million gallons of fuel and 342,325 tonnes of paper over the course of a year in the US alone.

Having a structured process in the move to electronic channels will help customers have a clear understanding of the strategic objectives and how these will be achieved during the migration process. In addition, customers will be in a position to help with the transition to an efficient automated process by participating in a value analysis. It is pointless merely to automate what was already an inefficient process.

The transition process also ensures that customers give adequate thought to risk management and controls in the payments process. Preventing fraud by managing user entitlements and access controls will ensure that customers are compliant with regulatory bodies as well as mitigating any fraudulent action by erring employees.

Conclusion

The world of electronic channels is changing rapidly. Specialisation and innovative use of existing technologies is driving customer behaviour towards process efficiency, reduced costs and better visibility of cash positions across regions. However, adapting this innovation to suit corporate customers will be a key determining factor in its adoption. Security, standards and regulatory changes will also make a key difference in the adoption of newer and enhanced channels.

Customers will need to align their strategic objectives with each channel they use and ensure that these are met as implementation progresses. The huge potential demonstrated in the B2C marketplace provides the B2B world with a blueprint for progress, a world driven by growth in global e-commerce.


Corporate mobile devices are multi-channel, highly secure, always available and broadly deployed. By leveraging these devices, the next generation of mobile-based services can serve corporate

banking customers, and specifically treasury officers. To do so, such systems will need to move beyond payment-based services and provide broad-based capabilities. This article examines the mobile treasury and cash management services banks can offer, and what measures banks can take to ensure the success of their services.

Mobile Devices as a Banking Channel

Financial institutions worldwide are beginning to make aggressive forays into the mobile space. Mobile devices provide the customer with easy access to important information and services, while simultaneously shifting traffic away from more expensive banking channels (that is, the call centre and branch). Furthermore, a number of functionalities make mobile an attractive channel in a financial services environment: The continuous availability of mobile devices makes them perfect for receiving payment alerts and

authorising payments whilst on the move (especially important in a disaster recovery scenario). Mobile devices can provide users with a second-factor security measure to support a traditional

online password. Location-awareness features offer supported services like ATM (automated teller machine) and

branch locators, as well as location-aware deals and discounts. Remote deposit capture functionality provides the ability to electronically capture and deposit a

cheque using the mobile device. This saves time and offers convenience for both the customer and the bank.

Customers can use their mobile device to view and approve bills. Invoice presentment and approval is particularly useful for regularly used services.

• Corporate customers already use mobile phones for many internal functions and banks can leverage this to provide corporate mobile banking services.

• In terms of treasury, mobile devices are a very good fit for providing cost-effective and differentiated services around authentication, work flow, information delivery and risk management.

• Banks, however, need to overcome corporates’ concerns regarding security, control and functionality, if corporate mobile banking is to grow.

• Banks can learn from technology companies to develop ways of handling security and scalability issues to ensure adoption of the mobile channel for their corporate customers.

Krishna K Ayyalasomayajula, Associate Engagement Manager, Banking and Capital Markets Practice, Infosys Technologies Ltd; Yogesh P Mishra, Senior Principal, Infosys Consulting; and Shaji Farooq, Vice President and Head of Banking and Capital Markets Practice, Infosys Technologies Ltd, US

Mobile Banking for the Corporate Treasury



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Currently, development in corporate mobile banking has been limited to payment-based services or mobile versions of web portals. Examples of these include the SMS (Short Message Service) alerts sent by HSBC’s Business Internet Banking system for deposits/withdrawals, and Wells Fargo’s CEO Mobile, which is a mobile-optimised version of the company’s CEO (Commercial Electronic Office®) portal.

The Case for Mobile Corporate and Treasury Services

The adoption of mobile banking by corporate clients is still at a nascent stage. An erroneous perception about weak security, concerns about a lack of IT control over data and features, absence of well-developed functionality, and an inability to display large amounts of information on a small screen have stifled innovation in this space. However, this is now changing. With the growing use of mobile devices as a business tool, many corporate customers are warming up to the “on the go” convenience of mobile banking. According to a survey1 by research firm TNS, 40% of the executives surveyed are willing to consider mobile banking, while only 4% are currently using a mobile banking solution. Also, corporate customers are looking at a wide variety of features to be available on their mobiles (see Figure 1). This gap between willingness to use mobile services and low adoption presents an opportunity for banks to innovate and provide mobile banking services that differentiate them from their competition.

In contrast to consumer mobile devices, corporate mobile devices have some inherent advantages that make them an appropriate channel for the deployment of financial services: Mobile devices are widely available to corporate customers and already widely deployed by the

target users of treasury services. In the corporate world, there tends to be high adoption of single platform mobile services within a

company, which make it easier to use standard applications. Corporate smartphones are by nature multi-channel devices supporting corporate e-mails,

messenger services, short messaging services and voice. This multi-channel system can be leveraged to provide multi-factor authentication, which in turn provides a more secure communication link than other consumer devices (e.g. a laptop computer).

1 “Forty Percent of Middle-Market Banking Executives Would Consider Adopting Mobile Banking Solutions for their Business”, survey by TNS http://www.tns-us.com/news/new_survey_finds_forty_percent.php

Source: TNS

figUrE 1: features of Mobile Banking Most helpful for Business

Don’t currently use,but would consider

Don’t currently use andwill not consider

Viewing recent transactions

Transferring funds

Receiving alerts on account activity

Stopping payment on cheques

Getting statements/checking of account history

Making payments

General information such as weather updates, news

Loyalty-related offers

Managing Investment

Real-time stock quotes

None of these



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Many corporations already deploy internal applications on their smartphones for tasks such as approvals and expense management, which has helped create familiarity with conducting business activities using corporate mobile devices.

Banks can therefore leverage the power of ubiquitous, highly secure, multi-channel corporate mobile devices to build new or augmented corporate banking services. Moreover, treasury services have some key features which are a very good fit for enablement through mobile channels: Treasury products are generally used by senior managers of an enterprise who are already equipped

with corporate mobile devices. These individuals have in the past been targeted for other sophisticated business-to-business

channels, such as the Internet, and are comfortable dealing with the bank through such remote channels. (Bank of America, for example, provides its CashPro Online service for corporate customers.)

The banks’ IT functions have already been working with the IT departments of their commercial customers to jointly provide web-based and client-server solutions for treasury services.

The value and impact of these treasury products is very high. Consequently, easy availability of real-time information around these services is expected to have a high-client impact.

Some of the services for treasury products such as cash management services and lockbox status management have approvals and alerts as key needs, which can be easily met by a smartphone.

From a feature and availability perspective, mobile devices are capable of providing treasury services. However, the perceived challenges surrounding the level of security and inadequate corporate IT control need to be suitably addressed if mobile treasury services are to develop. Often this perception of a lack of security is not directed at the mobile devices themselves but at services not controlled by corporate technology and security groups. For this reason, some companies are building enterprise-specific mobile applications while restricting third-party applications. We believe an opportunity exists for banks to work with their corporate customers to leverage their customers’ internal enterprise networks in order to provide multiple mobile-based services.

What Banks Should Offer Around Treasury Services

Smartphone adoption continues to increase, as do the needs of treasury services customers. Moving forward, it is very likely that mobile banking services will become an important consideration for corporations selecting their financial services providers. Consequently, banks need to leverage the mobile banking channel to provide a multitude of treasury services. Below are some of the treasury functionalities banks should offer to their corporate clients: Augmented authentication: The mobile can be used as a channel to augment authentication on other

channels such as the Internet and voice. For example, the mobile can be used for password resets of the web portal. SMS (Short Message Service) tokens can be sent via mobile to verify transactions processed on other channels. The multi-channel features of smartphones can be used to send e-mail alerts with a link to secure web pages.

Enhanced work flow: Mobile devices can be used to provide approvals and other actionable services as part of certain processes. For example, services such as transaction approvals can be easily enabled through mobile devices

Information delivery: One of the challenges in providing mobile services to corporate customers is the amount of data that needs to be displayed. However, by creating mobile-optimised dashboards, information such as daily and weekly liquidity management reports, cash positions, balances, float



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and account activity can all be delivered to ensure corporate treasurers can make investment and borrowing decisions on the move.

Risk management: Real-time transactional alerts, limit breach alerts and fraud alerts can also be provided on mobile devices for corporate users, helping them manage risk better.

What Banks Need to Do to Succeed

Bank treasury services for corporate customers can be provided in multiple ways. They fall into two main models: Mobile portal and dedicated mobile application model: Banks are optimising their web portals for

access through smartphones, and/or developing applications with built-in security features (such as digital certificates) that can be deployed on smartphones of corporate customers. In this solution, a bank owns and controls the service and data delivery. The service and data delivery is through the usual mobile channels. This model is an extension of the consumer mobile services model.

Mobile application-based cooperation model: In this model banks work with their customers’ corporate IT and use their customers’ secure channels for information and data delivery.

Though it is more efficient and cost-effective for banks, we believe that success with the first model will continue to be a challenge due to the perceived problem of security and control. By adopting the second model banks are likely to have more success in providing mobile treasury products. This model meets security concerns while providing corporates with more control over the delivery of services, without stifling innovation or creating huge management overheads. However, there are challenges that need to be overcome in the cooperation model, as outlined below.

Creating Secure Data Links

The bank needs to ensure that there is a secure link available for clients to use to send data to the end-user in real time through their corporate IT channel. The bank will have to develop secure interfaces and set well-defined policies, which clients’ IT departments can use to develop applications. To begin, the bank can provide a “starter set” of applications for their clients to use until their own corporate applications are developed.

Ensuring Scalability

One disadvantage of the cooperation model is that it could necessitate custom solutions for each corporate client, which would create challenges of scalability for the bank. Technology solutions would have to be developed in a modular way so that scalability does not become an issue.

The model can be made successful by the sharing of costs between the bank and the client, with both parties developing and reviewing each other’s applications following a set application development review and approval framework. The applications can then be developed and deployed to provide real-time access to the bank’s systems while ensuring adherence to corporate security policies.



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This model has been successfully deployed by companies such as Apple and PayPal with third-party application developers.2

Managing Support Cost

In the past banks have tried to set up bank-to-client connections through dedicated portals. However, these were expensive from a support cost perspective. The application-based approach, however, has been proven to be a low cost-to-serve model by companies such as Apple, as applications do not need a high level of customer servicing. Customer service needs would be mainly transaction-based, which is no different from the support that banks currently provide.

Managing Platform Variability

As each client could potentially choose a different mobile enterprise platform3, banks would have to create offerings to accommodate this variability. Fortunately, mobile applications in the corporate world are heavily weighted towards two platforms – BlackBerry and Windows Mobile4, which reduces the platform variability that banks have to accommodate. By sharing the responsibility of application development with the clients, banks can further manage platform variability.

Conclusion

By implementing a business architecture that can support the development of third-party applications built on well-defined standardised interfaces, banks can create a mechanism for providing mobile services for corporate users. PayPal has demonstrated the success of the third-party approval model in the financial services industry, and Apple and Android have shown remarkable accomplishments in the mobile market. By bringing together initiatives from these success stories, banks can provide secure services at an accelerated pace to their corporate customers.

2 For more information about application development for Apple and PayPal respectively, see developer.apple.com and www.paypal.com.

3 These include BlackBerry developed by Research in Motion (www.blackberry.com); Android developed by Google (www.android.com); iOS 4 developed by Apple (www.apple.com/iphone/ios4/) and Symbian developed by

Nokia (www.symbian.org). 4 Windows Mobile is currently being phased out by developer Microsoft. In its place will be a new platform called Windows

Phone (www.microsoft.com/windowsmobile/en-us/default.mspx).


Since the Society for Worldwide Interbank Financial Telecommunication (SWIFT) introduced corporate connectivity in 2002, more than 650 corporates have connected to the service and these numbers

continue to grow significantly every year.1 SWIFT corporate connectivity has become an important facilitator for corporates to achieve greater efficiency and control in payment initiation and liquidity management. It is no longer only an option for global corporates operating a shared service centre or payment factory; it can benefit a wide range of corporate clients. Using SWIFT to initiate payments and receive account information enables them to integrate SWIFT into their treasury management systems and reduce reliance on proprietary bank platforms.

In 2009, the pattern of continuous growth in annual traffic volumes for SWIFT was slighty interrupted, reflecting conditions in the industry. However, corporate involvement continued to rise in terms of the number of firms joining as well as the traffic volumes generated. With initiatives such as Alliance Lite, smaller corporates are finding it easier to make use of SWIFT both operationally and from a cost perspective. Corporate involvement has been spreading geographically, too. This has been most notable in the US, where a number of well-known Silicon Valley companies such as eBay, Google, and Cisco have found the SWIFT value proposition convincing. The same is true in Asia, where the appetite for a standardised, bank-agnostic financial communication platform is growing steadily. This is partly a result of

1 For more information about SWIFT and the products and services mentioned in this article, see www.swift.com.

SWIFT for Corporates: What’s Next?

• SWIFT corporate connectivity is an increasingly important solution for standardised corporate-to-bank communication, showing significant uptake, particularly in the US and Asia.

• The much-anticipated SWIFT solution for Electronic Bank Account Management (EBAM) went live earlier this year. This solution aims to simplify and automate the opening, closing and maintenance of bank accounts.

• Trade for Corporates enables banks to offer their corporate customers a proven and global multi-bank platform and standard in support of trade and supply chain flows. Banks and corporates now have a single channel for exchanging standardised corporate to bank trade data.

• SWIFT Secure Signature Key (3SKey) is designed to help authenticate received data, such as payment instructions, at the level of the individual (e.g. a specific representative in the corporate’s treasury department).

Caroline Lacocque, Head of Client Intergration Consulting, Global Transaction Banking, Asia Pacific, HSBC, Hong Kong



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the global financial crisis, which has brought about a surge in the use of message reporting. Achieving improved visibility on cash positions has been a key priority for corporates, especially for those who lacked such visibility during the crisis. One of the first things new SWIFT corporate customers take advantage of is the ability not only to receive end-of-day statements and timely, high quality information on their intraday positions, but also to integrate this information into their applications.

Counterparty risk has also gained a level of importance unknown before the crisis, given that the crisis actually caused some banks to fail. After years of treasurers trying to reduce the number of their banking partners and centralising treasury operations, having all their eggs in one basket no longer seemed such a good idea, particularly if a company is locked into a bank’s proprietary electronic banking solution. Corporates want easy access to multiple banks. Furthermore, to mitigate counterparty risk, they need to have a flexible channel in case they need to quickly switch or add banks.

New Initiatives

To make its offering more complete SWIFT is undertaking a number of new initiatives that will ease the administrative burden on corporates in dealing with their financial service providers. There is a strong corporate appetite for Electronic Bank Account Management (EBAM) and, although developments in this area are at an early stage, SWIFT’s EBAM messages have already been accepted as ISO standards. HSBC has been involved since the early stages of this initiative.

In a related project, SWIFT launched a pilot programme for its digital identity solution (3SKey), with a view to going live with this solution by the end of 2010. Four banks, nine corporates and seven vendors are currently involved.

There is also good news on the trade and supply chain side. Banks and corporates now have a single channel for exchanging standardised corporate-to-bank trade data. Trade for corporates now covers 43 flows for Import and Export Documentary Credits, Guarantees and Standby Letters of Credit. This more than doubles the original offering made available in December 2008. Further details on these new developments and initiatives are given below.

Electronic Bank Account Management (EBAM)

While payment processes have largely been automated, bank account management remains surprisingly manual for most corporates. This is a real issue for banks as well as customers. In response to requests from the SWIFT community, SWIFT has developed standards for Electronic Bank Account Management (EBAM), which can be accompanied by electronic attachments where necessary and transported securely over SWIFT’s content-agnostic file transfer mechanism, SWIFTNet FileAct.

The standards cover four key areas: account opening, closing, maintenance and reporting. Fifteen XML messages have been developed to cover the scenarios envisaged. Account opening messages are designed for existing customers to open new accounts at their banks. To some extent, the ability to complete that process entirely electronically depends on local legislation. In some jurisdictions you still have to provide a copy of your identity card, but at least you can now exchange this in an electronic way. Account closing may at first sight appear to be a simple process, but it requires instructions on how to



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handle the remaining balance on that account. As for maintenance, SWIFT does not expect management of the normal characteristics of an account to generate huge volumes of traffic. By contrast, SWIFT expects mandate maintenance messages to be widely used. These cover issues such as: who can sign up to what threshold, the combination of signatures required for higher thresholds and the types of transaction that only particular signatories can perform.

Trade for Corporates

Banks need to offer a multi-bank, multi-business facility to their corporate customers: a single channel for cash management, treasury and trade finance. This was the priority during the first development stage of trade finance flows in 2008, when the trade community – banks, corporates and vendors – was already very involved with SWIFT. Trade for Corporates enables banks to meet corporate customers’ needs in these areas. Banks and corporates now have a single channel for exchanging standardised corporate to bank trade data. Banks can also streamline their own operations, processing messages from their corporates on to the next bank in the chain with minimal handling. In turn, corporates already connected to SWIFT can leverage this investment using a single channel and communication standard with all their trade banks. They benefit by saving time and money, adding security and often easing compliance as they gain a centralised view of their trade transactions worldwide.

Supply Chain finance

The trend of open account trading, coupled with the growing stress placed on liquidity management, is spurring demand for banks to provide greater innovation in the world of supply chain solutions. An initial response to these changing market needs was the launch three years ago of the Trade Services Utility (TSU), which enables banks to establish a common view of supply chain transaction data and to monitor events from inception to completion. In 2010, the TSU was enhanced with the launch of Bank Payment Obligation (BPO) – an irrevocable undertaking given on the part of one bank to pay another, provided that a number of pre-determined conditions have been satisfied through the electronic matching of data within the TSU. The first live BPO transaction was issued by the Bank of China on 2 April, 2010. For BPO to achieve critical mass, however, it must provide the same level of assurance that trading counterparties associate with traditional documentary instruments. These have well-established and accredited guidelines, with dispute resolution procedures built around the Uniform Customs & Practice (UCP) published by the International Chamber of Commerce. A targeted accreditation process with the International Chamber of Commerce is now under way for BPO.

E-invoicing

A further area of corporate activity ripe for automation is the invoicing process. In November 2009 the expert group on e-invoicing established by the European Commission set out its vision for this area. Among other suggestions, its European Framework for e-Invoicing highlights the need to get small and medium sized enterprises (SMEs) involved in the drive to adoption. It encourages inter-operability through standardisation and calls for increased EU harmonisation of legal and VAT frameworks. Actions to implement these recommendations are expected from the European Commission later in 2010. The Euro Banking Association (EBA) has also organised a financial sector initiative around e-invoicing. In addition to a working group exploring ways in which the EBA and its community of members may contribute to pan-European solutions in electronic invoicing, it has also set up a Proof of Concept Group, where financial sector stakeholders have joined forces with non-bank e-invoice service providers. SWIFT, meanwhile, has initiated an e-Invoice Ad Hoc Group to explore how to exchange e-invoice messages over SWIFT’s network and how core SWIFT components can be used to support an inter-operable eco-system for e-invoicing.



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3SKey: Personal Digital identity

SWIFT Secure Signature Key (3SKey) helps authenticate received data (e.g. payment instructions) at the level of the individual (e.g. a specific representative in the corporate’s treasury department), rather than at company level.

When a bank interacts with their corporate customers through electronic banking channels, it may need to authenticate received data at the level of the individual(s) authorised to serve instructions to it. For example, a specific individual in the corporate treasury department must approve payment instructions. In practice, banks and their corporate clients must often manage and use multiple and different types of personal signing mechanisms (for example, multiple tokens with different passwords). Using and maintaining different authentication methods in parallel adds to complexity and leads to higher operational risk and cost. With the 3SKey solution, SWIFT supplies subscribers (typically banks) with PKI-based (Private Key Infrastructure) credentials for redistribution to their 3SKey users (typically, corporates). 3SKey users then use these credentials to sign messages and files exchanged with one or more 3SKey subscribers over any mutually agreed channel.

Conclusion

SWIFT for Corporates has become a global trend, not just for large corporations but for midcap companies too.

Promoting collaborative work and standardisation, HSBC is the leading bank in providing SWIFT corporate connectivity, with SWIFT FIN users in 35+ countries and SWIFT FileAct users in over 20. With the aim of providing corporates with the most efficient solutions, HSBC is involved in many SWIFT initiatives and corporate access advisory groups, such as the legal working group, and in areas such as XML early-adopters, EBAM and digital identity. HSBC is also active in SWIFT advisory groups ranging from trade finance and securities to standardisation in industry payments, as well as being represented at the SWIFT board level.


Hysan Development is a real estate investment, management and development company based in Hong Kong, operating in the office, retail and residential sectors. Its mission is to build, own

and manage quality properties and to provide premium accommodation and services to its occupiers. Hysan’s investment property portfolio comprises over four million square feet of high-quality office, retail and residential space. It is the largest commercial landlord in Causeway Bay.

Hysan is strongly committed to best practice in corporate governance. As evidence of this commitment, the company has won a number of Best Corporate Governance Disclosure Awards given by the Hong Kong Institute of Certified Public Accountants in recent years, including the top Diamond Award (Non-Hang Seng Index Large Market Capitalisation category) in 2009. It was also in the Top 5 Corporate Governance in Greater China and Top 5 Corporate Governance in Asia-Pacific categories of the IR Global Rankings 2009.

The 2008 global financial crisis put the spotlight on treasury operations worldwide. This article offers a summary of Hysan’s core treasury operations and a review of some of the current and evolving aspects of financial risk management and best practice in corporate governance.

Hysan’s Daily Treasury Operations

Hysan runs a corporate treasury department that performs a range of cash management, asset management and hedging operations in support of its core commercial operations and in compliance with a corporate strategy of keeping risk and return in balance. Its treasury activities are supported by an IT2 treasury management system (TMS), which has been in operation since 2004. Hysan introduced a TMS to eliminate unproductive data processing tasks and reduce errors. The company’s objective was to improve the quality and timeliness of management and operational reports and to provide complete audit trails for all treasury transactions. These efficiencies enable the treasury team to focus on its duties of financial risk management.

Hysan’s treasury activities are conducted by a team of six professionals. With the assistance of IT2, duties are clearly segregated and a system of checks and balances is maintained. At a high level, operations are focused on liability management, asset management and the hedging of market risk.

• Hysan’s investment property portfolio in Hong Kong comprises over four million square feet of high-quality office, retail and residential space.

• The company is a regular award winner for best practice and is ranked among the top organisations in the Asia Pacific region for corporate governance.

• Hysan uses an IT2 treasury management system to support its treasury operation and as a control and reporting tool.

• The company believes that effective counterparty risk management should be a permanent component of corporate treasury best practice.

David Woo Kar Wai, General Manager, Corporate Treasury, Hysan Development Co. Ltd., Hong Kong

Financial Risk Management in a Hong Kong Corporate Treasury



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Liability Management

Hysan’s liability management operations are centred on generating dependable finance across the maturity spectrum. The instruments used include loans of various tenors, bank facilities and the issuance of medium-term notes. The company uses IT2 to capture the information and to manage any specific features, such as fixed-rate, floating-rate or zero coupon. Each principal and interest flow can be modified individually to tailor it to meet specific requirements, either by changing the date or amount or adding additional flows where relevant.

Asset Management

In terms of asset management, Hysan invests in bank deposits – both plain and structured – and in bonds, equities and bills. The company uses its TMS to derive the expected cash flows from its various investments and to keep track of credit exposures to all counterparties. With this information, the treasury is able to generate budgeting and forecasting reports to determine the cash-flow picture and manage the organisation’s liquidity accordingly.

hedging Operations

The third core operation of Hysan treasury is hedging market risk, in accordance with the treasury’s policy to balance risk and return prudently and effectively. The instruments used for this are interest-rate swaps and cross-currency interest-rate swaps. It also uses some foreign exchange forwards and forward-rate agreements for hedging purposes.

figure 1: iT2 Dashboard of interest rate Exposure hedging Management*

*The data shown in the sample reports and processes is for illustrative purposes only and is not related to Hysan’s financial activities, exposures or positions.



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reporting

The key management and operational reporting generated from Hysan’s TMS includes: a daily maturities report; a hedging report (including cash flow/fair value hedge disclosure); interest accruals; and a credit exposures report.

figure 2: Position Analysis Workbench*

Other Treasury Operations

Other important treasury operations include treasury accounting and hedge accounting. IT2’s nominal ledger module is linked to the SAP enterprise resource planning system for the export of accounting journals relating to interest accruals, mark-to-market valuations, treasury cash flows and hedge accounting generated by the TMS.




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Risk Management

As Hysan’s corporate treasury policy has evolved, a series of risk management processes has been developed and implemented as a central element of managing risk and return in compliance with corporate governance requirements. Hysan currently divides risk analysis into the following categories: counterparty risk; currency risk; country risk; liquidity risk; and price risk.

figure 3: iT2 integrated Accounting Process Map*




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Counterparty risk

Hysan defines counterparty risk as the risk of the company incurring a loss as a result of the default of a counterparty that has: issued, endorsed or promised to pay on maturity for a security in which Hysan has invested; or accepted a deposit from Hysan; and/or entered into a hedging activity with Hysan with expected future cash flows.

The first two occurrences would naturally expose Hysan to principal loss, or at least to delay in repayment, with negative consequences for liquidity. The primary general effect of the third class of default is that it means that a hedge is eliminated, and so the original exposure risk is restored.

Other forms of risk

Hysan also analyses exposures to specific countries, currencies and geographic regions, restricting permitted exposures within the boundaries of treasury policy. It also analyses and manages liquidity risk to ensure that it maintains sufficiently diverse financing sources to ensure access to any necessary funding. Finally, the company is of course exposed to market price risk in its bond and equity investments, which it manages in line with the requirements of its treasury policy.

Counterparty risk Management

Hysan’s treasury policy requires that the total counterparty limit for individual counterparties be set according to the credit ratings assigned to them by the international rating agencies Standard & Poor’s, Moody’s and Fitch. Company policy defines total counterparty exposure (TCE) as the sum of: original principal of investments (e.g. deposited amount), plus current credit exposure of outstanding hedges (i.e. the positive mark-to-market values), plus potential future credit exposures (possible future exposures based on tenor, notional amount and

instrument type).

Which produces the formula: TCE = investment + mark-to-market values (positive) + potential future exposures.

The role of Technology

As mentioned, Hysan uses an IT2 TMS to support its treasury operation and as a control and reporting tool. The information stored in the database may be used to check limit availability for different counterparties before dealing, to help avoid the risk of actually breaking a counterparty limit. In the course of the deal input workflow for all classes of instrument, the system updates the counterparty exposure automatically. Additionally, the system calculates the mark-to-market value together with the potential future exposure (using a self-set formula). This, together with the investment amount, derives the TCE.

The system also acts as a controlling tool: as the counterparty limits are maintained within the system, if a deal is detected that would lead to breaking a limit, a warning signal will be automatically issued and additional authorisation will be needed to process the deal. All of this is logged on the audit trail and can be reported to management. If there is a change in counterparty limits, Hysan’s treasury can execute an instant scan to check whether counterparties are above their limits, so enabling the team to decide promptly on required follow-up actions.



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Conclusion

Analysis of the financial crisis has led some treasuries to review the use of more market-sensitive risk indicators to supplement classic counterparty credit ratings. For example, the US-based Association of Finance Professionals recommends the use of credit default swap (CDS) spreads as an additional, fast-moving tool to monitor changes in counterparty creditworthiness. Although there may be concern about its liquidity and representation, this is something that treasuries with relatively high levels of financial exposure should perhaps be considering in addition to the use of credit ratings.

The increased importance and visibility of counterparty risk management will not diminish even as the financial crisis fades into history: effective management of such risk is a permanent component of corporate treasury best practice operations.


As the internal processes of businesses become more sophisticated and the options for connecting with bank systems more numerous, it is increasingly evident that the integration between the

technology environments of corporates and banks is the weak link in the end-to-end processing of core financial transactions. No matter how detailed the information that is stored in a bank or corporate system, the information becomes worthless if it cannot be exchanged completely and consistently.

For some time, bank-to-corporate integration has been a key focus for HSBC, SAP1 and SWIFT2. Despite a broad range of integration solutions, each of our three organisations recognised that the existing integration capabilities could be enhanced. In particular, we wanted solutions that would work seamlessly with those of our customers and facilitate efficient processes both within and beyond our own organisations.

While not every corporate banking customer uses SWIFT to connect to their banks, HSBC recognised that SWIFT had become the industry standard for bank-to-bank and, increasingly, bank-to-corporate connectivity. SWIFT has an extensive footprint across corporate functions such as cash management, trade, foreign exchange and asset management. HSBC therefore decided to work with SWIFT and SAP, a leading provider of enterprise resource planning (ERP) systems, to develop a fully integrated environment for financial processing with host-to-host or SWIFT connectivity embedded within the clients’ SAP environment.

1 For more information about business software provider SAP and SAP’s applications, see www.sap.com.2 SWIFT (Society for Worldwide Financial Telecommunications) is the cooperative organisation created to facilitate the

transfer of information and payment/advice instructions between member banks, securities organisations and corporate customers. For more information about SWIFT and SWIFT Corporate Access (mentioned later in this article), see www.swift.com.

• Treasurers and finance managers require an end-to-end solution for financial processing that is convenient, secure and robust.

• To fulfil this need, HSBC, SAP and SWIFT collaborated to produce HSBC Connect to SAP, which provides a fully integrated environment for financial processing with host-to-host or SWIFT connectivity embedded within the clients’ SAP environment.

• As one of four customers currently using HSBC Connect to SAP for their live operations, STATS ChipPac Ltd. now enjoys a 30% cost saving annually as well as enhanced processing efficiency.

• The second iteration of HSBC Connect to SAP will provide an even stronger value proposition and ease of implementation, and will support multi-bank connectivity.

Charles Henry Dubarry de Lassale, Global Transaction Banking, HSBC Bank plc, UK; David Campbell, HSBC SAP Global Account Executive, SAP UK, and Michael King, Global Client Director for HSBC, SWIFT.

Collaborating to ImproveCustomer Connectivity

Collaborating to Improve Customer Connectivity


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A Collaborative Approach to Connectivity

Each of our three organisations constantly strives to enhance services to its customers. Because all three partners were leaders in their respective fields, we knew that collaboration was logical and had the potential to create the innovative, secure and easy-to-use financial processing environment that would lead to greater customer satisfaction. Given that many SWIFT and HSBC customers use SAP solutions as their ERP platform, we were confident that there would be considerable demand for a fully integrated, streamlined connectivity solution based on SAP.

The result of this collaboration was HSBC Connect to SAP. Based on the SAP NetWeaver® Process Integration (SAP NetWeaver PI) technology, which provides the capability for integration with external banking tools, HSBC Connect to SAP involves a wide range of banking connectivity services, as illustrated in Figure 1.

Source: HSBC, SAP and SWIFT

figure 1: Banking Connectivity Services included in the hSBC-SAP-SWifT Partnership

Payment Services:• High-value

payments (inter and intra-company)

• Bulk or batch payments

• Cheque outsourced services (COS)

• ACH• Account statements

(intraday)• Acknowledgements• Automated

reconciliation (ERP to bank and vice-versa)

• Payments monitoring and exception handling

• Support for connectivity to service bureaux, SWIFT, host-to-host, SWIFT Lite

• Support for multiple banks

• Support for payments factories and centres of excellence

• Personal digital identity

Treasury Services:Cash management• Streamline process

through confirmation, matching, settlement

• Electronic Bank Account Management (EBAM)

• Support for in-house cash

fx management• Automated

reconciliation to AP/AR• Streamline

process through to confirmation, matching, settlement

Trade finance:• Automated processing

of letters of credit, guarantees

• E-invoicing• Payments and

receivables financingfactoring:• Processing of factoring

and reverse factoring transactions

• Etc

Asset Management:• Automated processing

of funds transfersregulatory reporting:• Audit reporting

Phase 1

Phase 3

Phase 2

Banking Services Roadmap –A Journey Towards a Richer Service Portfolio



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Four customers now use HSBC Connect to SAP for their live operations, with a single environment combining internal processes and bank connectivity to support financial processes from end to end.

Having introduced a wide range of services through HSBC Connect to SAP, we further expanded the depth and scope of our integration. With an increasing number of businesses using SWIFT Corporate Access to connect with their banks, it was important that we developed the same quality of client experience irrespective of whether a client uses HSBC’s proprietary bank connectivity tools (such as HSBC Connect) or SWIFT. We also wanted to cater for businesses with multiple banking relationships. Consequently, the second iteration of HSBC Connect to SAP is currently being designed to provide an even stronger value proposition and ease of implementation. For example, the new version will support multi-bank connectivity as well as advanced HSBC-specific services.

Another major development in the new version is the transition from the SAP-proprietary tool SAP NetWeaver PI to SAP Banking Communications Management. This has a variety of advantages, including the ability to be developed in a consistent and controlled manner using industry-standard payment formats. By leveraging this solution in combination with SAP In-House Cash and SAP Treasury, clients gain the benefit of an all-encompassing, multi-bank solution for optimising corporate treasury and cash management processes. Furthermore, by blending HSBC’s knowledge of banking services with SAP’s technical expertise, we can quickly add new services in accordance with evolving customer demand. For example, while initially HSBC Connect to SAP supports cash management services, these will quickly be supplemented with the additional capabilities outlined in Figure 1.

Proven Benefits

Maintaining, accessing and connecting multiple systems are key obstacles to efficiency for many organisations. The HSBC Connect to SAP pilot programme has demonstrated how these obstacles can be overcome. Pilot participants have cut integration costs by half and enjoyed a rapid payback of their remaining project costs. They also improved process efficiency substantially, while reducing the need for staff training. Security, integrity, and consistency of data have all been enhanced, enabling timely, automated payments processing and reconciliation.

An Ongoing Collaboration

Corporate treasurers and finance managers need an end-to-end solution for financial processing that is convenient, secure, and robust, supported by business partners that they trust. Consequently, the market response to the first iteration of HSBC Connect to SAP has been very positive, with a high degree of interest in the second version.

In particular, clients have been encouraged by the depth of the collaboration between HSBC, SAP and SWIFT and our ability to deliver joint services that are integrated with our individual business functions at both a technical and a business level. Each has a solid business case with measurable successes and tangible benefits, including reduced costs for integration and client implementation. This strong business case, combined with our ongoing commitment to enhance the convenience and quality of the corporate banking experience points to a long and proactive collaboration.



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ERP Integration for LiquidityOptimisation at STATS ChipPAC

STATS ChipPAC Ltd. is a leading service provider of semiconductor packaging design, bump, probe, assembly, test and distribution solutions. Headquartered in Singapore, the company’s manufacturing facilities are located in various locations across Asia, with a test pre-production facility in the US.3

Tham Kah Locke, Vice President Corporate Finance, STATS ChipPAC Ltd., describes the implementation of HSBC Connect to SAP as part of the company’s cash and liquidity optimisation strategy.

The business environment has undergone significant changes in the past two years. Like many corporates, STATS ChipPAC was seeking to optimise its liquidity management by enhancing visibility and control over cash flow. With 89 accounts in 46 banks across seven countries, achieving efficient bank connectivity and effective integration was key to our long-term cash management strategy.

Prior to the implementation of the new strategy, the existing in-country approach to cash and liquidity management resulted in a fragmented approach to electronic data transmission to and from the banking partners. Although we have electronic payment interfaces from SAP to our banks in some locations, the data flow was typically one way. The time and cost associated with processing invoices and making payments differed in each location, and our processes typically included a significant amount of manual input and reporting. Consequently, the implementation of a more integrated cash and liquidity solution led to opportunistic cost savings in IT and finance.

hSBC Connect to SAP

Having evaluated the capabilities of various potential banking partners, we found our strategic fit with HSBC. We recognised that the bank’s newly launched HSBC Connect to SAP solution would be an efficient way of leveraging our existing investment in SAP, and would enable us to achieve straight-through processing, transparency and control over the payments process.

As standardisation at a global level was an important element of our strategy, the solution included conversion from SAP IDoc to XML-based ISO 20022 payment formats,4 which allows enriched data and consistency across our locations. The solution would require less IT support than our existing fragmented systems, further reducing costs, and we recognised that as manual payments processes were reduced, our staff would have more time to dedicate to other value-added activities.

3 For more information about STATS ChipPAC, see www.statschippac.com.4 Idoc (Intermediate Document) is an SAP format for transferring the data for a business transaction. ISO 2022 is

the standard set by the International Organisation for Standardisation (ISO) to provide the financial industry with a common platform for the development of messages using XML (Extensible Markup Language), the standard language for machine-to-machine communication across the Internet.



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Implementing the Solution

It took around three months to implement HSBC Connect to SAP across seven countries, with a further three months to fully align our internal infrastructure, such as vendor master database records and SAP account codes to facilitate auto-data transmission and reconciliation. HSBC supported STATS ChipPAC throughout the process with a dedicated team of integration and implementation managers. The bank also provided full transition management services throughout, including thetechnical installation of SAP Netweaver PI along with configuration and testing of the HSBC Connect to SAP solution. In addition, it helped us meet our SAP ERP challenges and offered expert guidance on streamlining payment processes and automatic reconciliation in each of the countries included in our project. HSBC also facilitated our Sarbanes-Oxley5 compliance audit for the HSBC Connect to SAP solution.

The Solution in Practice

The process of transmitting and receiving data is now fully automated and standardised across our business. Payment files in SAP are transmitted automatically through HSBC Connect for processing as soon as the appropriate approvals have been obtained, without the need for manual upload of payment files, and the boundaries between SAP and HSBC are seamless to our users.

Balance and transaction reporting is also retrieved in a timely and comprehensive fashion, giving us visibility of cash across the business and, as we use standard formats, we can now reconcile a very high percentage of payments and collections automatically, which are then posted automatically in SAP.

Addressing the Challenges

Inevitably, a project of this scale and complexity brings challenges and lessons learned along the way. From an implementation standpoint, management commitment is essential to project success. Having secured management sponsorship, a clear and disciplined approach to project management is essential, but there needs to be flexibility to deal with unexpected challenges. A project of this nature is likely to be unfamiliar to most project participants, so the banking partner’s full support is vital to provide advice and fill knowledge gaps. We needed to make sure that our staff understood fully how new business processes and technology would operate in practise, and ensure sufficient training to optimise efficiency, productivity and staff satisfaction.

For a multinational business, ensuring that payments processing is conducted according to local market practice in each country of operation is essential. Therefore, when implementing standard payment templates, there needs to be flexibility to include custom data fields to satisfy local requirements. Local clearing mechanisms and cut off times should also be observed. Again, the right banking partner is essential to provide expertise on local regulatory requirements and conventions, and adapt the standard payment process to support these obligations. Differences across regions also extend to exchange controls, such as in China, Malaysia, Thailand, Taiwan and Korea. It is therefore important to involve tax and legal advisers to ensure that the proposed structure does not contravene exchange controls or tax rules in the relevant jurisdictions.

5 Sarbanes-Oxley refers to the “Public Company Accounting Reform and Investor Protection Act” passed in the US in 2002, setting new or enhanced standards for all US public company boards, management and public accounting firms.



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As we had been working with different banks in various locations, the implementation of HSBC Connect to SAP requires an extensive exercise to complete and standardise the input fields and validate the existing vendor database. The creation of custom test plans together with HSBC was essential to validate the alignment of our central database in support of the automation aspect of the project.

Achievements and Outcomes

The project at STATS ChipPAC has proved a major success. HSBC Connect to SAP has clearly supported our strategic objectives. Some of our achievements include:

Corporate visibilityBy consolidating our accounts with a single bank, the time and effort required to manage our banking relationship is greatly reduced and maintaining accounts is simpler. By using HSBC Connect to SAP, we have full visibility over accounts and payments within our SAP environment, enabling greater control over payment and cash management processes within a single environment.

Compliance and controlBy standardising payment processes across all locations, policies and approval requirements can be consistently applied, and our systems provide a full audit trail of user actions. This standardised approach, with visibility and control across the company, has been instrumental in ensuring good governance and internal control compliance.

Process efficiencyWe have reduced manual intervention in the payment process considerably and, with greater automation across the business, we have limited the risk of processing errors and increased the proportion of automatic reconciliation and account posting significantly. As we now have two-way communication with HSBC, we can obtain rapid information on payment status and timely information on account balances and transactions, enabling us to make more rapid cash management decisions.

Cost savings and productivity enhancementsWe have derived significant cost and time savings from implementing the HSBC Connect to SAP solution, which we have estimated at SGD500,000 each year. When added to the intangible benefits of the project, it has proved a highly successful initiative and provides our company with a foundation for our current and future cash and liquidity management requirements. Based on the success of the project so far, we are considering extending our infrastructure further into the collections process, implementing closer connectivity with our customers and further optimising the services that treasury provides.

“Collaborating to Improve Customer Connectivity” and “ERP Integration for Liquidity Optimisation at STATS ChipPAC” (which appears here as an excerpt) are also included in HSBC’s Guide to Corporate Connectivity.

Acquainted Again: Middle Kingdom and the Middle East


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UnlockingAsia’s Potential


At least they both have a genuine claim to Silk Road status. Unlike most of the ‘new’ Silk Roads cropping up in trade ministry press releases around the world, China and the Middle East can point

to the real thing: a shared heritage in the camels and the caravans that once linked the traders of the Near and Far East. But what about Sino-Middle Eastern ties today? Week in China (WiC) looks below at how they are developing.

For Silk, Read Oil…

Two-way trade tripled in the five years to 2009 to USD135bn. That leaves some way to go on predictions made three years ago by consultancy McKinsey (pre-financial crisis, admittedly) that bilateral flows would surge to at least USD350bn by 2020. The annual growth rate of around 9% needed to reach this figure looks achievable considering growth in the past decade has been over 20%, says Kersi Patel, Regional Head of Trade and Supply Chain for HSBC in the Middle East and North Africa.

Never a factor on the original Silk Road (but by far the most important driver today for bringing that McKinsey target into range) is oil, which makes up about 45% of the bilateral total.

China is already the largest importer of Middle Eastern crude but its consumption is predicted to grow from 8 to 16m barrels a day by 2030. Close to 40% of China’s annual energy imports already come from the region.

Acquainted Again:Middle Kingdom and the Middle East

• Trade ties between the Middle East and China are long-standing. Today they are stronger than ever, with oil imports to China contributing the lion’s share of trade growth. Sales of higher-value consumer goods and of capital equipment to the Middle East’s developing economies are also on the increase.

• While the Middle East has a small trade surplus over China, China has now replaced America as the top exporter to the region.

• Most of the purchasing power from the Middle East comes from thousands of individual traders, rather than governments or multinationals.

• The UAE, and Dubai in particular, are positioning themselves as the launch pad for China trade in the region. Many UAE traders expect to use the RMB for trade settlement in the near term.



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and Yemen were often the first port of call as Chinese refineries were then better configured to handle the low-sulphur content of their crude. But capacity has been upgraded over the last fifteen years, and Saudi Arabia and Iran are now China’s two largest oil suppliers in the region. Energy-related sales dominated the USD61bn of exports to the Chinese in 2009.

Co-investment efforts are ongoing: Saudi Aramco is the partner of Sinopec, the Chinese oil firm, in a USD5bn refinery in Fujian province, and the Saudi chemicals giant Sabic has a USD3bn petrochemical joint venture in Tianjin, which began operations in May.

And Chinese Exports?

Many of the Middle East’s oil dollars end up being spent on Chinese imports. China replaced the Americans this year as the top exporter to the region, but the Middle East maintains a small trade surplus.

Trade ties really began to deepen about ten years ago, says Ben Simpfendorfer, an author and former diplomat who has written widely on the theme of a new Silk Road partnership. He points to a couple of key trends (other than oil consumption) in bringing Sino-Middle East trade back to the boil after centuries of much slower burn.

The first was the impact of the September 11 terrorist attacks. The aftermath saw a cooling of relations between Middle Eastern states and their traditional partners in the West. This had commercial ramifications, and provided more elbow room for the Chinese to establish new links with Middle Eastern partners, and for trade talk to prosper.

Simpfendorfer illustrates the point simply. Shortly after September 2001, with the US focused on establishing a new Department of Homeland Security, Beijing began relaxing visa restrictions for various Middle Eastern nationalities. The message was that China was “open for business”, something which has been conveyed in the years since. China’s embassy in Cairo claims to issue visas to Egyptian citizens overnight, for instance. It takes the same nationals 18 days to hear back on visa applications for the US.

The second theme is that it was smaller, entrepreneurial businessmen who were quickest to grab the new opportunities. Yemeni, Palestinian, Egyptian and Syrian buyers were the first to travel to China in search of goods to buy for export. As such, it was thousands of individual traders (rather than governments or multinationals) that reignited Silk Road contact.

One city in particular has prospered. Yiwu is a relatively small town in the Chinese context, about four hour’s drive from Shanghai (for more see WiC9). But it has become a commercial crucible for the new era in Silk Road trade, attracting thousands of Arab buyers to its warehouses and exhibition halls.

Astonishingly, Simpfendorfer says that Yiwu now welcomes more Middle Eastern visitors than the entire US.



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True, Yiwu has made its name selling smaller wholesale lots of cheap consumer items. Think DVDs, cigarette lighters and transistor radios. Much of the growth in Chinese goods sold in the Middle East has come from similarly low-priced items, like clothing and home electronics.

Of course, large volume can still make this trade significant. Yiwu’s authorities claim the city did almost USD8bn of business in 2009, the vast majority with developing markets.

It also pays not to belittle smaller beginnings: Chery Auto, a leading Chinese carmaker, says that it was contact with a Syrian car dealer that pushed it into its first real export experience.

According to a McKinsey Quarterly interview with Chery CEO Yin Tongyao, the company had no immediate plans for export when it was first approached by the Syrian dealer in 2001. And with no international experience, it nearly turned down his request for just 10 cars for export.

The year after, the dealer was back, buying a hundred more vehicles. And the year after that, he wanted a thousand. Gradually, buyers in Iran and other neighbouring markets began to show interest and Chery had its Middle Eastern “breakthrough,” says Yin.

Chery now operates joint venture assembly plants in Egypt and Iran, and other Chinese automakers are following its export example. All are still to make significant inroads in international markets. But Syria, Egypt, Iraq and Iran are at the top of the list as the pioneers in their sales strategy.

Imports of other higher-value products are also on the up, says Patel from HSBC, which has a strong presence in eight of China’s top 10 trading partners in the Middle East and North Africa. In part that is because Chinese brands are becoming better known. Haier, a white goods manufacturer, is now one of the most respected in the region.

Sales of capital equipment are also increasing. Patel’s example is the Union Railway: a USD11bn transport scheme aiming to link all seven emirates of the UAE, which plans a phased roll out starting in 2013.

The first phase of the project is freight-focused and will link gas fields to processing facilities and ports. But the full 1,500km network will include lines extending from Abu Dhabi through the other emirates of Dubai, Sharjah, Umm Al Quwain, Fujairah, Ras Al Khaimah and Ajman. The eventual goal is to connect the UAE to Saudi Arabia and Oman.

In May, China’s Railways Ministry signed a deal with local officials to plan, develop and build the network. The Industrial and Commercial Bank of China is expected to provide financing and export credits, and Patel sees this as a good indicator that other Chinese corporates will bid on the engineering and supply contracts.

This financing-driven strategy looks like it’s becoming more commonplace. A similar scheme was in the news in August, when the Oman Shipping Company announced that it will buy new tankers to ship iron ore from Brazil. The vessels will be manufactured by Jiangsu Rongsheng Heavy Industry Group, with financing from China’s Export Import Bank.



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One market looking to prosper from Chinese exports is the UAE (and Dubai in particular). HSBC’s Patel says that the UAE, now the third largest re-export centre globally behind Hong Kong and Singapore, continues to invest in its trade related infrastructure, and has positioned itself as the launch pad for Chinese commercial activity in the region.

In part that’s because Chinese firms are already more active in the UAE than elsewhere, especially after the various booms in infrastructure and real estate in the emirates over the past 10 years. There were thought to be at least 150,000 Chinese nationals in the UAE before the Dubai debt crisis gripped the financial markets in late 2008. Many of them originally hail from Wenzhou, generally regarded as one of China’s most entrepreneurial cities. Despite the downturn, most have stayed on.

Dubai also boasts its own equivalent of China’s Yiwu – DragonMart, a 150,000 square metre wholesale depot offering another gateway for sales of Chinese products. Opened in 2004, it claims to be the largest trading centre for Chinese goods outside mainland China itself, and features thousands of suppliers of appliances, household items, building materials, furniture, toys, garments, textiles and footwear.

Trade flow looks like it’s continuing to pick up. Importers and exporters from the UAE were the second most optimistic from 17 countries surveyed in the most recent HSBC Trade Confidence Index released late last month. That meant that their expectations of trade prospects over the following six months were higher than anyone bar the Indians.

Admittedly, confidence had slipped slightly on the previous survey (from six months ago). But it still came in well above the global average and UAE has consistently been in the top three most optimistic countries since the surveys started in early 2009. Also, the Greater China region featured as a commercial partner for UAE traders more frequently than any other except the rest of the Middle East (almost half of respondents expected to do business with the Chinese, versus 30% with the US and 26% with the UK).

The HSBC Trade Confidence Index had another key insight. Among UAE traders, 6% expected to start using the renminbi (RMB) for trade settlement purposes in the six months ahead. Patel’s team has already geared up to support such transactions, with the first RMB-denominated trade deal completed in late September, between Royal Furniture Group, one of the largest furniture firms in the UAE, and its Chinese suppliers.

HSBC expects as much as 30% of China’s annual trade with the region to be settled in RMB within five years, says Patel. So the Royal Furniture Group deal looks like the first of many.

Back to the Silk Road For Lessons…

So much for the future. For Silk Road specialist Simpfendorfer, we should also be looking at the past to see how trade ties between the Chinese and the Arab world are going to develop.

Much is relatively new, of course, especially the oil flow. But traders are also uncovering ancient patterns in trade



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Traders from Yemen’s Hadramawt region were among the first to arrive in the city in large numbers. Which was true to form: the Hadramis, from the tip of the Arabian Peninsula, have sailed Asia’s oceans for centuries as merchants.

It’s a single example of the Silk Road’s enduring relevance, and a heritage that looks like it’s resurfacing as the global economy rebalances.

Others are picking up on a similar theme, although always to promote a modern-day agenda. One of China’s poorest regions – the Ningxia Hui Autonomous Region – was in Dubai last month as part of a government-sponsored trip. It announced that it would be investing in a sales complex in the city, to promote exports of textiles, agricultural products and halal foods. Ningxia is home to many of China’s Hui Muslim minority and its representatives made much of the bolstering of “centuries-old” relationships.

Editor’s note – the Greater China / MENA trade data quoted above is from the IMF’s official statistics.

Reprinted courtesy of Week in China. HSBC clients can comment on this article by scanning this barcode.

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The corporate cash management landscape is changing across the globe, but it is arguably in Asia that the most profound developments are taking place. Exponential growth in the region and increased

emphasis on working capital management are spurring a new and more integrated approach to cash and treasury management.

New Approaches toCash and Supply Chain Management

Asia has come a long way since the 1997 Asian financial crisis. The significance of the region to the global economy is growing, fuelled by strong domestic and intra-Asia growth. According to a report by Deutsche Bank in September 2010 on “The widening growth gap”, Asia (ex-Japan) is forecast to grow at 8.8%, compared to 4.3% globally.1

Despite Asia’s relative resilience during the financial crisis, treasurers are not letting their guard down. Priorities have changed and working capital management, together with greater sensitivity to counterparty risk and the long-term sustainability of key trading partners, is increasingly critical for corporate treasurers. Managing the treasury requirements of Asian subsidiaries from offices in Europe or the US is also becoming less viable due to the lack of uniformity in practices in Asian financial markets. These changes are taking multinational corporations (MNCs) to a new level of maturity with respect to managing cash in Asia, as concepts such as payment factories and shared service centres become increasingly common.

Consequently, a new and more sophisticated approach to cash and supply chain management is taking shape – one that is characterised by the fusion of the physical supply chain with the financial supply chain and the need to re-engineer existing cash management arrangements in order to deliver further efficiency gains. MNCs, at the centre of this emerging financial ecosystem, play a critical role in supporting the activities of smaller counterparties such as suppliers and distributors, who are now part of an extended working capital cycle.

1 Deutsche Bank’s Emerging Markets Monthly on “The Widening Growth Gap”, 10 September 2010

• Asian gross domestic product growth is outperforming the global average. Against this background, cash and treasury management is becoming increasingly innovative.

• Changes in the management of working capital are most evident through the fostering of mutually beneficial arrangements between buyers and sellers.

• Technological developments enable process re-engineering. This, in turn, gives corporates greater control over their working capital.

• Offshore trade settlement in renminbi is a significant step towards renminbi globalisation and one that will benefit both buyers and sellers.

Mahesh Kini, Head of Cash Management Corporates, Asia Pacific, Deutsche Bank

A ChangingApproach in Asia

A Changing Approach in Asia


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ial Trends and Changing Attitudes

This new financial ecosystem marks a change in attitude towards managing working capital and relations with smaller counterparties such as suppliers and distributors. The zero-sum approach – one party’s loss is another party’s gain – is gradually being replaced by the financial ecosystem approach, in which the key focus is business sustainability through mutually beneficial agreements.

Benefits for MNCs■ Better payment terms/ pricing■ Improved working capital effectiveness■ Integrated accounts payable process

Benefits for suppliers■ Additional source of funding■ Acceleration of accounts receivable at favourable rates■ Timely funding■ Debt and days sales outstanding reduction (DSO)■ Increased ability to source trade credit

This, in turn, is contributing to growing demand for innovative financial supply chain management solutions in the region. Supplier financing is one such solution: it works on the principle of an extended working capital cycle involving the buyer, sellers and even distributors. On the one hand, sellers gain access to favourable receivables financing, leveraging their buyer’s strong credit standing. At the same time, buyers are able to maximise supplier loyalty and negotiate better settlement terms to fit their underlying cash flows. This translates into enabling the parties in a trading relationship to strengthen their balance sheets, as well as optimise key performance metrics such as days payable outstanding (DPO) and days sales outstanding (DSO).

Source: Deutsche Bank

figure 1: The New financial Ecosystem

MNC

Partner Bank

Partner Bank

Distributors Suppliers

Supplier financing

Process re-engineering

Favourable financing

Favourable financing

Improve DSO and DPO

Improve DSO and DPO



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ialAlongside this shift in attitude is treasurers’ escalating interest in process re-engineering, which focuses

on streamlining existing procedures and structures to further maximise cost and operational efficiency. In particular, they are attaching great importance to banking products and services that will give them real-time access to account information and automated reconciliation. To help corporates replace their manual receivables reconciliation process with an automated system for immediate reconciliation, banks are using mobile devices to capture information at point of collection, which will help corporates reduce their DSO and collection risks, as well as giving them greater control over their working capital. In India, where the majority of payments and settlements are cheque-based, such developments are vital for MNCs in improving their risk management and overall efficiency.

In the area of receivables, another such re-engineered process is to assign a payer identification code (Payer ID) to each payer. Instead of quoting their credit account number, payers quote their Payer ID when initiating payment, which enables corporates to match incoming credits against payers with certainty. This accelerates the collection cycle and improves time-consuming reconciliation processes.

From a treasury management point of view, Asia will remain a highly fragmented market, with different currencies and legal jurisdictions and few harmonisation initiatives such as those found in the European Union. As a consequence, cash management in the region will remain complex and multi-currency structures that allow the straightforward consolidation of positions across the region are expected to be favoured by MNCs.

The Renminbi Trade Settlement Programme

Developments in the cash management landscape typically reflect larger economic trends and changes in trading patterns, such as escalating intra-Asia trading volumes. A key development over the past two years is the roll-out of the renminbi (RMB) offshore trade settlement programme by Chinese regulators. The programme, announced in mid-2009, marks a crucial step by the Chinese government towards its long-term goal of RMB globalisation. Some market observers also anticipate the RMB playing an ever bigger role in Asia as intra-Asia trade continues to soar. On the whole, the scheme is one to closely monitor now that China has overtaken Japan as the world’s second largest economy.

Under the scheme, eligible enterprises in China are now allowed to settle transactions with their corresponding global enterprises in RMB, instead of having to convert into USD. The expansion of the scheme’s scope from five test cities and 400 designated enterprises during the pilot stage is testament to its success. Since its roll-out, demand has been strong and volumes have steadily grown. According to the Hong Kong Monetary Authority (HKMA), the volume of RMB trade settlement in December 2009 reached RMB1.36bn, a significant increase from the cumulative amount of RMB115m in the first four months of the scheme. 2

The scheme will benefit both buyers and sellers. For example, a corporate buying from China could theoretically look forward to more transparent pricing and payment terms from their counterparts in China due to reduced foreign exchange and administrative procedures. The programme will also facilitate further growth into the Chinese market by expanding the pool of buyers and sellers that corporates can work with. In addition, corporates will have access to a different funding currency. On the other end, corporates selling to China are expected to benefit from potential future appreciation in the RMB, as well as access to a larger potential pool of Chinese clients with limited access to foreign currencies.

2 As mentioned in the HKMA report” Briefing to the Legislative Council Panel on Financial Affairs” on 1 February 2010.



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ial rMB Liberalisation favours hong Kong and Other regional Markets

Hong Kong, being the largest RMB centre outside China, is taking the lead in cultivating RMB financial products and services in Asia as demand continues to escalate. First, the HKMA has reduced the complexity involved in opening RMB accounts, making the process very similar to that experienced when opening regular Hong Kong dollar accounts. Second, mainland banks and authorities now bear sole responsibility for verifying each transaction under the scheme, instead of Hong Kong banks. Third, the HKMA now permits RMB-denominated loans and other financing, a measure which should gradually increase RMB circulation in Hong Kong, as well as pave the way for expansion of the local RMB-denominated interbank market.

Apart from Hong Kong, China is also taking active steps to introduce the RMB to a number of countries on a bilateral basis. It recently signed bilateral currency swap agreements with Korea, Singapore, Malaysia, Belarus, Indonesia, Argentina and Iceland, as well as Hong Kong. This is expected to provide more opportunities for intra-Asia and cross-regional activities involving the currency.

In the case of Singapore, international banks such as Deutsche Bank have increased their RMB offerings as a growing number of corporates express interest in opening RMB accounts and issuing letters of credit in RMB to settle trade in the currency.

Conclusion

Central to the success of a business is a robust treasury management strategy that enables it to maximise operating and cost efficiencies. Today, advances in technology have empowered treasurers in new ways, including approving transactions on the go, providing real-time access to account information and automated reconciliation. With the growing importance of the region, and businesses pulling out all the stops to reap maximum benefits from the recovery, it is vital that treasurers continue to evaluate their existing strategy with their partner banks to stay ahead of the competition.

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It is often said that a crisis should be seen as an opportunity (alongside the misinterpretation that the Chinese character for “crisis” is a combination of those for “danger” and “opportunity”). While the

saying has long been echoed by motivational speakers and has become something of a cliché, reality does sometimes support the idea.

During the recent global economic crisis, markets fell sharply, followed by a credit crunch, a lack of liquidity, and recession. The bursting of the sub-prime bubble revealed the reality behind the economies of developed countries – extremely leveraged corporates and individuals, loose financial regulations and a banking system exposed to high-risk financial instruments, that were once top-rated.

While developed countries were pouring trillions of new money into the market in a battle to stimulate their economies and keep their banks alive, emerging countries, with much less indebted economies, high international reserves accumulated through the bonanza years and strong or booming local consumer markets, honoured their label and truly emerged. Brazil and China are two of the most visible examples, having shown strong resilience in the recession to place themselves, along with other emerging economies, as the leading drivers of global economic activity.

Over the past 20 years, Brazil has carried out a quiet transformation by stabilising its economy, consolidating fiscally responsible policies and democratic institutions, accumulating international reserves and lifting some 20 million Brazilians from poverty and allowing another 32 million to move up into the A, B and C socio-economic classes.1 China, in its turn, has made use of its centralised economy, powerful state-owned enterprises and impressive international reserves to boost local consumption in addition to setting a foreign exchange rate for the renminbi that works in favour of its products’ competitiveness worldwide. Thus it has experienced a booming gross domestic product (GDP) for almost two decades and, overtaking Japan, emerged this year as the world’s second largest economy.

1 Data from several studies for 2003-08, published by Marcelo Neri, Director of the Social Policies Centre of Fundação Getúlio Vargas.

• Following the global financial crisis, emerging economies are set to lead world growth for some years ahead and further stimulate South–South trade.

• Latin American trade with Asia has been based on imports of manufactured goods and exports of commodities. This pattern is expected to continue, with the rise in Brazil–China trade flows a visible example.

• Some 90% of Brazilian exports to China are commodities, emphasising how the trade relationship between the two countries has developed, with Brazil being an agricultural powerhouse and having vast mineral resources and China needing basic raw materials.

• Growing ties between Brazil and China, including foreign direct investment in Brazil and acquisition of stakes in existing Brazilian corporates, are expected to further stimulate the flow of commodities to China.

Paulo Silva, Manager, Structured Trade Finance, and Eric Striegler Head of Trade & International, HSBC, Brazil

Brazilian Commodities Fuel Boom in Ties with China and Asia



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ial Yes, developed economies still account for most of the world’s GDP, but while trying to solve their own

problems they have left the field open for the much less troubled emerging economies, which have led the world’s economic growth since early 2009. This reversal of roles is now an economic reality, with the Organisation for Economic Co-operation and Development (OECD) forecasting that developing and emerging countries are set to account for 60% of the world’s GDP by 20302.

The Latin America–Asia Trade Relationship

While developed countries used public debt to provide huge financial bailouts and stimulate their economies, fiscally they deteriorated significantly, with soaring debt-to-GDP ratios and even more alarming debt-to-revenue levels. Emerging nations with their resilient economies, however, took the opportunity to enhance ties among themselves and prepare for further increased trade flows.

For example, China, which needs to feed its local industries and its domestic market with raw materials, seems to have found the perfect match in Brazil, an agricultural powerhouse with lots of arable land, vast mineral resources and on track to have grown 7.5%3 in 2010. In terms of the increase in bilateral trade between the two countries in the last couple of years, they are set to be one of the world’s strongest post-crisis trading partnerships.

Bilateral trade between Latin America and Asia, two important poles of emerging economies, is typified by Latin American countries exporting mainly commodities and importing mostly manufactured goods. According to the United Nations Economic Commission for Latin America and the Caribbean (ECLAC), Latin America and Asia had already increased their trade flows and deepened their economic ties before the 2008 crisis.

In 2007 and 2008, worldwide trade flows expanded by some 15%, reaching USD32.6tr, but fell by 23% during 2009, according to the World Trade Organization.4 Emerging economies did not go unscathed during this period. Asia trade flows decreased by 18.9% and South and Central American flows dropped by 24.5%. In addition, commercial integration between Latin America and Asia was hit and export growth from the former to the latter slowed from mid-2008 when compared with the two previous years, according to ECLAC.5

Importantly, fears that the 2008 crisis would lead to increased protectionism and hence to a long-lasting reduction in trade were not realised and worldwide commerce has been able to bounce back, posting important increases during 2010, mainly on the back of the performance of emerging economies. And Asian demand for commodities has not contracted as much as its demand for manufactured goods, providing support for commodity exporters such as Brazil.

2 “Economy: Developing Countries Set to Account for Nearly 60% of World GDP by 2030”, OECD, June 2010. See OECD’s web site, www.oecd.org.

3 According to the International Monetary Fund’s World Economic Outlook, October 2010.4 From the WTO’s online statistical database, stat.wto.org.5 “Latin American and Asia-Pacific Trade and Investment Relations at a Time of International Financial Crisis”, Division of

International Trade and Integration, ECLAC, June 2010. See ECLAC’s web site, www.eclac.org.



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ialThus it is no surprise that the latest HSBC Trade Confidence Index6, published in September 2010,

shows that emerging markets continue to drive global trade confidence and that Brazil is one of the most confident countries, with an index of 122, significantly above the global average of 116. In terms of international trade, Latin America is the most confident region globally.

Brazilian Exports

In 2001, Brazilian exports7 reached USD55bn with commodities representing some 26% of the total. Seven years later, the country’s exports had expanded to USD198bn with commodities accounting for 36.9%. Exports in 2009, affected by the crisis, dropped to USD152bn, but 2010 year-to-date figures show a significant rebound and are already at USD89bn, or less than 2% below the same period in 2008, with commodities’ contribution expanding again to 43.4% of total exports.

The Brazil-to-Asia flow of goods has long been dominated by commodities, which, in 2000, represented 42.4% of Brazilian exports to Asia. Since then, the figure has risen impressively, reaching 59.5% in 2007 and 71.5% so far in 2010.

In 2006, Asia was only the fourth major destination of Brazilian exports, accounting for 15.1% of total exports, behind Latin America and the Caribbean (LAC), the European Union (EU) and the US. Only three years later, Asia had become Brazil’s largest export destination and, as of June 2010, it accounts for 27.3% of Brazilian exports, an impressive 80.8% increase. Meanwhile, the US saw its share tumbling from 18% in 2006 to the current 10.1% (see Figure 1).

6 HSBC’s Trade Confidence Index survey covers a total of 17 markets – including key economies in the Asia-Pacific region, the Middle East, Latin America, the US, Canada and Europe. In the survey, 5,120 trade-oriented small and mid-market enterprises were asked about their six-month outlook on: trade volume; buyer and supplier risks; the need for trade finance; access to trade finance; and the impact of foreign exchange on their businesses. The results were used to calculate an index ranging from 0 to 200, where 200 represents the highest confidence level, 0 represents the lowest and 100, neutral.

7 Statistics on Brazilian trade flow in this article are provided by the Foreign Trade Department of Brazil’s Ministry of Development, Industry and Commerce (SECEX–MDIC). The 2010 year-to-date figures refer to the period from January to June, unless otherwise indicated.

Source: SECEX-MDIC. Compilation: HSBC.

2006

2009

June 2010

figure 1: Brazilian Exports by Country of Destination (%)

Asia EULAC US

15.1 25.8 27.3 22.8 22.1 22.2 21.6 18.0 10.3 10.123.3 23.9



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followed by the EU, Latin America and the Caribbean, and the US. Since then, Brazilian imports from Asia have risen to a current figure of 30.6% (see Figure 2).

Growing Ties Between Brazil and China

In the last couple of years, Brazil–China ties have notably increased. From 2007 to 2009 bilateral trade flow between the two countries increased by 58% to USD36.9bn (see Figure 3). Based on annualised figures, trade flow is estimated to increase by 14.8% in 2010 to USD42.4bn (USD22.8bn in exports and USD19.6bn in imports).

Moreover, in 2010, the growth rate of exports to China has outpaced the rate of Brazil’s total export growth – as of July 2010, China received 54.9% of Brazilian exports to Asia, up from 50.2% in 2009 and 43.8% in 2008.

This means that China has now surpassed the US as Brazil’s top trade partner while Brazil is now China’s 10th largest trade partner.

2006

2009

June 2010

figure 2: Brazilian imports by Country of Origin (%)

Asia LACEU US

25.0 28.3 30.6 22.0 17.9 17.8 17.3 16.2 15.8 15.022.9 21.3

*Annualised figure based on 2009 performance up to July.

Imports

Exports

figure 3: Brazil–China Trade flow (USD bn)

1999 2002 20052000 2003 2006 20082001 2004 2007 2009*

Source: SECEX-MDIC. Compilation: HSBC.

$22.8

$19.6

$10.7

$12.6

$16.4

$20.0

$21

$15.9

$6.8

$5.4

$8.4

$8.0

$1.1$1.2

$1.9$1.3

$2.5$1.6

$4.5

$2.1

$5.4

$3.7



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ialImports to Brazil from China focus on electrical devices such as televisions and radio parts, regular and

liquid crystal display screen components, fixed and mobile telecom equipment, circuit boards and light bulbs. But they are highly diversified, with no single category currently representing more than 4.9% of total imports (compared with 3% in 2009). The top eight import categories represent only 15.1% of total imports from China (14.2% in 2009).

Exports from Brazil to China are, however, highly concentrated, with the top seven categories being commodities. Out of that, the top four – namely, soybean and soybean oil; iron ore; crude oil; and eucalyptus pulp – comprised 80.1% of Brazilian exports to China in 2009 (and 87.8% as of July 2010). The top two categories – soybeans/soybean oil and iron ore – represent 37.9% and 30.2% in 2010 (33.4% and 34.7% in 2009). See Figures 5 and 6.

Source: Private Business Barometer, May 2009 Source: Private Business Barometer, May 2009

figure 5: Brazil–China 2009Exports Breakdown (%)

figure 6: Brazil–China July 2010Exports Breakdown (%)

Iron ore

34.7%Iron ore

30.2%

Soybean & soy oil

33.4%

Soybean & soy oil

37.9%

Others

19.5%

Others

10.9%Crude oil

6.6%

Crude oil

15.5%

Pulp

5.4%

Pulp

4.2%

Sugar

0.4%

Sugar

1.3%

During 2010, Brazil–China ties grew beyond trading in commodities, with soaring foreign direct investment (FDI), bilateral loans and mergers and acquisitions. According to the Brazilian Central Bank, although Chinese FDI in Brazil is still small (USD367m or 1.7% of the total), it has climbed by 760% compared with 2008.8 Chinese interests are also being established via bilateral loans (for example, the USD10bn China Development Bank and Petrobras agreement) and through mergers and acquisitions (for example, Wuhan Iron & Steel Group’s 21% stake in MMX Mineracao e Metalicos SA, a Brazilian mining company).9

What The Future Holds

The growing importance of Asia and China to Brazilian exports is, to a certain extent, changing the structure of Brazil’s trade balance as the country’s exports are becoming geographically more

8 According to the “Foreign Sector, July 2010” press release by the Central Bank of Brazil. See www.bcb.gov.br.9 For further information, see the following Bloomberg reports: “Petrobras Gets USD10bn China Loan, Sinopec Deal”, 19

February 2010; and “China’s Wuhan Steel to Pay USD400m for MMX Stake”, 30 November 2009.



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participation of iron ore and crude oil, exports of which strongly depend on global economic activity.

Yet the world still needs to eat, whatever the economic context, shielding Brazilian soft commodities exports (except for those not related to food, e.g. pulp). Moreover, Brazil’s economy is fundamentally insulated from global crises as they affect trade flows, as Brazilian exports currently represent less than 10% of its GDP (the five-year average is 11.9%).

On the macroeconomic front, while market participants do not expect any significant stressful events in the short term, the world economy is far from having fully recovered and issues still exist that could ultimately affect global demand and trade flows as well as exporters’ and importers’ performance and refinancing risk.

With Asia and China’s strong interest in securing a flow of Brazilian commodities, Latin America, “having weathered the financial crisis, now has an opportunity to join Asia in leading a global recovery”10. Brazil–Asia and especially Brazil–China trade flows are expected to increase more than proportionally when compared with overall trade flow figures.

Conclusion

In line with HSBC’s Trade Confidence Index survey, which suggests that momentum is clearly shifting to emerging markets and presenting an opportunity for new trade corridors, Brazil in the foreseeable future is likely to benefit from strengthened ties with China and Asia, and is likely to see enhanced demand from that region, further boosting its commodities exports and promoting trade finance opportunities.

In the corporate world, companies willing to take part in and benefit from these new trade corridors will need to establish stronger long-term partnerships with financial institutions that can be more than a product provider and act as a solution provider worldwide. Financial institutions, besides being global, will need to have a well-established presence in emerging markets and robust expertise in trade and commodity finance as well as being able to provide effective foreign exchange hedging solutions.

10 From “Welcome to the Latin American Decade”, article by Luis Alberto Moreno, president of the Inter-American Development Bank, published in the Financial Times on 6 July 2010.

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One of the many outcomes of the global financial crisis has been a significant shift in Chinese trade patterns. Historically, large Western buyers (such as retail chains) have to a great extent been able

to dictate pricing and terms to Chinese suppliers, who have been prepared to compete aggressively for their business. Western consumers have obviously benefited from this: in many cases they are paying no more in real terms for manufactured goods than they were 20 years ago. On the other hand, even during the benign economic conditions prior to 2008, Chinese manufacturers dealing with these Western customers struggled to maintain substantive gross margins.

However, as consumer confidence in many Western economies weakened dramatically in 2008 and thereafter, demand for manufactured goods from Chinese suppliers saw a commensurate decline. (For example, European Union imports from China fell by 13.4% in 2009.)1 Instead of further cutting their margins in order to attract such Western business as was still available, some Chinese manufacturers started to look for business elsewhere, particularly in domestic markets.

A further factor in the relative attractiveness of domestic markets is the lack of currency risk. The extension of renminbi (RMB) trade settlement does, of course, open up the possibility of being paid by overseas buyers in RMB, but this is typically a question of commercial leverage. If a foreign buyer refuses to pay in RMB then the Chinese supplier still has to carry the hedging cost/risk.

Domestic Markets

The numbers certainly seem to support the sense of this strategy. China’s trade surplus of USD83.93bn for the first seven months of 2010, while still substantial, actually represented a year-on-year fall of 21.2%2, suggesting that dependence upon exports to drive domestic growth was waning. This trend

1 For statistics on bilateral trade between the European Union and China see the Trade section of the European Commission website, ec.europa.eu/trade/.

2 Statistics released by China’s General Administration of Customs on 10 August 2010.

• Traditionally, Western buyers – especially large retailers – have negotiated from a position of strength when dealing with their Chinese suppliers.

• However, there are signs that this is beginning to change, as manufacturers in China become less willing to continually cut margins for the benefit of Western customers when more profitable domestic business is increasingly available.

• With the shift away from export markets, Chinese suppliers need suitable payment and financing instruments to cater to domestic trade.

• Trends suggest this need is being met by supply chain financing, digitalisation of drafts, improved trade documentation and an increased use of receivables payment solutions.

Christopher G Lewis, Head of Trade and Supply Chain, Greater China, HSBC, China

China’s Changing Priorities: Focus Shifts to Domestic Trade



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Representative of China, speaking at a Beijing forum on China’s imports and exports in September 2010 predicted that China’s domestic market would exceed its total exports in 2010.

Figures from the 2010 edition of the Business Blue Book issued by the Chinese Academy of Social Sciences3, also suggest that domestic consumption is rising strongly. From 2003 to 2008, China’s retail sales increased from RMB5tr to RMB10tr, but the Blue Book predicts that the country will require only two years to take retail sales from RMB10tr to RMB15tr.4 Recent economic data also offers some support for this prediction, with retail sales growth in August 2010 picking up to 18.4% year on year versus 17.9% in July.5

The visual evidence is also striking; even in inland cities thousands of miles from the coast, the wide availability of consumer goods and new restaurants is apparent. In addition, established chains and brands from Hong Kong are also moving into these cities in order to tap into the new domestic consumer opportunities, as are global brands such as Louis Vuitton.

In view of the opportunities presented by this increasingly attractive domestic market, it is logical that Chinese manufacturers would become less willing to continually cut their already low margins to satisfy Western buyers – who in any case have recently been a shrinking market for their goods.

While this shift has been most prevalent in sectors such as garment manufacture, where Chinese suppliers are dealing with US or European retail chains, it is also becoming apparent that higher value and more sophisticated products are also becoming involved. An increasingly common approach is to use technology transfers to drive domestic expertise, so that Chinese buyers are not dependent on imports for these products. For example, the state-owned train builders China North Car and China South Car have used this approach so that domestic demand for high speed trains can be satisfied by domestic production.

Government Support

A further incentive for manufacturers to switch their focus to the domestic market is that increasing domestic consumption is current government policy.6 A succession of speeches in early 2010 by senior government figures, including President Hu Jintao, Premier Wen Jiabao, and Vice Premier Li Keqiang, all referred to the need to transform the Chinese economy and the important role of domestic consumption in moving China away from being a predominantly export-led economy.Assorted measures implemented in the wake of the government’s initial 2009 USD586bn stimulus package show that these words are already being put into action. These include: A nationwide subsidy programme for the purchase of home appliances in rural locations; A home appliance upgrade plan; Subsidies on the purchase of small commercial vehicles (minivans and light trucks); A reduction in purchase tax on small cars; and Production subsidies to farmers on certain food crops, as well as subsidies for agricultural machinery

and farm construction.

3 “China’s Domestic Trade to Top USD2tr: Senior Official”, China Daily, 6 September 2010.4 “China’s Retail Sales Over RMB15tr in 2010”, China Retail News, 31 May 2010. See www.chinaretailnews.com.5 “China’s Major Economic Indicators in August”, report by the National Bureau of Statistics of China, 11 September 2010.6 “Chinese Domestic Consumption Is the Way Forward”, Seeking Alpha, 1 March 2010. See www.seekingalpha.com.



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ialFurthermore, the first phase of the stimulus package in 2009 was mostly directed towards infrastructure

projects.7 This proportion was reduced during 2010 with the emphasis instead being switched to spending on areas such as education and healthcare that encourage domestic consumption. Combining that with easier access to credit and lower domestic interest rates is expected to stimulate a fall of around 5% in the household savings rate over the next three years. (Historically, consumer concerns about rising education and medical care costs plus constrained credit access contribute approximately 30% to the high rate of savings.)

Finally, although not a formal stimulus package, the Chinese government also promotes domestic spending through designating long (typically five or more consecutive days) public holidays, typically twice a year, which allow workers more time to travel/spend.

Payments and Financing Keep Pace

In addition to the direct business-to-consumer space, China’s growing domestic consumption focus has a knock on benefit for domestic business-to-business (B2B) activity. However, this obviously creates a need for suitable payment and financing instruments and a number of trends suggest that this need is being quickly fulfilled.

Supply Chain

One important example of this is in supply chain finance, where larger Chinese buyers have noted the type of structures established by Western multinationals for their Chinese suppliers and are looking to replicate them domestically.

A major concern for Western buyers is ensuring that supply chain finance does not affect their balance sheet; for this reason, they seek solutions that are structured to ensure this. By contrast, Chinese buyers are less likely to focus on the balance-sheet implication of their supply chain financing solution because local auditors/regulators tend to be more flexible in their treatment of supply chain finance than their counterparts in the West. As a result of this distinction, Chinese buyers (apart from some of the very largest) are also generally more prepared to agree to an element of risk participation in their financing solution.

Drafts

Another important development in the domestic B2B payment space relates to bank-accepted drafts (BAD) and commercial accepted drafts (CAD). These are issued by banks and corporates respectively to sellers in order to guarantee payment, but can only be issued in relation to a bona fide trade transaction. Therefore, sellers in receipt of a BAD or CAD that they wish to discount (in order to draw cash earlier than the stated draft maturity) must also submit proof of this trade transaction (e.g. an invoice or packing list) to the discounting bank as proof, otherwise the draft will not be accepted.

A seller’s credit risk with BADs/CADs is on the issuer and therefore sellers receiving a CAD from a corporate name for which they lack a risk appetite may seek to have it endorsed (guaranteed) by a bank, whereupon it becomes a BAD and the seller’s credit risk is on the bank. While large sufficiently highly rated corporates can directly issue their own CADs to suppliers, buyers with weaker credit will typically ask a bank to issue drafts on their behalf so they are acceptable to their sellers. Formal tripartite

7 “HSBC Emerging Markets Insight 2010”, January 2010.



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ial agreements that are established in advance among buyer, supplier and bank are also popular. When the

buyer issues a CAD the supplier can send it directly to the bank, certain in the knowledge that the bank will discount it because there is an agreed facility already in place between the buyer and the bank.

Until recently, BADs and CADs have only existed in paper form. This has made fraud a major problem, with numerous fake drafts in circulation – a situation that was exacerbated when drafts were successively endorsed and recirculated. This was obviously undermining confidence in the market, so recent electronic innovations in this area by the People’s Bank of China (PBOC) have been extremely welcome.

In November 2009, the PBOC went live with a pilot scheme for the digitisation of BADs and CADs whereby it also validated and guaranteed electronic BADs/CADs centrally as being genuine, which immediately improved confidence in the market place. The scheme was trialled with just a few pilot banks, but in June 2010, this was extended to a larger group of participating banks.

Documentation

Another important trend is developing around documentation for domestic and intra-Asia trade. In the past, Chinese manufacturers selling to larger Western corporates often had access to some form of supply chain finance arranged by their buyer. Manufacturers that are now switching their attention to new domestic and intra-Asia customers, however, find that such supply chain finance is not usually available, and their settlement cycle is thus extended. Therefore, any effort that can expedite payment by minimising documentation errors and delivering any required paperwork faster is welcome. Another factor is that Chinese banks are still relatively relaxed about providing credit to larger corporates, so for them the emphasis is less on financing working capital and more on expediting settlement and reducing days sales outstanding (DSO).

To this end, suppliers are keen to have access to solutions that allow them to process their documentation more quickly. If a buyer requires a particular list of documents before issuing payment, sellers are increasingly looking to their banks for a solution that will ensure that the buyer receives these documents (without discrepancies) as swiftly as possible. Unfortunately, very few banks have the resources and expertise to really deliver this service. Those that can will typically do a “proofing run” with third parties such as shippers to check that their documentation is correct before they submit it. These banks will also be aware of any potential documentary issues in various jurisdictions and are thus able to forestall these problems before they arise.

risk

Receivables purchase solutions are increasingly being used by Chinese suppliers to expedite settlement and reduce their DSO. Some buyers will offer multi-bank solutions so that suppliers can access the funding via several different banks. Suppliers will naturally tend to choose the bank with which they already have a relationship, but they are also becoming far more selective as regards risk.

Under the vast majority of receivables purchase solutions (and other trade/supply chain financing tools), the bank has recourse to the supplier in the event of buyer default, which obviously represents a significant risk for the seller. This is particularly problematic where “default” is defined as the buyer not making settlement within a predetermined period (rather than it actually committing an act of corporate bankruptcy).



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ialAs a result, sellers are becoming far more discriminating about banks with which they are prepared

to enter receivables purchase agreements, trade and supply chain financing. Their understandable preference is increasingly to deal with banks that are able to offer this financing on a non-recourse basis.

Conclusion

Weaker demand from Western buyers, government stimulus measures, organic growth in domestic consumption and better potential margins on that consumption are clearly driving a change in business strategy among Chinese manufacturers. Presented with a choice between ever-dwindling margins on Western business and pushing at the open door of more profitable domestic demand (that is being actively encouraged by the government) they are increasingly coming to the obvious conclusion.

In addition, domestic Chinese payment and financing infrastructure and solutions are keeping pace with this shift. Larger corporates are looking to assist their domestic suppliers through supply chain financing solutions, digitisation of the drafts market has boosted participants’ confidence/participation and some banks are already offering solutions around documentation and receivables purchase that reduce DSO and minimise counterparty risk.

While it is hard to predict exactly how far and fast this trend will run, it is clear that the Chinese government’s emphasis on moving the country away from export dependence will have a substantive effect. As a result, many economists predict that domestic consumption rates in China will increase, which will in turn boost corporate margins and drive demand for greater functionality from banks’ domestic payment and financing solutions.


The year 2010 saw China once again registering impressive growth. The contrast with the economies of the United States and Europe could not have been clearer. Concerns about debt and sluggish growth in

those markets were not shared by China, whose own efforts were focused on slowing down the economy in order to ensure growth at a sustainable and healthy pace. Concern about the future among mainstream populations in the western economies was very different to the mood of optimism and growing confidence among the expanding Chinese middle class.

China continues to be the most exciting market in the world for business and foreign investors. The uncertain prospects in developed economies have only served as a further draw to the rewards of a booming China.

China has come a long way over the last 20 years and the issues that were of concern to investors even five years ago are no longer necessarily relevant. China is a fast-changing market and investors need to know that they are up to date with developments in policy and changes in the business environment. The discussion that follows illustrates some of the major issues that should be considered when making a new investment.

China: Issues to Consider Before Investing

• The growth of the Chinese economy remains impressive. Many issues that were concerns for overseas investors have been resolved, but it is still important to be up to date with policy developments.

• The preferred choice of business vehicle has changed in recent years. The joint venture has declined in popularity relative to wholly foreign-owned enterprises.

• Rising labour costs have increased the attractiveness of cities such as Chongqing and Chengdu. However, changing the location of a business is not always straightforward.

• Intellectual property owners need to be aware of the protections that exist in China. Equally, investors should establish what forms of arbitration they can access.

Ian Lewis, Partner, Mayer Brown JSM, Beijing, China



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Still has Influence on Business

Over the past years, China has introduced numerous reforms to protect private property rights and has embraced the private sector. At the same time, regular and strong supervision is performed by the government on all business sectors.

The National Development and Reform Commission (NDRC) and the Ministry of Commerce (MOC) jointly publish a catalogue of industries (“the Catalogue”) which lists some industries as being restricted (meaning that investments in those industries will be subject to conditions or restrictions and will not necessarily be approved) and, in some cases, prohibited entirely. Many industries are heavily regulated. Investors who do not take appropriate advice when establishing a business in China can face disruption to their business and/or high correction costs in the event that they are set up illegally.

The establishment of foreign-invested corporates is subject not only to the Catalogue but also to numerous approvals, licences and consents. Unlike many jurisdictions, it is not possible to form a company that can undertake multiple commercial activities. Rather it is necessary to apply for a specific “business scope” to which, once granted, a company is expected to restrict itself. Any changes are subject to approval by one or more authorities.

Expect Change

China has experienced rapid change in its legal framework over the last decade. Investors should expect change and be willing to adapt.

Many of the changes in law that have occurred in recent years have been positive. Some have reflected China’s efforts to modernise its legal system. Others have reflected the maturing of the China market. However, regardless of the background issues, the changing legal environment in China may sometimes radically alter an investor’s plans. For example, the Mainland property sector attracted a great deal of investment between 2005 and 2007, but has been subject to a number of restrictions and regulatory measures introduced by the government (with a view to cooling the market) in the years since then.

Starting Small?

Important decisions often need to be made by investors when deciding how to enter the China market. The basic choice of business vehicle is usually the joint venture or the wholly foreign-owned enterprise. It is, however, common for some investors to form a representative office and seek to use such a base as a “cut price” way of doing business. The fact that a representative office should be used only for liaison and not business, combined with new rules that can result in taxes being imposed based on business being deemed to have been conducted, makes this an increasingly inappropriate option, save where very restricted activities are envisaged.



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ial Same Again?

It is becoming increasingly unusual for investors to make a single investment. It is therefore important to review investment arrangements. It should be noted also that the joint venture has declined in popularity and that many Chinese corporates prefer to do business on their own (certainly fewer Chinese corporates seek an investor purely to raise funds). Likewise, many foreign investors into China now prefer the wholly foreign-owned enterprise rather than the joint-venture company.

Although many foreign investors entered China by forming a joint venture in the 1990s, this is not necessarily an option that would be selected by all investors entering China in 2011. It is important for an investor to consider whether to do a “repeat deal” when building on past investments or whether to consider an alternative way of expanding business in China. Obviously a lot depends upon the circumstances of each case, but there are a number of options, including the following: Converting an existing joint venture into a wholly foreign-owned enterprise by buying out a joint-

venture partner; Increasing the registered capital of an existing legal entity, expanding its business scope and

increasing the size of the initial operation; Acquiring a domestic company and converting the same into a joint venture or a wholly foreign-

owned enterprise; and Merging with a domestic company and creating a larger foreign-invested enterprise.

There are other variations that might be considered, including location. Major centres such as Beijing and Shanghai attract the lion’s share of foreign investments. However, other cities are competing with special regulations offering fast-track approvals in order to lure foreign investors. One example is Chongqing, which has set up Chongqing New North Zone. This offers an accelerated approval process for manufacturing companies.

Be Aware of Changing Cost Factors

China was once seen as a low-cost manufacturing centre to be used for export purposes. This is increasingly not the case. Although labour costs remain low in certain cities, they have risen considerably in Beijing, Shanghai and elsewhere. Given the increased salaries enjoyed by the Chinese population, the domestic market is becoming more important – which is attracting yet more interest from foreign investors.

Rising labour costs are making cities such as Chongqing, Chengdu, Wuhan and others more attractive than might have been the case in the past. However, investors need to be aware that the costs of reorganising a business can be considerable. A company wishing to move operations from one city to another should be aware that the costs involved in dealing with labour issues in a new city can be considerable. Severance payments are required by the Labour Contract Law and – where significant numbers of workers in one city are to be made redundant – there are legal requirements for the preparation of a Redundancy Plan. Cost and timetable issues need to be considered carefully.



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ialLocal Issues

In addition to checking the general law and the requirements of the appropriate governmental bodies in charge of a particular industry, investors should be aware that very often there is local legislation applicable to particular industries and that, although investment in an industry might be generally permitted within China, local regulations can add an additional layer of complication.

Furthermore, local authorities in the more remote parts of China may have their own policies. Contact with local officials or preliminary reviews of local law and policy by legal advisors is highly desirable.

Intellectual Property: Minimising the Risks Many foreign investors are concerned about intellectual property (IP) issues. China is sometimes criticised for not taking this issue seriously enough. However, many foreign investors fail to fully protect themselves and some are unfamiliar with the protection that is already available.

Registered patents or trademarks owned by a foreign investor overseas are not necessarily protected under Chinese IP laws and should also be registered in China. China has its own IP registration system for entities wishing to protect inventions, technology and other intellectual property. The main registrations that should be considered are as follows:

registered Patents

There are three types of registered patents in China providing protection for various technologies at different novelty levels, i.e. inventions, utility models and designs. Foreign patent owners are required to engage a Chinese patent agency to file the application papers with the State Intellectual Property Office (SIPO). Unregistered patents are either treated as “business secrets” (similar to “know-how”) or publicly available knowledge.

registered Trademarks

If a foreign trade name or mark is to be used in respect of products or services to be provided in China, it is desirable that such names or marks and their appropriate Chinese translations be registered with the Chinese Trademark Office (CTMO) by filing trademark applications.

Generally, only China-registered trademarks are entitled to protection pursuant to Chinese Trademark Law and unregistered trademarks (including those registered in other countries) do not enjoy protection. Third parties are free to use unregistered marks. Copyright

Although copyright registration is not compulsory under Chinese Copyright Law, a copyright registration certificate is useful when claiming copyright before the Chinese courts and other authorities in the



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ial jurisdiction. The Chinese Copyright Protection Centre (CCPC) under the National Copyright Administration

of China (NCAC) is the governing authority for examining and approving copyright registration.

Understanding the Traditional Chinese Approach

It is important not only to understand how China is changing, but also how Chinese businesses have changed. At one time, most of the major companies in China were state-owned, employing individuals who were effectively in jobs for life. Given the past weaknesses of the legal framework, it was often convenient for businesses to work through relationships rather than agreements based on documents. Although things have changed, relationships are still seen as important and an investor is likely to come across a variety of approaches to business and documentation among Chinese business partners. If a foreign investor appreciates this background, they will be better able to understand their business partner’s objectives and explain their own business culture and expectations in respect of contractual obligations and management structures.

Disputes

Many foreign investors are used to dealing with disputes through the involvement of lawyers and the use of the litigation process. The practice in China has been different for some time, with some companies seeking a solution without court assistance. In recent years reform has been introduced, and things have improved. Still, many foreign investors prefer to establish the right to use an arbitration centre offshore. The Singapore and Hong Kong International Arbitration Centres are particularly popular.

It should be noted however that offshore arbitration is available where there is a “foreign element”. This generally means that one of the parties is incorporated offshore or the contract will be performed in part or in whole offshore. Where there is no foreign element, the parties are generally required to use a Chinese arbitration centre subject to documentation governed by Chinese law. Generally, arbitration in China through the China International Economic and Trade Arbitration Commission (CIETAC) is preferred by most foreign investors.

Conclusion

China is a rewarding place to do business, but many challenges still remain. However, the complications and difficulties can be greatly reduced through thorough preparation and the careful consideration of the alternative courses of action available. The outlook for China remains positive. The development of the domestic market will see new opportunities for foreign-invested as well as Chinese domestic companies. China’s increasingly outward focus will also see Chinese corporates becoming more international, with numerous opportunities for international cooperation likely to develop. The need to adapt to changing conditions and the basic issues discussed above are likely to remain relevant.

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The launch of the renminbi (RMB) pilot trade finance scheme in 2009 was a highly significant change for what has formerly been regarded as a “closed” currency. The initial scheme made it clear that

the use of RMB in bona fide trade transactions was acceptable to the People’s Bank of China (PBoC) but that other activities (such as speculation) were most definitely not. The pilot permitted trade transactions between certain mainland Chinese cities and Hong Kong, Macau and countries of the Association of Southeast Asian Nations (ASEAN) to be settled in RMB. While the initial pilot was regarded as relatively modest in scope, there were expectations that it would in due course be extended to include other countries.

A further announcement in February 2010 confirmed and perhaps slightly exceeded this expectation, by effectively allowing Hong Kong to treat RMB just like any other foreign currency. The only important caveat was that RMB transactions could not flow back without conditions onto the mainland from Hong Kong.

Major Step Forward

The third major announcement regarding RMB liberalisation came in two phases: in June 2010 by the PBoC and in July 2010 by the Hong Kong Monetary Authority. The first relating to trade settlement extended the scope of the programme to cover any global location. In addition, the areas of mainland China permitted to participate in the scheme were extended from a handful of cities to four municipal cities and 16 provinces (which effectively cover the most economically significant parts of the country as far as external trades are concerned).

The second phase of the announcement related to RMB in the context of wealth management in Hong Kong: Restrictions on personal accounts denominated in RMB were relaxed. Funds can now flow from

these directly to corporate accounts. Insurance companies and non-bank financial institutions can now open RMB accounts in Hong Kong.

• The People’s Bank of China announcements of June 2010 and that of the Hong Kong Monetary Authority of July 2010 indicate a significant acceleration in renminbi (RMB) liberalisation.

• In addition to further expansion of the RMB trade programme, additional RMB-denominated investment and hedging instruments are now available.

• The increase in the pace of RMB liberalisation has had a commensurate effect on the need for corporations to accelerate their preparations for handling RMB-denominated transactions.

• This applies equally to organisations with either direct or indirect trading links with China and has important implications for corporate treasuries.

Ben Chan, Senior Vice President, Strategy, Propositions & Channels, Commercial Banking, Asia Pacific, HSBC, Hong Kong

Renminbi Liberalisation:Timeline Compression?


Renmibi Liberalisation: Timeline Compression?


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ial Even if not related to cross-border trade settlement, any company can now purchase RMB in

Hong Kong.

The June/July 2010 announcements probably represent the biggest steps towards RMB liberalisation to date. On the trade side, the radical expansion of both the permitted participating areas in China and permitted global counterparty countries effectively make the RMB universally applicable as a trade currency.

The steps relating to wealth management are similarly important in that they will increase the offshore attractiveness of RMB, as there will now be wealth management products available in which to invest any RMB that individuals or corporations receive. In time this is likely to prove a significant motivation for individuals or corporations to use RMB as a store of value by accumulating the currency offshore.

Investment and Associated Instruments

While the announcements relating to offshore wealth management are undoubtedly encouraging, it will take a little while before there is sufficient critical mass for core treasury-related products (such as RMB liquidity funds or commercial paper) to emerge. However, there has already been some progress: RMB structured deposits and certificates of deposit are already available, as well as RMB-denominated and RMB-settled insurance policies.

At the long end of the yield curve, banks and corporates are already issuing RMB-denominated bonds – an activity that is only likely to intensify. In addition, the first RMB fixed income fund (investing in mainland China) has already been launched. As these trends continue, the offshore RMB environment will become capable of supporting instruments such as liquidity funds and ultimately commercial paper.

Another major development has been that RMB deliverable (as opposed to non-deliverable) forwards are now available for hedging. While this is in itself important, an even more significant corollary is that banks are now able to propose new RMB-denominated products. If the regulator deems these acceptable, then they can be launched.

However, the initiative likely to have the greatest effect is the “mini-QFII” scheme. This complements the existing qualified foreign institutional investor (QFII) arrangements, whereby overseas institutions are permitted to invest in mainland China in Shanghai and Shenzhen. While much of the media coverage of the mini- QFII programme has focused on the implications for mainland securities markets, the attractions from a treasury perspective are significant. The yield on RMB deposits will probably go up as there will be more RMB fund deployment channels in Hong Kong.

Trade-Critical

While the mini-QFII has aroused considerable interest, it is unlikely to have a major effect on the mainland RMB markets because of Hong Kong’s relatively small size, though it will undoubtedly have some influence in accelerating the pace of RMB liberalisation. By contrast, RMB trade settlement is likely to have a far greater effect in this respect as it effectively projects RMB as a tradable currency around the globe and increases its overall attractiveness. In terms of priority, RMB trade settlement has been the primary driver and the developments around RMB investment instruments are simply a logical extension of this.



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ialIncreasing the level of RMB trade settlement activity is also likely to remain a priority as a means of

raising RMB flows outside mainland China and thereby facilitating a reduction in the reliance on US government debt currently held by China.

However, most of the activity to date around RMB liberalisation has been concerned with current-account rather than capital-account items. The RMB current account is already effectively fully open in terms of currency convertibility. The wealth management product expansion mentioned above makes offshore RMB more attractive to hold. The next step will be capital account convertibility. Once capital-account convertibility is in place, the RMB will have arrived as a truly international currency.

Nevertheless, this will probably be a gradual process, as witnessed by the retention of one particular RMB restriction, namely the daily exchange limit of RMB20,000 for individuals. Raising or removing this limit would obviously increase the rate of RMB circulation in and out of Hong Kong. However, by contrast with its attitude to genuine trade transactions, when it comes to individuals holding or moving RMB for capital investment the authorities have opted for a more conservative approach.

Start Now

The June/July 2010 announcements from the PBoC mark a clear acceleration in the pace of RMB liberalisation which strongly suggests that “wait and see” is no longer a viable strategy for interested parties. Corporate treasuries that have not already done so need to get a grasp of the implications of this acceleration by conferring with their principal cash management banks – particularly where those banks have strong RMB experience.

Here, a number of factors that require forward preparation come into play, with internal systems one of the most prominent. If a corporation is likely to be handling RMB payments or receipts, then changes to its enterprise resource planning, treasury management and/or accounting systems may be required, which can easily take three to six months to complete. One complication already experienced by some corporations in Hong Kong is that in some accounting systems RMB is hard-coded as a non-convertible currency, which is evidently less and less the case. Rectifying this may involve considerable time and effort.

A further challenge is keeping up with the pace of RMB adoption on the part of some large buyers. Organisations with significant sales operations in mainland China are understandably keen to use the RMB revenues from these to settle onshore suppliers’ accounts and are therefore insisting that these suppliers switch to billing in RMB. Furthermore, in certain cases they are setting extremely aggressive timelines for this, which less prepared suppliers are struggling to meet.

While such activity is not yet commonplace, it is self evident that in the longer term the ability to pay and receive in RMB will no longer be a matter of choice. An essential part of any tendering or trade process involving mainland China will sooner or later include the need to be able to process RMB. In the immediate term, profit-and-loss opportunities are already emerging where organisations with lower foreign exchange hedging costs are finding that switching from billing in US dollars to billing in RMB can generate an additional net margin even after currency conversions costs are taken into account.As with any change in process, there is a learning curve to be mastered, which, in view of the rules that must be complied with in relation to RMB settlement, is not insignificant. As a result, there is much to be said for treasuries establishing and running trial programmes with small transactions and volumes as soon as is practicable. This should allow any operational teething troubles to be addressed before volume and transaction size are ramped up in full production.



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ial One final yet crucial point that may be escaping some corporations is that RMB liberalisation is about

much more than just trade with mainland China, Hong Kong and Asia. The logical conclusion is that the RMB will in due course supplant the US dollar as the trade currency used for many “neutral” trade transactions (i.e. transactions where the US dollar is not the functional currency of either trade counterparty). This is particularly true of transactions involving countries that already have strong trading links with mainland China, such as many Asian countries and some of the larger Latin American economies. Therefore, even corporations with no mainland China-related trade may find themselves having to use RMB if they wish to remain competitive.

Bank Relationships

From a corporate treasury perspective, recent events indicate that (if not already underway) RMB planning needs to be undertaken as soon as possible. The challenge for many treasuries will be in sourcing the right information from their banks. The most suitable banks for supplying this are those with both China knowledge and RMB business experience, in addition to strong regional and global focuses.

In view of the RMB’s probable broader role as the preferred currency for “neutral” trade, a further complication lies in finding a bank able to provide comprehensive RMB services on the ground in key global trade locations. At the very least, any bank providing RMB services should be able to cover the majority of China’s global trade footprint.

A further consideration is how well bank RMB solutions are integrated with existing services. In view of the need for a rapid RMB response, corporations will ideally be looking for RMB account facilities that are tightly bound with their existing accounts and do not require a complete new set of account application forms. The need for transparency also means that the ability to view and manage RMB balances alongside other currency accounts via a single online banking log-in is prominent on the wish list of many businesses.

Conclusion

RMB liberalisation is clearly gathering momentum and in the process is generating a variety of opportunities and challenges. The key to turning the latter into the former lies in early preparation; rather like Y2K and the introduction of the euro, the longer the delay, the greater the potential costs and disruption.

As a result, this is one of those areas in which treasury has the opportunity to deliver a very tangible bottom-line benefit to the corporation as a whole. Gathering information and outlining the road map is therefore something best undertaken sooner rather than later.

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Perspectives

Forming A New Partnership: Banks as Your Change Agent


Change is inevitable in today’s fast-paced commercial environment, but when corporations are selecting a banking partner for all their cash management and treasury needs, the breadth and depth

of change involved can be extensive. Selecting the right bank is itself challenging enough, but that is still only the first step in a series of organisational changes. In view of this, many companies are hesitant even to take that first step of considering a new bank, as they are daunted by the potential costs and disruption of the changes that will be involved.

Planning for Change

In the light of this, it is prudent to tabulate corporate objectives and their implications for treasury and finance. It then becomes possible to weigh up whether switching banking partners is justified by the potential benefits.

Even after a decision to switch banks has been made, making the necessary internal changes is usually easier said than done. Changes ranging across people, processes and technology will probably be required, so a high degree of engagement across both business units and finance functions will be

Forming A New Partnership:Banks as Your Change Agent

Marcus Treacher, Head of Client Experience, Global Payments and Cash Management, HSBC Bank plc, UK

• Companies are often hesitant about switching to a new banking partner because they are concerned about the nature and magnitude of internal changes that will be required.

• Banks today have a key part to play in assisting corporate clients in managing these changes efficiently across processes, people, technology and risk. To accomplish this and ensure a successful transition, the bank has to work closely with the client as a partner.

• As part of this process, the bank must help the client to visualise the entire onboarding journey by outlining the specific activities the client will need to undertake to successfully negotiate the transition to the new bank.

• A collaborative approach provides for a more rewarding client onboarding experience, ensuring a smooth transition to the new banking partner and highlighting the fact that the change undertaken has been for the better.



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needed to maximise project buy-in. A further important point is how best to allocate adequate resources to the project while still having sufficient capacity to perform day-to-day tasks effectively.

These considerations usually cause corporations much anxiety and, without a clear picture of what lies ahead or the magnitude of change involved, may result in a reluctance to undertake change. To address this, a bank needs to reassure corporations that while it is able to provide the right banking solutions, it also is able to act as a change agent to assist with internal change preparation. The bank should be a close working partner capable of advising corporations on the optimal way to communicate the benefits of the change, as well as addressing any questions and concerns.

A bank that is prepared to step up to the plate as change agent will also be ready to lead all aspects of the transition from the corporation’s previous service provider to themselves. This includes a thorough examination of the whole implementation process, including the identification and pre-emption of any potential areas of concern. The bank will also be able to draw on its implementation experience to anticipate any issues that are likely to arise and the best way of dealing with them.

Initiation

After selecting a bank, the next step is initiation, which typically involves a considerable amount of knowledge transfer. More specifically, a long term banking partner will be looking to obtain as much information as possible about the corporation’s business model, needs and objectives. This is also the perfect opportunity for the bank to share relevant experience of previous implementations with corporate treasury to help obtain buy-in from all levels of the company. Ideally the bank will have already accumulated considerable experience in dealing with corporations in similar lines of business and will therefore already be aware of any industry-specific challenges likely to arise. This can be used to quickly identify any room for improvement in existing processes and also provide an early indication of what will need to be changed.

For example, at HSBC the segmentation of cash management specialists based on industries delivers in-depth segment experience. These professionals can provide relevant consultation by sharing industry knowledge, advising on best practice and anticipating common challenges faced by similar industry clients from a people, process and technology perspective. This also ensures that the bank assembles the right team to manage the project from the outset, thereby providing additional support for initiating the change process.

The initiation stage is also where both bank and corporate implementation teams will evaluate all aspects of the project in depth, including business operations, readiness of staff and compatibility of systems and technology. Preparations to tackle identified challenges and concerns in these areas can then be incorporated early on in the project plan.



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A critical factor for success in managing any project is the efficient sharing of information between project teams. All information captured during the initiation stage should be readily accessible to all team members for easy reference throughout the lifecycle of the project. A single, shared repository – such as HSBC’s ClientSphere web-based project management portal – provides a convenient platform to house such information for use as and when required.

The initiation stage is key to paving the way forward. When successfully undertaken, it can provide a considerable degree of corporate comfort, as Kosuke Wada of NYK Line confirms. “The decision to implement a single-bank solution was certainly met with some anxiety because we knew that changes had to be made to our systems and our whole process had to be revamped,” he says. “However, having HSBC on hand to share industry knowledge and best practice was an immense help because it gave us confidence that we were working in partnership with an organisation that had travelled this road before and one that truly understood our industry and business.”

Planning and Preparation

After the initiation stage has been successfully completed, the next step is to plan and prepare specific activities prior to implementation. Traditionally, planning has consisted of banks preparing a project plan which mostly comprises bank-centric tasks, but with little regard for the changes needed on the client side. By contrast, HSBC takes a very different approach by developing a customised project plan that clearly indicates the individual tasks for both the client and bank implementation teams. To ensure a smooth transition, the plan also specifies milestones that will indicate the successful completion of individual tasks. These milestones can relate to various activities, ranging from internal preparations to the timeline for informing customers of the change in the corporation’s banking partner. In addition to clearly specifying the activities required of both implementation teams, a further advantage of this type of project plan is that the corporation can readily identify the benefits that accrue as changes are made and major project milestones achieved.

Ultimately, jointly planned tasks are then incorporated into this type of customised project plan to ensure a collaborative implementation process. The objective here is to develop a blueprint that not only itemises the roles and tasks of each implementation team, but that can also be circulated within the corporation to help secure internal buy-in. Such an approach not only enhances client satisfaction, but also helps to foster the spirit of partnership/collaboration that is vital to a successful long term relationship.

A robust project plan also makes it easier for the corporation to intelligently allocate resources to the project to ensure its success. If there are major transition activities to be carried out, the organisation can either allocate more internal resources or decide to split the required activities into smaller phases. In this regard, banks need to be able to offer dynamic tools, such as HSBC’s ClientSphere, that allow clients to simulate project plans based on the solutions offered. This not only allows the production of “on-demand” project plans, but also allows clients to evaluate various plans before settling on one that best fits their needs, as well as reducing the overall turnaround time and increasing the likelihood of project success.



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For example, Heinz-Longfong Food recently worked with HSBC on a project to establish a cash pooling structure across the company’s subsidiaries in Asia Pacific. Following the methodologies mentioned above, the additional information and advice provided by the bank offered the company a structured onboarding roadmap, as well as allowing it to identify barriers in migrating its business to the new solution.

“Having a project plan that included anticipated issues and project activities helped us envisage how best we could proactively manage the project,” says Mat Rao, Finance Executive, Project Co-ordinator of Heinz-Longfong Food. “Thorough prior planning also helped to minimise the consumption of project team resources by addressing some issues early, thereby giving us valuable guidance on how to complete activities successfully at the first attempt.”

Implementation

With a strong working partnership and effective planning in place, implementation can begin. While the project plan is used as a base, HSBC supplements this with a transition toolkit, which covers process maps and communication templates. The toolkit is customised according to client needs, with the information ranging from simple to complex settlement account information, cut-off times and marketing information, as well as to-do checklists needed to map vendor master data profiles during system integration. This is not only essential for a successful transition but also provides a very streamlined and structured approach to tackling change activities.

During this stage, it is important that project activities are actively tracked and are always visible and transparent to all project stakeholders, which assists the rapid resolution of any issues that may arise. Through regular meetings between both parties, potential slippages can be readily identified and addressed to ensure that the project continues according to plan.

While most banks do this in some form or another (such as emails and conference calls), the most effective approach is to make use of a dedicated project management tool (which few clients are likely to have themselves). This not only allows all information relating to a project to be consolidated in a single repository, but also allows that information to be sliced and diced for internal presentation and communication as needed. For example, while the lead project managers may need to drill into the minutiae themselves, they also need to be able to consolidate the available information so that other key stakeholders can quickly grasp high level project progress.

HSBC’s ClientSphere delivers precisely this functionality, which was extensively used by BT Global Services during its project to rationalise financial operations and bank relationships across Asia Pacific. The value of ClientSphere for this purpose was confirmed by Catherine Yu, Regional Controller of BT Global Services, who found ClientSphere’s status reports to be “a very useful tool” in facilitating the company’s internal management reporting.

Review

The final stage of the process is as important as the first. During the review phase, the bank can gauge the success of the corporate transition through feedback sessions. Traditionally, reviews were held to close off a checklist and ensure all services had been correctly provided. Today, reviews are



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used to evaluate the entire process – i.e. if the changes from people, processes, technology and risk perspectives have successfully created a stable working relationship with the corporation’s new banking partner.

At this stage the new bank should also be able to provide quantitative data to demonstrate how the completed project has helped meet corporate objectives. This includes analysis of trends based on the set objectives (which assists in validating the original selection decision) and can also be used to demonstrate project success to

stakeholders within the corporation. In effect, the bank should at this stage be able to assist in evaluating corporate objectives, both tangible and intangible, against actual results.

Conclusion

Switching banking provider does not have to be an excruciating process. Any new banking partner has (or should have) a vested interest in making the migration process as painless as possible. Its success in actually delivering what it has committed to obviously depends upon the calibre of the tools and personnel it can place at the corporation’s disposal and how well it deploys them. Key to that deployment is the exchange and management of information. A combination of early and thorough information exchange, expert advice and planning, and continuous dissemination of progress information is critical. Without this, results will be sub-optimal. With it, the project will succeed and the ongoing relationship will thrive. As Ajay Adikane, Regional Project Manager of Unilever remarks, “We were very sceptical when we made the decision to switch banking partners and there was a huge amount of uncertainty among all parties involved,” he says. “Much to our relief, HSBC provided us with top notch advice and worked together with us throughout the implementation process. The changes we were most concerned about were actually accomplished with relative ease and a successful migration delivered. Apart from the bank migration in 2005, we underwent another migration onto industry standard ISO20022 format in 2007. The expertise provided by HSBC in this field and the partnership approach taken by HSBC in implementing the change made sure the change was delivered in record time without any impact to the business.”



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ClientSphere

ClientSphere is HSBC’s online solution delivery platform for Global Payments and Cash Management (PCM) customers. In the past, customers traditionally managed their implementation project via phone, email or meetings with their internal teams and banking partner, which could be time consuming and required extensive internal resources.

Instead, ClientSphere provides customers with a swift, seamless and easy-to-manage solution for the delivery of cash management services. The platform enables corporate customers to manage project activities and track current status via a secure banking website that is accessible by both client and HSBC project teams. With just one click, users can have full visibility of their project anytime, anywhere.

As the first-in-market global platform for solution delivery, ClientSphere significantly reduces the time and resources spent on communications, documentation and filing; and enables all parties involved in the project – wherever they are located – to track and control the project in real time.


“Partnership” is a word often used to describe the relationship between treasurers and their bankers, but forging a collaborative relationship with your banker requires empathy and

commitment on both sides. While many bank/treasury relationships are harmonious, it is vital to keep in mind the basic fundamentals that keep our partnerships strong. As a former treasurer who now works for HSBC, Violet Yung has an invaluable perspective on the bank/treasury relationship and here outlines ten simple ways to enhance the working relationship.

Bankers, Put Yourself in the Treasurer’s Shoes

Listen

It may seem an obvious course of action, but any bank looking to build a strong working relationship with a treasury client should listen closely to what the client actually wants and act accordingly. Nevertheless, any banker with his/her client’s best interests at heart will want to share alternatives that might be to the client’s benefit. However, the key here is to engage with the client informally at the earliest opportunity to discuss the matter – don’t leave it until a formal competitive presentation. In a previous treasury role my team and I issued an invitation to a panel of banks to submit proposals for an off-balance sheet supplier financing scheme. Most of the banks, on the presentation day, duly put forward off-balance sheet proposals, but one tried to convince us of the merits of an on-balance sheet scheme. While this bank may have genuinely believed this a better solution for our needs, it unfortunately gave the impression that in comparison to its peers it was not listening. If by contrast it had approached us in advance to discuss our off-balance sheet requirement, it would not only have appeared to be listening to our needs and acting proactively, but would also have gained a better insight into our treasury thinking.

focus on Needs-Based Solutions, not Products

Proposing a bank product should always be undertaken in the context of specific client need, and be entirely relevant/tailored to that need. Take care to present a solution that demonstrates your understanding of the client, rather than a product that shows impressive cost savings based upon a generic set of circumstances.

There is a major opportunity here for the banker who takes time to thoroughly assess the individual client’s needs. A conversation that begins with a banker asking about a client’s operations and discovering areas of potential improvement through understanding is one that is likely to enhance that banker’s status as a trusted advisor.

• “Partnership” is a word often used to describe the relationship between treasurers and their bankers, but forging a collaborative relationship with your banker requires empathy and commitment on both sides.

• While many bank/treasury relationships are harmonious, it is vital to keep in mind the basic fundamentals that keep partnerships strong.

• This article outlines 10 simple ways to enhance the working relationship.

Violet Yung, Vice President Regional Sales, Global Payments and Cash Management, Asia Pacific, HSBC, Hong Kong

Banks and Treasuries:10 Steps to a True Partnership

Banks and Treasuries: 10 Steps to a True Partnership


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A further advantage of this approach is that it also increases the chances of working together with a client to formulate new solutions. For large corporations that need customised services, banks have initiated projects which may then be adaptable to a wider market. If the treasury has a reasonable degree of certainty that the product will address a specific corporate need, it may be prepared to await its launch rather than taking a competing bank’s product in the interim that is less suitable.

Know your Client

Corporate sales teams will typically undertake considerable research on customer prospects before an initial meeting. They will have examined the prospect’s annual report and accounts, scanned relevant news items and will have a fairly clear picture of of its business model in advance.

As a result, corporate treasuries understandably expect their banks to adopt a similar approach. While treasury might expect to give the bank additional insight, it would expect the bank to have done the fundamental background research as a starting point for more detailed questions.

Banks that undertake Know Your Customer (KYC) checks before a sales call are demonstrating commitment to the relationship. Furthermore, they are more likely to find the treasurer willing to help them expand that knowledge so that they are in a position to further enhance the relationship by suggesting solutions that are an optimal fit with specific corporate requirements. Provide User-friendly information

Treasuries are obviously heavily dependent on the quality of the transaction and statement data their banks provide for the efficiency of their financial management and forecasting. The key points here are timeliness, but also usability. Banks that appreciate that the earlier accurate data is delivered the more valuable it is are demonstrating they are on the treasury wavelength, where data timeliness (such as knowledge of real-time cash balances) can be translated into bottom line advantage. By contrast, delivering data either in a format convenient to the bank (rather than the client) or in a large amorphous mass that requires hours of diligent data mining by treasury before any worthwhile information can be derived is unhelpful.

Trust is Paramount

The absolute bedrock of any treasury/bank relationship is trust. A bank must not only listen to a client’s needs but must avoid taking advantage of its relationship of trust. Fortunately most transaction banks are well aware of the importance of always acting with the utmost probity in relation to their clients’ interests.

For example, banks enter into supply chain financing arrangements at pricing predicated upon certain volume levels. Should these volume levels fail to materialise, such that the bank is operating the facility at a loss, it has to act. The correct course of action is of course to raise the matter openly with the anchor credit and try to resolve it amicably by negotiation. Regrettably, and particularly in situations where they are the sole provider of this supply chain finance for a specific country, a very few banks may use other methods. For example, in order to boost their margins, they may apply pressure to suppliers to purchase additional products as a condition of receiving finance. This is obviously unacceptable and jeopardises the relationship of trust with the anchor credit by potentially damaging its reputation with its suppliers.However, as mentioned earlier, this sort of behaviour is fortunately very infrequent, as most banks realise that not only is trust the foundation for a fruitful treasury relationship, transparently demonstrating that trust in respect of clients’ interests is essential.



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Banker Empathy

While it is easy to put the onus on banks when it comes to the treasury/bank relationship, treasurers have their part to play as well. The treasurer who addresses the following five points is well on the way to developing a solid rapport with their bank.

Be realistic on Timelines

While treasuries expect technology to work perfectly, they are sometimes reluctant to devote the time to ensure this actually happens. A classic example is testing new technology prior to going live, where there is often a tendency to keep staffing lean because the treasury understandably does not wish to allocate scarce experienced personnel for a prolonged period to monitor a new piece of technology running in parallel with its predecessor production system.

Committing to a testing period of at least a month that also incorporates a month-end (or ideally quarter-end) is essential to iron out any glitches before they arise in a production environment and cause disruption. Trying to squeeze this into a week mid-month due to limited resources may be expedient, but if doing so remember that it is hardly reasonable to blame your banking partner for any subsequent issues. In short, be realistic about timelines – especially those relating to testing.

resource Commitment Should Equal resource Delivery

If treasuries make a commitment to supply in-house resources to a project implementation, they need to be prepared to stay the course. In practice, because experienced treasury personnel are scarce, it can be tempting to adjust resource levels soon after a project starts. This is hardly ideal for a banking partner that will have made a commitment to deadlines on the basis of a specific level of client resource.

Furthermore, any resources remaining after such an adjustment could be relatively junior; thus instead of working with managers, the bank team often finds itself working with assistants. Without access to senior personnel with strong knowledge of and access to corporate information, your banking partner may find themselves working blind.

This is clearly counterproductive; the bank will obviously struggle to deliver to the original project schedule. By contrast, the treasury that promises and actually delivers the necessary resources to an implementation is not only demonstrating project commitment, but also relationship commitment. As a result, it will benefit immediately and in the long term.

your Credit is your Credit

Treasurers are understandably highly focused on what should be delivered as a benefit to their company. As a result, they can sometimes be less than willing to accept explanations as to why a particular benefit is not actually deliverable.

For example, a company’s credit rating obviously affects its access to or pricing of certain instruments, which can cause difficulties with certain hedging tools, such as long-dated (e.g. 10 years or more) cross-currency swaps. The long-term counterparty credit risks associated with this sort of product mean that the corporation’s relationship manager will need to apply for credit internally for these. Problems arise where the corporation’s financials are simply not robust enough to cover the associated counterparty risks from the bank’s perspective.



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Rather than trying to portray this as some sort of fault on the bank’s part, a pragmatic treasurer will simply accept the realities of the situation and enquire about possible alternative solutions, such as shorter dated back-to-back swaps.

Avoid Conflicts of interest

In many corporations, any changes to banking facilities (such as increasing or decreasing overdraft limits) can only be managed and authorised by headquarters treasury. However, situations sometimes arise where a local or regional finance/treasury function may seek an alternative approach. They may, for example, approach their bank and request a temporary increase in overdraft limit to cover a missed cash flow target.

This puts the bankers involved in a rather awkward position. On the one hand they would like to oblige the local personnel with whom they deal on a day-to-day basis. On the other, they have an overall duty of care to follow the company’s mandate in all circumstances.

Making every effort to avoid creating this sort of conflict of interest for the bank is effort well expended. Not only does it place less stress on the working relationship, it also allows the bank to focus on operating in the client’s best interests at all levels.

Trust is a Two-Way Street

As mentioned earlier, trust is the bedrock of any treasury/bank relationship and this applies to both bank and treasury behaviour. One area where treasuries need to be particularly careful in this respect is when seeking reduced pricing or other concessions from a bank in return for a promise of new business at a later date. Obviously, unexpected circumstances (such as unforeseen budget cuts) can arise, but it is vital that, when possible, promises made in good faith be delivered upon. This fosters a feeling of trust and mutual obligation.

If it is not, trust is undermined – but so also is the credibility of the bank relationship manager (RM) within the bank. In order to fulfil the initial favour the treasurer requests, the RM may have to make a case internally for doing so – and part of that case will include promised future business. If that business subsequently fails to materialise, the RM’s position is weakened within the bank and he/she will therefore struggle to gain approval on any further requests for the client.

Conclusion

One of the surest ways of developing a robust bank/treasury relationship is for both parties to try to empathise with the other’s position. For example, treasurers need to try to understand the profit and loss implications of their actions for their bankers, while bankers need to understand treasurers’ key performance indicators.

In some of the closest and most productive bank/treasury relationships, this behaviour is the norm and each side has an intimate understanding of the other’s business model and motivation. At an individual level there is also an awareness that anything (as long as it is not also prejudicial to one’s own organisation) that makes one’s counterparty look good within their own organisation in the long term usually redounds to one’s own benefit.


The Asia Pacific region, with many of the world’s most dynamic economies, is an exciting option for multinationals looking for growth opportunities. It is often the case that growth can be so

quick that it is hard for a corporate’s back-office infrastructure to keep up. This is especially true for the finance departments of corporates that expand inorganically, since it creates a situation where cash management practices vary across entities. In cases like this, the goal is to standardise processes and streamline systems.

In this article, a closer look is taken at the experience of BT Global Services (BTGS), a division of the UK’s leading telecommunications company BT Group, which is currently undertaking such a project. BT Group is a supplier of communication and IT services to business and government, with a client base that includes many of the world’s largest companies.

BT’s Asia Pacific business has rapidly established itself as an important supplier of communication services in the region. It attained this position by following a strategy of inorganic growth: through a burst of mergers and acquisitions. The total number of BTGS legal entities in Asia Pacific stood at more than 70 in 2009. The most notable acquisition was Frontline Technologies, one of the region’s largest end-to-end IT service providers. This deal alone, completed in 2008, gave BTGS an additional 5,000 professionals in 10 key Asian markets.

Streamlining Standards andProcesses Across a Large Organisation

• BT’s Asia Pacific business has rapidly established itself as an important supplier of communication services in the region.

• Expansion through mergers and acquisitions meant different businesses used different processes, different banking platforms and non-standard reporting practices.

• It became clear that unified financial standards and systems needed to be applied across the whole region.

• As the measures were implemented, quantifiable results could be seen with a significant increase in working capital throughout Asia Pacific.

Catherine Yu, Asia Pacific Regional Controller, British Telecom Global Services; Bonnie YK Chiu, Senior Vice President, Regional Sales, Global Payments and Cash Management, Asia Pacific, HSBC, Hong Kong and Kay Huang, Senior Vice President, Client Implementation, Global Payments and Cash Management, Asia Pacific, HSBC, Hong Kong

Streamlining Standards and Processes Across a Large Organisation


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Catherine Yu, Regional Controller for BT Global Services, talks about her experience with managing this project with the aim of optimising operational and cash management efficiency to improve the company’s working capital.

The Challenge

We were starting to feel the impact of the expansion of BTGS in Asia Pacific as the company has a very aggressive plan to grow the business in the region. However, there were so many legal entities using different processes, different enterprise resource planning systems, different banking platforms and non-standard reporting practices that it became difficult to maintain visibility over financial information. To ensure that the company had steady cash flow to develop the business in the region, our goals not only focused on profit generation but also the management of working capital. It became clear that we needed to implement unified financial standards and systems across the whole region.

Working capital management affects our business in two important ways: It allows the company to transform profits into cash more quickly, which in turn can be used to fund

other initiatives. It provides senior management with improved data on company finances and enables them to make

timely decisions.

We therefore needed to implement a cash management information system to achieve maximum efficiency. Progress was measured by quantifying improvements in inventory, prepayment, accrued revenue, receivables, payables, accrual and deferred revenue. A typical key performance indicator – such as days sales outstanding on accounts receivable, a measurement of the average collection period for receivables – was applied to track the effectiveness of debt collection and credit management.

In a company with many different interested parties, it can be hard for this message to take full effect. Although having a steady supply of cash in the bank is a constant concern for a treasurer, it might not mean the same for employees in other roles, especially for staff whose performance is measured on the basis of their ability to increase profits or bring in revenue. We found that the existence of a uniform performance indicator helped encourage employees to work together towards a shared goal.

Setting Standards

To put in place a standardised process across all entities, we carried out a series of inter-related projects that shared the aim of unifying diverse practices into standard procedures, which included: Business process outsourcing (BPO): Day-to-day transaction work, such as accounting transactions

and payroll processing, were outsourced to our BPO partner. Before the work was migrated, we first implemented a uniform approach for these routine transactions so that the outsourcing process itself could be streamlined across the region.

Bank rationalisation: An integral part of the infrastructure improvement was transferring our numerous bank accounts into one bank for the region. All regional entities migrated their accounts to



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HSBC as our selected regional partner. The ultimate objectives were to: • optimise liquidity management to minimise the amount of cash in Asia and reduce unnecessary

funding; • automate processes and improve efficiencies by improved cash-flow forecasting, better control of

payments and the speeding up of collections; • migrate from manual to electronic payments; and • achieve complete visibility on all bank accounts.

HSBC conducted thorough in-country reviews that provided valuable recommendations to our working capital and liquidity management processes. The advantage of consolidating accounts together into one bank was apparent – the enhanced visibility over our cash in the region would be significant. This visibility, delivered via a single online banking platform accessible anytime and anywhere, would be a vast improvement on our previous method of manual consolidation and calculation, thereby helping us to achieve the aim of reducing the amount of cash sitting in Asia. Shared service centre (SSC): While transactional tasks were outsourced, work related to reporting,

review and analysis were all kept in-house. One option was to have these tasks conducted independently in each entity, but this has the drawback that several operations are duplicated in the region. By setting up an SSC, we could maximise efficiency by eliminating duplicated operations and ensure a uniform standard of work. Our SSC staff would be dedicated to looking after 70 bank accounts in the region and see the cash position of any of the group’s entities.

Global finance platform (GFP): To underpin our project, we wanted a unified internal financial platform that would be used not just by us, but ultimately by BT Group worldwide. This system would have a data hub to access information from any of the group entities. Bringing all of this data together would provide a powerful tool for staff throughout the company – for example, the chief financial officer in London would be able to access financial information on the business in Asia Pacific.

The GFP would help implement process improvement by gathering a broad range of business data from procure to pay, order to cash, cash management, accounting to reporting, and from management accounts to statutory accounts. The value in having such a system is in analysing the links between data points – such as providing a bridge between the budget and balance sheet.

Preparing for the Change

First, not only was it necessary to have senior management support, but staff at every level needed to appreciate the benefits of improving financial processes. For colleagues in front-office positions, our aim was to help them understand that the initiative was more than just finance-related but could actually help increase revenue.

We achieved this by reviewing the business processes country by country in Asia Pacific. We also engaged external parties when appropriate – for example, in the bank rationalisation project and the GFP roll-out we worked closely with HSBC who, after helping to identify the areas of change in account structures, accounts payable and accounts receivable processes and liquidity management, proposed custom solutions for our local offices to enable us to manage our idle funds across the region.



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It was important to keep a strong line of communication open with staff at all levels of the organisation. Junior members of the finance department might have interpreted the new system as a threat to their job security. It was therefore crucial to reinforce the message that the outsourcing and automation of transaction processing would not put their jobs at risk but, rather, allow them to allocate time to other value-added tasks.

The next step was to establish a project team. We discovered that it was more effective to assemble a team that consisted of representation from a variety of areas inside and outside the business to foster new ideas and fresh ways of thinking. Our transition management working group consisted of members from finance, IT and human resources along with BPO partners and HSBC. Everyone had a role to play, from the human resources professionals, who were there to manage any staffing changes that arose from automating processes, to the IT and finance partners who brought their specific perspectives and knowledge to the project.

The final step was to put together the project timeline. Since these initiatives were interrelated, the blueprint for their implementation was not a static process but a dynamic one that constantly assessed the risks and business advantages of every stage. Throughout the undertaking, we held monthly meetings with the regional chief financial officer to ensure that each step made was the right one.

Putting the Plan into Action

The next challenge was how to effectively monitor the integration of the finances of these different entities in Asia Pacific while keeping senior management teams in the UK and the US informed of our progress.

For some of the projects, we had our own project management tools to track progress. For the bank rationalisation project, we benefited from HSBC’s project management expertise. HSBC also assisted in following through with implementation tasks and coordinating local representatives of HSBC and BT whose experience greatly contributed to the completion of project milestones, especially those relating to documentation and account opening. The project team also provided valuable insights into industry practice or country-specific requirements across the region.

All of HSBC’s efforts were supported by an online platform called ClientSphere that provides a single hub of information and communication from which all parties, regardless of location, can access information on project status and documentation. As each task was completed, ClientSphere was updated in real time, an ideal way for our team to stay on track, for senior management overseas to monitor progress and to reduce the time spent on status updates.

Louisa Chan, HSBC Senior Vice President, Client Management, says the use of ClientSphere, helped to bring clarity to management of the project by creating end-to-end workflow automation. “The resulting collaboration hastened the project’s completion, allowing the organisation to enjoy the benefits of the new system sooner.”

Normally, BTGS would adopt a “big-bang” approach when implementing new systems, where the changeover between systems occurs all at once – in contrast to a more gradual phased approach. With the Asia Pacific roll-out, however, the transition could not have been big-bang as there were too many entities and the market landscape was too diverse. Instead, we adopted a customised approach for each entity – applying slightly different methods that took into account the size of the entities as well as



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local factors such as different tax regimes. For example, newly acquired entities where integration of internal processes was still in transition and banking activities were still routed through local banks would first undergo a phased approach to rationalise accounts to HSBC for easy visibility. Afterwards, migration to the GFP and automation of accounts payable and accounts receivable processes would follow. A big-bang approach was adopted for

entities with similar business processes and IT infrastructure where bringing staff up to speed was a more straightforward process based on past experience.

Conclusion

Over 12 months, our team took on an ambitious project to improve our cash management processes by streamlining operations and implementing new technology. Although the project is still ongoing, our experience has revealed that communication is key, but a balance must be maintained in order to avoid over-communicating. Our aim was to maintain a consistent message to all staff involved about the purpose of our project and the anticipated benefits. However, we made sure to keep the message realistic, timely and relevant. We also took advantage of the latest technology for our internal project updates, which was a particular challenge given the geographic spread of our teams as well as senior management. As these measures are gradually implemented, we have noticed quantifiable results. By mid-2010, we had increased the working capital of our Asia Pacific operations by USD69.5m, which meant we could reduce our need for funding. And with the cost of borrowing significantly more expensive than it was before the financial crisis, this is no small achievement.



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About BT

BT is one of the world’s leading providers of communications solutions and services, operating in more than 170 countries. Its principal activities include the provision of networked IT services globally; local, national and international telecommunications services to our customers for use at home, at work and on the move; broadband and internet products and services and converged fixed/mobile products and services. BT consists principally of four lines of business: BT Global Services, Openreach, BT Retail and BT Wholesale. In the year ended 31 March 2010, BT Group’s revenue was GBP20,911m. British Telecommunications plc (BT) is a wholly-owned subsidiary of BT Group plc and encompasses virtually all businesses and assets of the BT Group. BT Group plc is listed on stock exchanges in London and New York. For more information, visit www.bt.com/aboutbt

About BT in Asia Pacific

BT’s presence in Asia Pacific dates back to 1985. The company currently employs around 5,000 specialists delivering services in 18 countries, with an additional 25,000 people indirectly employed by BT in Asia Pacific. Core service offerings in the region include convergence solutions, customer relationship management (CRM), conferencing, outsourcing, security, IT transformation and mobility.

BT has announced an investment programme for its Asia Pacific operations, covering additional resourcing, new infrastructure and an expanded portfolio of services.

As part of this plan, BT is in the process of hiring around 300 new positions across Asia. This will ensure that key portfolio and services enjoyed by BT’s customers around the world can be offered and fully supported in Asia Pacific. New staff will be employed across the region in the key customer markets of Australia, China, Hong Kong, India, Japan and Singapore. BT is also establishing a bid response centre in Singapore to enhance its capabilities to pursue large regional managed services deals, an area where we lead the market today in many parts of the world.

In Asia BT maintains regional 24/7 service centres, with a customer management centre in Pune, India and customer service help desks in Beijing, Singapore, Sydney and Tokyo. There is also a technology and service centre in Dalian, China.

Other centres of excellence include a research centre in Malaysia, a research centre in China, a global operations centre in Gurgaon, India, and an India-UK advanced technology centre with 22 industrial and academic partners.


Smith & Nephew has operations in nine Asian markets: Hong Kong, Taiwan, Malaysia, Singapore, Thailand, Dubai, China, India and Korea.

Although the majority of these operations are currently relatively small in the context of the company as a whole, they anticipate significant growth in health spending in these markets. As healthcare systems in these countries evolve, this is expected to drive increasing demand for the high end medical products that Smith & Nephew provides.

Motivation

Originally, these Asian business operations were served by a mix of 15 local and three international banks across the nine countries. Particularly in the wake of the banking crisis, this disparate arrangement increased costs, as no one bank had sufficient company business to incentivise aggressive transaction pricing. As a result, the company’s treasury took the view that consolidating banking across the region with a single core provider would drive economies of scale in bank transaction pricing. A related consideration was that the majority of the company’s Asian business units required funding and a single banking provider would be more inclined to provide this if it was also in receipt of the bulk of Smith & Nephew’s transaction banking business.

Two other important considerations relating to the consolidation of the company’s Asian banking relationships were visibility and control. Previously, the only visibility central treasury in London had on the Asian businesses’ cash was a month-end report from each company giving the total balance, supported by an Excel spreadsheet with a breakdown of the details of which bank(s) individual balances were held at. This rather manual process was both labour-intensive and ran the risk of keying errors.

As regards control, relationships with transaction banks in Asia were previously managed at a local entity level with local signatories. Treasury at Smith & Nephew is centralised but cash management typically decentralised. Policies are set centrally but local entities manage their own cash within these set parameters. Previously, local entity finance directors would have autonomy over choice of bank, subject to central treasury approval and confirmation. The local finance director would then open the necessary accounts, establish the relevant systems and have responsibility for setting up the appropriate controls. Wherever possible, central treasury would encourage local finance directors to open accounts with international banks, but despite this it was generally felt that the number of bank relationships in Asia was proliferating beyond the level really required.

• One of the fundamental building blocks in improving liquidity management is centralised control of bank accounts.

• Some corporates opt to put this in place at the same time as establishing new liquidity structures, while others prefer to undertake this separately.

• Smith & Nephew took the latter route with its Asian bank accounts and is already reaping immediate benefits – as well as streamlining the implementation of any future liquidity structure.

Jonathan Logan, Assistant Group Treasurer, Smith & Nephew

Foundations forLiquidity Management

Foundations for Liquidity Management


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Selection and Implementation

In early 2009, Smith & Nephew’s treasury started to consider the possible candidates for the role of regional banking provider for its Asian businesses. The company already had relationships with HSBC in some of the countries requiring coverage, but the main motivation for choosing HSBC was that it was seen as the only bank that was able to offer a sufficient range of banking services in all the required locations to make it viable as a regional provider.

The choice of HSBC represented something of a policy exception for the company, which accesses much of its funding via a large syndicated loan facility involving some 20 banks. Normally, banking or foreign-exchange business is only awarded to banks in the syndicate, of which HSBC was not a member, but HSBC was considered in this case as the bank was prepared to extend credit in these markets.

The implementation started in January 2009 and was completed on schedule by September of that year. The roll-out took place in two phases: the more demanding countries with significant funding requirements were undertaken first, while those with lower/no funding requirements (or that already used HSBCnet) were left until the second phase.

The majority of countries involved had some degree of need for local funding. Combining this with the number of new bank accounts being opened resulted in a considerable amount of documentation and ID requirements in circulation. In view of the small size of certain businesses, some guarantees and letters of comfort were needed. The need for everything to go through the bank’s local country credit committees to be approved could have caused appreciable delay. However, HSBC’s central London team and its regional relationship team in Hong Kong were helpful in streamlining the process by standardising the documentation around guarantees and letters of comfort wherever possible.

Operation

The implementation was completed smoothly and HSBC is now the primary transaction bank for Smith & Nephew’s Asian businesses. Some local banks were retained in China and Thailand to address the need for local bank accounts for tax/payroll reasons, otherwise all banking transactions are now conducted via HSBC. However, where an account is still held with a local bank, it is only funded for the specific tax/payroll purpose intended. Any funding provided to the business unit by central treasury is always remitted to the entity’s local HSBC account. By the same token, any surplus cash arising should only be held with HSBC, not a local bank.

While some individual businesses with a prior HSBC relationship were already using HSBCnet, this was rolled out to all Smith & Nephew’s Asian subsidiaries plus central treasury. Those already using HSBCnet had it reconfigured to operate on a regional rather than local basis.

Benefits

The benefits Smith & Nephew has achieved by consolidating local entity bank accounts in Asia fall into five main areas:



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Visibility

The introduction of HSBCnet has dramatically improved central treasury’s visibility of the financial flows of the company’s Asian subsidiaries. In addition to being able to see the daily cash position at a glance for all entities, treasury can now easily track cash trends and also check that no subsidiaries are holding excess cash for an extended period that could otherwise be used to repatriate dividends or to repay any outstanding inter-company loans.

risk

Counterparty risks relating to cash surpluses have been substantially reduced by ensuring that all such surpluses are always held with HSBC. Improved visibility at a central treasury level also minimises the risk of local fraud. The company’s local investment policy is that only straightforward cash deposits of three months or less are permitted, and the introduction of HSBCnet gives treasury the visibility necessary to ensure that this is observed.

Control

By setting up treasury as an HSBCnet system administrator on subsidiaries’ accounts in Asia, centralised control has been enhanced. While treasury is not involved in day-to-day matters such as subsidiaries’ payments to suppliers, it is able to monitor and control settings such as payment limits and signatory groups. Therefore, if a subsidiary wants to change its payment limits or add a new user or open a new account, the system automatically requires authorisation from the second system administrator, which has to be someone in central treasury.

Costs

The consolidation of Asian transaction bank accounts has reduced banking costs for the region, at a high level in terms of maintenance costs, and also in certain countries at an individual transaction pricing level.

forecasting

The new account structure and HSBCnet have given treasury the ability to easily track trends in cash flows, which will improve the accuracy of centralised cash flow forecasting. This will be particularly useful in calculating a typical core cash level for each entity. Regular deviations around that can then be identified to predict when a particular business unit is likely to be in surplus/deficit. Under the previous arrangements, the month-end report gave no insight as to when a business unit’s customers were settling their invoices, so there was the risk of significant cash balances sitting idle in current accounts that could otherwise be repatriated or used to pay down inter-company loans.

Conclusion: the Future

At the time of implementation, Smith & Nephew’s Asian businesses were not generating sufficient aggregate cash to make the implementation of a regional liquidity overlay worthwhile, so the project was initially limited to the rationalisation of bank account provision. This had the incidental benefit of leaving the execution of short-term investment with local finance directors, which fostered an increased degree of local cooperation with the implementation.



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In the longer term, the expectation is that Asia will prove a substantial growth market for the company’s products and that this will give rise to significant cash surpluses, at which point some form of regional liquidity structure would be appropriate. While predicting the timing of this “cash critical mass” is obviously difficult, when that moment arrives much of the bank account “plumbing” required to underpin such a structure will already be in place. Therefore, while the company has already achieved appreciable benefits from the project, the best may be yet to come.

About Smith & Nephew

Smith & Nephew is a global medical technology business and has been developing advanced medical devices for healthcare for more than 150 years, with its technologies enabling nurses, surgeons and other medical practitioners to provide effective treatment more quickly and economically. The company operates in high-growth markets driven by ageing demographics and technology’s ability to enable patients to live longer and enjoy more active lives.

Smith & Nephew has global leadership positions in Orthopaedics, including Reconstruction, Trauma and Clinical Therapies; Endoscopy; Sports Medicine; and Advanced Wound Management.

The company’s global infrastructure continues to expand each year and it currently has distribution channels, purchasing agents and buying entities in over 90 countries worldwide. Smith & Nephew is dedicated to helping improve people’s lives. The company prides itself on the strength of its relationships with its surgeons and professional healthcare customers, with whom its name is synonymous with high standards of performance, innovation and trust.

Since 2003, Smith & Nephew has grown its revenues by more than 65% to reach nearly USD3.8bn in 2009. Its business strategy is based on supporting its customers through researching, developing, manufacturing and marketing technically innovative and advanced medical devices, which requires significant investment. For instance, in 2009 the company invested approximately 4% of its sales (USD155m) in research and development activities.

In an increasingly globalised world, corporate treasuries find themselves having to cast their payment and collection networks ever wider. Valuable commercial opportunities in remote locations can only be

profitably exploited if supported by an efficient distribution network; a global brand is only as global as the reach of its treasury.

While the global transaction banks that are likely to be used by mid-sized and large corporations have a reasonably good network footprint and cutting edge products, even they will not have a physical presence in every corner of their corporate clients’ markets. Therefore, to deliver a truly global payments and collections service required by their corporate clients, they leverage a network of bank alliance relationships.

My Partner’s Alliance is My Alliance

In one sense, the treasurer should not need to be too closely involved in this interbank relationship. For example, if there are problems with a payment being handled by the bank alliance, the issue should be resolved by the treasurer’s transaction bank rather than by the treasurer.

It Is Your Business To Know Your Banker’s Bank

• The multiplicity of payment systems across Asia makes delivering full coverage a challenge for even the global banks.

• When selecting their global or regional transaction bank, treasurers need a clear understanding of how possible candidates will deliver this payment coverage through their bank alliance partnerships.

• It also requires treasury insight into candidate banks’ due diligence processes when choosing their alliance partners. This is essential if treasurers are to ensure that their corporation’s credit and operational risks are managed effectively and maximum information transparency relating to their cash management activities is always maintained.

• Where a transaction bank has a robust due diligence process for selecting its bank alliance partners, the corporate client will benefit from the optimal balance of streamlined payments and collections, competitive pricing, and well-managed risk.

Nolan S Adarve, Senior Vice President, Regional High Value Payments and FI Payments and Clearing, Product Management, Global Payments and Cash Management, Asia Pacific, HSBC, Hong Kong




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However, in several other senses the treasurer must be involved. The process by which the corporation’s transaction bank selects its bank alliance partners should be a matter of the keenest interest. What due diligence is it conducting around potential alliances’ credit standing, connectivity to local clearing systems, payments and collection capabilities, operating hours, technological ability, cut-off times, geographic coverage, reporting formats and frequency, as well as regulatory compliance? All of these factors have a direct bearing on the service quality and risks experienced by the corporation. If the transaction bank is less than rigorous in this due diligence and its ongoing bank alliance network management, the corporate client will be directly affected by any alliance shortcomings.

The Obvious isn’t So Obvious

Before moving on to consider some of these due diligence criteria in more detail, it’s worth pausing to observe that when it comes to bank alliance relationships, the obvious course of action isn’t necessarily the right one.

A classic example of this is the assumption that the largest local bank with the most extensive physical network in a particular country is the alliance that can and should handle the transactions of the corporate client concerned. A local bank may have been ranked as “Best Local Bank” by assorted banking magazines, so it must surely be the right choice? Probably not: in practice larger local banks often regard their bricks and mortar as their major competitive advantage and will not wish to dilute this by sharing it with a regional or global transaction bank. In addition, such banks are often quite conservative in their outlook and may also be rather behind the curve when it comes to technology.

By contrast a mid-sized local bank – and especially one where a good proportion of staff have experience working for a regional or global transaction bank – will frequently be progressive in its thinking. It will already understand the more sophisticated requirements of the regional or global corporate in terms of the functionality and service needed. In addition, these banks will typically be far more willing to adapt and enhance their capabilities as necessary to meet the alliance requirements of a global transaction bank and its corporate clients.

In fact many of these more innovative mid-sized banks have identified bank alliance as a niche in which they particularly wish to compete and so have deliberately set themselves up as potential partners for regional or global transaction banks. They may lack the scale of the in-country footprint of the largest local banks, but they will still have sufficient footprint for the requirements of a regional or global transaction bank servicing mid-sized and large corporations, and will be flexible in their thinking and technology. They will also have more experience in handling technology implementations.

These last points are particularly important, because while it is possible to manually achieve a reasonable degree of processing efficiency in low cost locations, this does not deliver the automation needed to keep electronic information flowing smoothly between the transaction bank and the bank alliance. The information flow ultimately delivered to the corporate client is obviously dependent upon the quality of this interbank flow, so treasurers need to be keenly aware of the capabilities in this respect of the bank alliances that will be involved in handling their transactions. However, expertise alone in this respect is insufficient; the local bank must also be able to



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demonstrate solid experience if it is to deliver service levels appropriate to the needs of a global corporation.

Critical Considerations

While there are a broad range of criteria that a transaction bank should use when conducting its due diligence, it is worth remarking at the outset that this cannot be a static process. A due diligence revisit on a periodic basis is important. This has the ancillary benefit that current and potential alliances are kept on their mettle by these regular reviews.

Service and geography

Payment cut off times and timeliness of crediting funds are key to payment obligations and liquidity management and of course the bank alliance must offer the best available service level locally. An important point regarding a bank alliance’s service level is how well it aligns with the service level commitment offered by the transaction bank to its corporate clients.

Logically, both the corporate client and their transaction bank have an interest in minimising the number of alliances required to cover a particular geography. From a corporate perspective, using one (or only a few) good large or mid-sized local banks for a particular jurisdiction increases the likelihood of higher levels of functionality and service – and lower costs. By contrast, if multiple

small local banks have to be used, these are less likely to be able to offer features such as automated connectivity. From the transaction bank’s perspective, having to maintain numerous small low volume alliance relationships in order to provide service in a particular country is costly and inefficient; having fewer larger relationships with technically oriented bank alliance partners is obviously preferable.

reporting

From a corporate viewpoint, the quality of an alliance’s reporting is of paramount importance. If of a high standard it will facilitate corporate STP, but can also be leveraged to reduce working capital and enhance returns on liquidity. Therefore, any transaction bank worth its salt needs to be particularly thorough when assessing this aspect of an alliance’s performance.

The alliance’s ability to capture transaction information that can be transmitted to the transaction bank and ultimately to its corporate client for reconciliation purposes is vital. The format in which this information is transmitted is similarly important. Most global transaction banks will ideally prefer their own internal format to be used in order to minimise any translation issues and to expedite transmission on to the corporate client. However, common standards such as SWIFT MT940s are also acceptable – especially given the number of large corporations starting to adopt SWIFT formats themselves.

The corollary to this is connectivity: which transport mechanism will the alliance use? Probably the most convenient for the transaction bank and also the one that will facilitate the timeliest onward transmission to the corporate client is direct host-to-host connectivity. By contrast, at the opposite extreme, a local bank that can only provide paper deposit slips (and expects the transaction bank to scan these) is certainly not the best alliance around.



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Other factors include the frequency of the alliance’s reporting cycle, the incidence of delays in submitting reports and the accuracy of data capture. The very best in class local banks can operate to a very high standard in this respect, so corporates can expect them to have a frequent or even real-time reporting cycle.

The over-arching point about an alliance’s reporting is that the more efficient and automated it is, the greater the benefits for the transaction bank’s corporate clients. More timely balance reporting in even the remotest locations translates into faster and better use of corporate cash.

Compliance

Compliance is an area where global transaction banks will typically be extremely conservative when choosing alliances and, because of the potential reputational risks to themselves, will expect high standards. They will therefore be particularly alert to any possible probity issues relating to the bank alliance’s senior officers and will be careful to ensure that the alliance has a good track record with the local regulatory bodies.

On the operational side, they should also be taking a close interest in the quality of the alliance’s disaster recovery and backup planning. A more recent compliance consideration is the technological capabilities relating to anti-money laundering. For instance, while many alliances will have basic SWIFT capabilities, they may not as yet be able to handle the new SWIFT COV message types.

Counterparty risk

The financial stability of alliances is obviously of concern to both transaction banks and their corporate clients. One method of assessing the credit risk of a bank alliance is to examine the spread between its credit rating and its domestic market’s sovereign rating. For example, if an alliance is two rating levels below the sovereign rating, this would be regarded as acceptable by most global transaction banks, but probably not if it were eight levels below.

Any corporate seeing its transactions flowing through an alliance network should have confidence that its transaction bank does not regard the credit assessment of alliances as an occasional exercise. Particularly in the aftermath of the credit crisis, it should go without saying that this is undertaken regularly.

This regular diligence isn’t just a question of guarding against capital losses (many multinationals will tightly cap the amount of their cash that can be held with local banks anyway); it is also very much an operational matter. The operational and reputational risks for a major corporate of suddenly finding that it can make neither payments or collections in a particular country due to an alliance failure are obviously considerable.



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Conclusion

In view of the complexities of cash management in Asia, a global transaction bank may easily find itself maintaining a network of possibly dozens of alliances in the region in order to service the cash management needs of their corporate clients. The quality of its network management therefore obviously has a huge influence on the quality of service the corporate client ultimately receives.

As such, the corporate treasury will understandably have high expectations for its transaction bank’s use of bank alliances. To be certain that this is delivered in practice, the corporate treasury needs to be prepared not only to evaluate the offering of the transaction bank, but also to understand the dependency of that offering on bank alliances delivering what they have undertaken with the transaction bank.


Cross-border trade around the globe has been rising and is expected to continue to play an increasingly important role in economic growth. Trade currently represents some 30% of world gross domestic

product (GDP) and is expected to grow to 50% of world GDP by 2020, according to ESCAP, the UN Economic and Social Commission for Asia and the Pacific. It is also increasingly accepted that greater participation in international trade is a prerequisite for economic growth and sustainable development in today’s competitive world economy. However, while such a consensus holds at an academic level, there are issues when it comes to implementation. Tariff and non-tariff barriers remain high in many countries and discordant comments about countries’ protectionist policies are not uncommon.

Preferential Trade Agreements

To reduce transaction costs and to maximise the gains from trade relationships, countries have often made use of bilateral, multi-lateral and regional trade agreements. The aim is to choose trading partners with care and then to develop these relationships into mutually beneficial arrangements. These arrangements often go beyond just trading relationships and evolve into broader partnerships covering areas ranging from investment to political understanding.

In Asia, the period of rapid economic growth before the recent economic slowdown saw the execution of a number of trade agreements. Prominent among these was the China-ASEAN free trade agreement, which eliminated tariffs on more than 90% of the products traded in the region. Such agreements have been a real boon to trade in these turbulent times and Asian countries have benefited accordingly.

Bilateral Trade Arrangements

While multi-party trade agreements are valuable, bilateral trade arrangements have the particular advantage that it is much easier to manage political, operational and many other issues in a two-party relationship. The Brazil-China trade corridor is a good example – bilateral trade between the two

• To reduce transaction costs and maximise gains from trade relationships, countries have often made use of bilateral, multi-lateral and regional agreements.

• This increase in bilateral trade offers the opportunity of “bilateral banking” for importers and exporters, where the same bank acts on behalf of both counterparties in a trade transaction.

• Dealing with a single bank provides importers and exporters with greater efficiency and transparency in relation to their trade transactions.

• Other advantages include improved communication, lower costs, quicker transaction completion, bespoke services and competitive financing.

Aman Dalal, Vice President, Product Management, Trade and Supply Chain, HSBC, India

The Benefits ofBilateral Banking

The Benefits of Bilateral Banking


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countries has grown at a remarkable pace over the last decade. This has been due to a combination of many factors but the complementary nature of Brazil’s and China’s economies has been a key element. The resource-rich Brazil can export basic commodities such as copper, soy and iron ore to resource-hungry Chinese industries, while Brazil’s aspirational and growing consumer class can buy a wide range of competitively priced finished products, such as consumer durables, from China. Bilateral trade relations between the two countries have been further strengthened by increased capital investment on the part of China into Brazil and heightened cooperation in the political sphere. An indication of the extent of this cooperation is the fact that the two countries are in talks to eliminate the US dollar (USD) from their trade transactions and settle in either the Chinese yuan (CNY) or the Brazilian real (BRL) instead.

Bilateral Banking

This increase in bilateral trade throws up another opportunity for importers and exporters, that of “bilateral banking”, which essentially means having the same bank act on behalf of both counterparties to a trade transaction. This offers the following advantages: transaction efficiency; improved communication; lower costs; quicker transaction completion; bespoke services; and competitive financing.

Trade Flows Under Documentary Credit

As an example, an exporter receiving payments under a usance documentary credit potentially enjoys several advantages if the same bank is handling both ends of the transaction. The exporter is able to obtain non-recourse financing post the acceptance of documents. And, by restricting the documentary credit for negotiation in favour of the same bank, the importer benefits from additional negotiating power secured by arranging competitively priced foreign currency funding for the exporter locally in a large number of countries.

Where sight documentary credits are used, both parties can also benefit from bilateral banking arrangements. Exporters can achieve faster resolution if there are documentary discrepancies, as the bank should be able to effect this internally between its offices involved in the transaction using a network such as SWIFT. At the same time, the importer should be able to obtain extended credit terms from the bank office with which it is dealing.

Trade Flows Under Non-Documentary Credit

Where a single bank acts for both parties, it is also possible to improve the process of presentation of non-documentary credit bills. The bank office acting for the exporter can transmit the documents to the importer’s bank office, where the details are captured and the exporter contacts the beneficiary. Once the payment or acceptance is in place, the exporter’s bank office dispatches the bill to the importer’s bank office (endorsing the bill of lading where necessary).



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The benefits to the exporter are: Faster turnaround time as there is single point of scrutiny, thereby achieving quicker receipt of funds

or acceptance; and, Possibility of raising finance via the avalised bill route or through discounting of bills onshore based on

the avalisation added by the office acting for the importer.

The importer may also benefit by: Having the opportunity to extend the credit period, either by offering buyers credit or usance paid at

sight, or reimbursement financing. Avalisation at the importer’s bank office giving the importer the opportunity to negotiate finer pricing

from their exporter. The exporter should be willing to agree to this in lieu of any credit period it is currently providing to the importer.

Faster resolution of document discrepancies. The bank possibly offering rebates for clients using bilateral proposition. The customer exploring the possibility of customised trade-related management instructions to be

sent by banks for their business in particular trade corridors.

Conclusion

Dealing with a single bank provides importers and exporters with greater efficiency and transparency in relation to their trade transactions. However, the extent to which these benefits can be realised is highly dependent upon the provider bank’s trade finance capabilities and network footprint. A bilateral trade proposition from a bank with global presence, trade specialisation and a strong balance sheet will maximise the opportunity by delivering competitive funding, faster turnaround times and funding currency flexibility.



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The Benefits of Bilateral BankingThe Benefits of Bilateral Banking

Case Study: Interact

Interact, a company that exports garment accessories to Bangladesh, has been an HSBC India client since mid-2009. Because of fierce competition and other market-related issues, the customer was not able to increase export turnover. Issues the client was facing were:• Being a small trader, the company was not able to extend credit to its buyers;• The cost of financing was so high that it was not able to arrange finance, which affected the

company’s capacity to compete with other suppliers; and,• Time taken for documentary credit advising was longer than expected and, in turn, was affecting the

turnaround time for shipment.

In addition, documentary credits received by the company were issued in Bangladesh from multiple banks that were different from the company’s bankers.

As a result of these problems, the company was not in a position to explore other markets, such as the Middle East, which was a lucrative area for its products.

HSBC proposed a bilateral trade solution that took advantage of the bank’s presence in both India and Bangladesh to ensure faster cash receipts on the company’s exports to Bangladesh, by way of discounting bills under document credit issued by Bangladeshi banks with the help of HSBC Bangladesh.

The company accepted the proposal and submitted its bills under the documentary credit and received funds on the basis of confirmation from HSBC Dhaka in a turnaround time of three days. This reduction was significant enough to reduce the company’s interest costs and help it to manage its working capital better. As a result, the company has grown several times over, with an increased presence in the Middle East as well.

Out of Japan: Supporting Overseas Expansion with a Regional Treasury Centre


For corporates expanding beyond their domestic market much is new and challenging. While this applies to all functions within the corporation, the treasury department faces some of the greatest

challenges. In addition to coping with unfamiliar business practices, treasury also has to acquaint itself with a great deal of new infrastructure: regulations, tax regimes, banking practices, finance and clearing systems will all be new.

Particularly when corporate expansion encompasses multiple countries in Asia, one effective way of quickly coming to grips with this new external environment is to establish a regional treasury centre. If this strategy is executed effectively and the centre is staffed with experienced professionals, it immediately delivers the necessary expertise both in terms of individual market knowledge and global best practice.

Unique Challenges for Japanese Corporates

All this is true of any corporates reaching into new markets, but for Japanese corporates there is the additional hurdle of addressing some corporate culture issues exclusive to Japan. An obvious example is that Japanese corporates have a long standing history of local business units having a high degree of financial autonomy. While this applies to some extent to corporates from other Asian countries, it is generally far less ingrained. This is partly due to a form of national corporate ethos: while Chinese or


Kiyono Hasaka, Vice President, Regional Sales, Global Payments and Cash Management, HSBC, Singapore

• Japanese companies have a culture which is very distinct from those elsewhere in Asia. This poses unique challenges when expanding overseas.

• These challenges can be overcome, but doing so requires careful planning and a degree of willingness to embrace change.

• Many mid-sized Japanese corporates have not regionalised financial management processes. This is often due to a conservative approach and strong ties with Japanese banks.

• Global banks have capabilities and tools available today to help regionalise and globalise cash and treasury management activities for all Japanese corporates.



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Korean corporates have a natural affinity for rationalisation (which lends itself well to centralisation) Japanese corporations traditionally tend to be strongly relationship driven (which does not).

This relationship driven corporate culture is clearly reflected in the way Japanese corporations interact with their banks, where there are often strong, long-standing

ties between corporates and their main banks, which may even extend to cross-shareholdings and the presence of senior bank staff on the corporate’s board. If Japanese banks are unable to offer the type of products and solutions appropriate to regional treasury management, then this obviously affects the ability of Japanese corporations to regionalise treasury management strategy.

Another point is that very few Japanese corporations use English in the domestic workplace, which tends to isolate them from global treasury best practice as this represents a barrier to treasury professionals from other countries seeking employment in Japan. As a result, the significance of global and regional treasury centres in delivering greater operational and financial efficiency is generally less communicated and thus less appreciated in Japanese corporations.

The irony is that the current strength of the Japanese yen (especially against the US dollar) now makes it a highly convenient and inexpensive time for Japanese corporations to acquire businesses overseas and globalise the companies. However, the key question then is the steps they need to take to ensure that their regional/global treasury strategy keeps pace with and supports their regional/global business strategy.

Senior Executive Sponsorship

One of the most important steps is obtaining senior management buy-in and support. Securing senior executive sponsorship in order to establish full commitment to regionalising (and ultimately globalising) treasury management is essential. The ideal scenario is to successfully establish strong leadership at board level to demonstrate and communicate the vision, goal, scope and strategy for establishing a regional treasury centre, or a global centre with regional subsidiaries.

As mentioned above, many Japanese corporates have a relatively decentralised approach in their regional operations and will allow fully owned subsidiaries to run their own finance operations. Therefore, senior management sponsorship is crucial to ensuring the successful buy-in of management in any existing local business units, who will have to give up responsibility for some treasury management tasks as a result of centralisation.

Furthermore, as Japanese corporates with existing overseas operations may also have a geographic coverage that extends beyond Asia Pacific, group communication backed by senior management sponsorship is especially important. Such group communication should clearly state the estimated annual cost savings and efficiencies across the subsidiaries and countries concerned.



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Bigger Picture Bank Relationships

Many Japanese corporates have a traditional corporate culture that can hinder attempts at innovation by younger finance managers in treasury centres. This can be particularly apparent when it comes to the question of bank relationships mentioned earlier, where Japanese corporates may prefer to stick with the status quo, rather than make use of the regional and global cash management resources of foreign banks that would facilitate the efficiencies of a regional treasury centre.

However, it is important to cast the net wider when it comes to banking relationships, as the choice of banking partner plays a major role in determining the ability of Japanese corporates to regionalise/globalise their cash and treasury management efficiently. Japanese banks are clearly dominant players in domestic cash management, but global banks can have more to offer when it comes to non-domestic and global cash and treasury capabilities. For example, they can deliver standardised back office systems to ensure consistent reporting, file transfer and corporate-to-bank connectivity, and can also provide sophisticated communication tools, as well as centralised liquidity and management of accounts receivable. On the basis of this expertise, certain global banks are best placed to offer the sort of consultative relationship that will smooth the path to regionalising/globalising treasury strategy.

Cost Justification

Since many mid-sized Japanese corporates are required to undertake treasury management tasks with limited resources, they often face the challenge of justifying the cost of changing existing processes and banks. The cost of banking services includes system implementation and customisation, as well as transaction and credit facility costs along global supply chains of working capital, trade finance and FX management. While foreign banks typically take a conservative view of extending and pricing liquidity support in challenging economic conditions, Japanese banks – due to the historic ties mentioned above – are often in a better position to meet these requirements. However, it is important to take a longer term view here: while there may be short term implications to considering global providers, on a more strategic long term basis the argument is often compelling.

Process Automation and Standardisation

Two of the more compelling arguments for a regional/global treasury management strategy are automation and standardisation. For larger Japanese corporates, using SWIFT for Corporates as a core communication channel looks attractive in both respects. While the first corporate adopters connected directly with SWIFT, the second wave connect via service bureaux which host the SWIFT gateway/middleware and help translate files from corporate systems to SWIFT formats. As global banks continue to seek industry-wide messaging standards such as ISO 20022, large companies can leverage connectivity solutions to achieve greater convenience, automation and standardisation. Global banks are increasingly partnering with SWIFT and third-party vendors to mix and match services and create bank-independent cash and treasury management structures. This has considerable appeal for treasury centres looking to improve multi-bank communications.



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Standardised cross-border liquidity is an important concern for Japanese corporates when dealing with regulated currencies and markets in Asia, such as China, India, Vietnam, Indonesia, the Philippines, Malaysia, Thailand, Korea and Taiwan. Unlike Europe and North America, Asia is a highly complex region in terms of geography, languages, regulations and tax regimes. With comprehensive cash and treasury management capabilities and extensive international footprints, global banks are in a better position to advise corporates with complex liquidity positions and requirements, formulating solutions suited to their needs that are also delivered via standardised internal processes .

Mid-Sized Corporates

Mid-sized Japanese corporates that are planning to embark on the centralisation of treasury management are in a slightly different position than their larger brethren. The early stages of centralisation may still be similar and include securing buy-in from senior management and local subsidiaries as well as establishing processes to gain visibility and control of cash to facilitate efficient funding and investment. However, in the latter stages, instead of undertaking an accounting/ Enterprise Resource Planning (ERP) implementation, they are often better served by an electronic banking tool that can be easily set up to meet similar objectives. Subsequent stages include rationalising account structures to eliminate unnecessary accounts and setting up e-banking systems to centralise cash to core bank(s) easily and quickly. Once the basic set-up is in place, the next step is to consolidate business activities within the regional or global treasury centre. With their geographic presence and access to best practice and global product capabilities, this is where global banks can create value.

Partial Outsourcing

Japanese corporates that continue to take the decentralised approach will need to perform a number of treasury management activities in each country, often with limited resources. A valuable remedy for this situation is partial outsourcing, where global banks can add value by automating and outsourcing some of these activities to reduce administrative time and overheads. These include accounts payable, processing of manual payment reconciliation and the writing, signing and mailing of cheques. Outsourcing some treasury management tasks in this manner frees up time, improves productivity and reduces operational costs. Based on their experience in supporting regional and global treasury centres, global banks can provide a wide range of services to automate and simplify treasury management operations.

Conclusion

Migrating to a regional/global treasury strategy often requires a significant change in mindset for many Japanese corporates. In short, there is a need to look at the bigger picture: long standing domestic practices in areas such as banking will need to be rethought. For example, by establishing strategic partnerships with global banks, Japanese corporates can take advantage of their presence and global product capabilities to achieve and enhance regionalisation and globalisation of treasury management activities.

Obviously, the right choice of banking partner is important, and a common concern in this respect is the ability to deliver highly focused local expertise, but also in conjunction with a consultative global



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perspective. This combination would be important in any region of the globe but is even more important in Asia, where dealing with myriad local regulations is clearly a concern. Nevertheless, this isn’t insurmountable: given the right banking expertise, Asia can be a remarkably homogenous place in which to do business.

Currently there are around 2,000 Japanese corporates from multiple industry sectors registered in Singapore and as of March 2009 over 600 corporates were registered as members of the Japanese Chamber of Commerce and Industry, Singapore. Some of these corporates established finance subsidiaries and acquired Finance and Treasury Centre (FTC) status as part of the tax incentive scheme administered by the Economic Development Board and the Monetary Authority of Singapore. Introduced in 2004, FTC status grants a concessionary tax rate of 10% on fees, interest, dividends and gains from qualifying services and activities for a period of five to ten years. It also provides for a flat waiver on withholding taxes normally levied against interest payments for funds collected from other subsidiaries. Cross-border fund movements typically incur withholding taxes that inevitably create higher funding costs for the subsidiaries in the region. Singapore therefore provides a significant incentive for Japanese corporates looking to locate regional and global treasury centres.

Along with a substantial capital commitment to Singapore since the 1970s, large Japanese corporates have invested a significant amount of time and effort in educating local professionals. Transferring skills and knowledge to local staff has been instrumental in running and managing regional and global financial processes from Singapore. Successful treasury centres are typically led by long-serving local professionals with the full backing and authorisation of Japanese senior management. As a result, there is an established pool of treasury expertise in Singapore that newcomers can draw upon.



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Where To Go?

For Japanese corporates looking to go global or regional with their treasury management one obvious location for a treasury centre is Singapore, which has a long pedigree in this respect. Rapid expansion of Japanese business in Singapore dates back to the early 1970s, when major Japanese corporates shifted their manufacturing activities out of Japan and into Southeast Asia due to anticipated growth in the region. Early arrivals included leading Japanese technology companies such as Hitachi, Sony, Panasonic, Toshiba, Fujitsu and Mitsubishi.

An Exception:Capitalising on Advanced Technology

Leading Japanese technology companies avoid many of the caveats that apply to their peers, because they have the natural advantage of being able to capitalise on advanced technology to automate and streamline operations internally, as well as for their clients. As major technology service providers, these companies service both corporations and banks. On some occasions a strategic partnership develops, whereby a company provides technology services in exchange for a certain volume of banking transactions from a bank client. Close collaboration with global banks enables technology companies to jointly design and implement core banking platforms. As a result, these companies can also gain insights into the technical and operational aspects of financial management solutions designed and jointly developed with banks. By contrast, Japanese corporates in other sectors have no equal opportunity to develop such a relationship with global banks. As a result, leading Japanese technology companies are in a better position to take the lead in global and regional treasury management.


For global treasuries looking to maximise efficiencies through process standardisation and centralised control, Japan represents something of a challenge. Barriers such as language, unfamiliar business

culture and domestic dominance of local banks can impede the inclusion of Japanese business units within a global or regional treasury strategy. However, there are strategic options for treasuries to choose from, as well as an evolving business culture.

Barriers: and How to Surmount Them

Let us first examine a number of these barriers in more detail. A greater understanding of the operating context in Japan will show that, while this task of developing a finance/treasury strategy may be challenging, it is definitely not insurmountable.

Language

For many foreign companies operating in Japan, communication is a major hurdle. Japanese still dominates the business world in the country. English is not commonly accepted even by staff with a higher education, which makes it difficult for Japanese to learn treasury best practice or gain information about the latest developments in the west (the same applies vice versa, of course).

Historically, Japan has relied on the size and strength of its domestic market and therefore most companies have communicated purely in Japanese for business. However, with the globalisation of trade and information, such a homogeneous working environment has its limitations, and Japan will have to improve its English language skills if it is to remain competitive internationally.

There are signs that this shift is already underway: a number of companies in Japan are believed to make English language skills mandatory for certain management levels. More recently, online shopping giant Rakuten announced that it will make English a standard language within the company by 2012.

• While some regional treasurers treat Japan as any other Asian country, some view it as a special case and exclude it from global or regional treasury schemes.

• The language barrier and the unfamiliar Japanese business culture are major hurdles. The lack of English among local treasurers, for example, makes it difficult for them to learn international best practice.

• Understanding the background to Japan’s corporate culture can assist regional treasurers in overcoming some of the challenges when dealing with local offices.

• Despite the challenges, there are well-established strategies for regional and global treasurers to take.

Jun Takane, Vice President, Sales, Global Payments and Cash Management, HSBC, Japan

Japan’s Corporate Culture: The Challenges for Regional Treasurers



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Lack of an international Treasury Community in Japan

Partly due to this lack of language skills, an international treasury community has not developed in Japan. There is little opportunity for Japan’s corporate treasurers to discuss treasury issues or case studies with their overseas industry peers. EuroFinance, for example, held its second international treasury management conference in Japan in 2010. The official language of the speeches was Japanese.

Much best practice in the treasury world comes from Europe, the US or the Asia-Pacific region, where conferences and working groups are organised regularly to discuss the latest issues and opportunities in treasury, cash management and payments. Their common language is English. Consequently, Japanese treasurers are often effectively cut off from recent developments. This has resulted in Japan developing its own treasury management practices, which differ from globally developed standards.

One solution to this problem leverages the rather slow pace of employment turnover in Japan, which often frustrates ambitious young treasury/finance personnel. Some companies have taken advantage of this to rotate such personnel through work placements elsewhere in Asia (such as Singapore) before returning them to Japan. In this manner, the company acquires a core of native Japanese speakers who have been exposed to global treasury best practice.

Using a global bank is another way in which to widen the exposure of Japanese staff to the latest treasury techniques. Through interaction with bank personnel, staff will learn more about cutting edge treasury and bank technology, as well as current best practice in areas such as liquidity management and short term investment.

The zengin System

In Europe, with the introduction of the Single Euro Payments Area, there has been a move towards standardising payment systems so that international payments can be processed as simply and cheaply as domestic payments. In Japan, however, the Zengin System – the domestic electronic funds transfer system for yen (JPY) – requires knowledge of Japanese, as beneficiary names often need to be input in the local katakana script. Therefore, unless they have Japanese-language capabilities, multinationals find that they cannot manage their JPY funds centrally from outside Japan.

There are two ways that multinationals and foreign corporations commonly deal with this issue. One is to use a conversion service offered by one of the global banks that takes beneficiary names in English and converts them into katakana. The other is to outsource JPY payment operations to service providers in China who can make the necessary conversions more cost effectively.

Japanese Business Culture

The Japanese tradition of job security can create a number of issues. Employees often stay with their companies as long as they wish (unless they commit some serious offence), and many stay until retirement. The downside to this security is that there is often no sense of urgency and little incentive for greater creativity. In addition, many large Japanese organisations do not usually hire senior management from other firms, which limits opportunities for companies to learn from the best talent in the market.

In addition, many large Japanese organisations reward staff at the same grade equally, regardless of performance. Incentive-based salaries are rare; bonuses are paid according to performance, but the range can be limited – employees who join in the same year will likely receive similar salaries and



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bonuses. Furthermore, when judging an employee’s performance, many Japanese managers tend to focus more on failures or mistakes than achievement.

The collective effect of these practices is that creativity and innovation in the Japanese workplace are often disparaged – as the Japanese proverb “the nail that sticks out gets hammered down” suggests. Therefore, for foreign companies looking to establish a cutting edge treasury/finance function, reversing this mindset is a priority. Rotating Japanese personnel through posts elsewhere in Asia, Europe or the US and teaching Japanese to experienced foreign treasury personnel are two ways of dealing with this issue.

Relationships with Banks

There is often resistance among Japanese treasurers and other executives to foreign banks. There are historical reasons for this. When Japan’s economy grew rapidly from the 1960s through to the 1980s, many treasurers enjoyed extra perks, with banks entertaining them with a weekend of golf or dinner and karaoke. In today’s economy, company treasurers may not receive the same level of treatment but many remember “the good old days” and retain certain assumptions about the service level they should receive from banks. For example, a Japanese banker may visit a client each day to pick up cash or cheques for free, as part of the expected service.

In addition, brands have a powerful attraction in Japan. The most well-established conglomerates are brands that Japanese feel comfortable with, even before considering service levels. Brand image, along with resistance to change, can have a significant influence on some treasurers when comparing the service offerings of banks. There is comfort, too, in being served by banks that hold equity in the company.

Since Japan’s financial “big bang” in 1998, deregulation has given companies easier access to financing through the markets, ending the era of indirect financing. However, there is still the belief that Japanese banks will help companies when they need financial support, as was the case during the boom years. This belief binds Japanese treasurers to local Japanese banks, even though they may not have an appetite for credit or be up to a speed in multi-country cash or treasury management offerings. The key question, therefore, concerns incentives that will draw Japanese treasurers out of their comfort zones to focus on benefits that apply at a company level.

The role of global Banks

While history might incline Japanese treasurers towards local banks, the case for using a global bank when expanding into Japan is compelling. Some global banks have a very long Japanese pedigree: for example, one prominent global bank has been providing corporate banking services in Japan for more than a hundred years. Such a bank has the same understanding of Japanese culture as local banks and will also have little difficulty in attracting top professionals from the local banking market.

In day to day terms, global banks can therefore deliver very similar domestic coverage to domestic banks. There are a few exceptions, such as bank accounts for handling tax payments – but similar restrictions apply elsewhere in Asia. Most global banks will have a local partner bank able to handle this sort of function, so there are effectively no practical obstacles to using a global bank for Japanese domestic business.

However, a global bank enjoys a very significant advantage when it comes to integrating Japanese treasury activities with regional and/or global treasury operations. It will have the tools and solutions necessary to provide the requisite efficiencies in areas such as STP payments processing and liquidity management.



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Exclusive or Inclusive Strategy?

The barriers that have been outlined in this article typically drive corporate treasuries in one of two directions: an exclusive or an inclusive strategy.

Exclusive

Central treasury decides that it is impractical to centralise treasury functions for Japanese business units. It therefore opts to treat Japan as a special case and relies on local representatives to run the treasury operations there, typically using only local banks. Providing the business units and local finance functions perform well, central treasury will not interfere.

inclusive

Central treasury allows the local office only limited autonomy and tries to include Japan in global or regional treasury schemes. To be successful, adopting this strategy will require addressing the barriers mentioned earlier.

Or a Pragmatic Approach

Multinationals moving into Japan often establish joint ventures with local partners. When deciding on the approach to take for treasury/finance functions they will ask for advice from their partner, who will usually recommend the exclusive option. However, some companies migrate between the two strategies. They start with an exclusive strategy and then, as their understanding and comfort level with the environment increases, they move to an inclusive strategy. A number of foreign fashion companies that began their presence in Japan as joint ventures originally adopted the exclusive approach to treasury/finance. However, several of these companies have recently been buying out their joint venture partners and switching to an inclusive approach using global rather than local banks.

Many companies assume that the exclusive approach automatically implies having to use a local bank, but this is not the case. In fact, there is much to be said for using a global bank, whichever strategy is selected. Even if an exclusive strategy is chosen and local personnel have financial autonomy, selecting a global bank can pave the way for future migration to an inclusive strategy – as well as immediately enhancing risk management and visibility. For example, local finance personnel could have control of day to day transactions and liquidity on bank accounts, but central treasury could still monitor these accounts and download transaction data for reporting or audit purposes. If this type of global banking platform is used from the outset and there is later a need to switch to an inclusive model, the only changes required will be relatively trivial ones relating to transaction and access authorities; a complete revamp of the account structure will not be necessary.

Conclusion

Despite its business practices and traditions there should be no need to treat Japan any differently from other countries. There may be hurdles and domestic resistance to change, but flexible thinking around personnel management combined with a consultative global banking relationship should ensure the successful incorporation of Japanese business entities into any corporation’s central treasury management or global treasury strategy.


Market Analysis


The following pages contain an introductory guide to the cash management environment in 19 countries and territories in Asia Pacific. For the purposes of this Guide, “Asia Pacific” is defined as Australia, Bangladesh, Brunei, China, Hong Kong SAR, India, Indonesia, Japan, Korea, Macau SAR, Malaysia, Mauritius, New Zealand, the Philippines, Singapore, Sri Lanka, Taiwan, Thailand and Vietnam1.

Each market analysis also includes basic trade facts and statistics for each market; the sources of which are: Population and Total area: Country profiles provided by the United Nations Statistics Division (data.

un.org/CountryProfile.aspx). Populations are reflective of the 2007 totals2. Gross domestic product and Inflation rate (consumer prices): The International Monetary Fund’s

World Economic Outlook database, October 2010 edition3 (www.imf.org/external/pubs/ft/weo/2010/02/weodata/index.aspx). Gross domestic product has been calculated using the purchasing-power parity method and is denominated in international dollars4, while inflation rates are based on average consumer prices.

Major exports and Major imports: United Nations Commodity Trade Statistics database (comtrade.un.org/db/mr/rfReportersList.aspx).5

Exports, Imports, Major markets, Major suppliers, Total trade, and Trade with Asia: The International Monetary Fund’s Direction of Trade Statistics database (www.imfstatistics.org/DOT). Exports are calculated using free on board (f.o.b.) prices; imports are calculated using cost, insurance and freight (c.i.f.) prices.6

The data provided is as of 3 November 2010, unless indicated otherwise.

If you have any questions about cash management or trade and supply chain in any of these markets, please contact HSBC by telephone or e-mail (local contact details are shown at the end of each market analysis).

1 Mauritius has been included due to its status as a key offshore financial centre for emerging Asian nations, i.e. India and Thailand.

2 The statistics for Taiwan have been taken from the Taiwan government’s National Statistics web site (eng.stat.gov.tw).3 The statistics for Macau have been taken from the Statistics and Census Service (DSEC) of Macau, (www.dsec.gov.mo/

e_index.html). The total and per-capital gross domestic product figures have been calculated using current prices and are in US dollars.

4 International dollars are a hypothetical unit of currency which The World Bank defines as having the same purchasing power over GDP as a US dollar has in the US. Therefore, an international dollar would buy in the cited country a comparable amount of goods and services that a US dollar would buy in the US.

5 The information for Taiwan has been taken from the Taiwan government’s Bureau of Foreign Trade web site (eweb.trade.gov.tw).

6 The information for Taiwan has been taken from the Taiwan government’s Bureau of Foreign Trade web site (eweb.trade.gov.tw).

Market Analysis: Introduction


Overview

Population 21.1 million

Total Area 7,692,024 sq km

Capital Canberra

Major Language(s) English

Time Zone GMT + 10 hours

Currency Australian Dollar (AUD)

Central Bank The Reserve Bank of AustraliaGDP 817.5bn (2009 est.); 1.0% real growth rate (2009 est.); 37,302 per

capita (2009 est.)Inflation rate (consumer prices) 1.6% (2009 est.)

Trade

Exports f.o.b USD153.7bn (2009) Imports c.i.f USD176.5bn (2009)Major Exports Mineral fuels, mineral oils

and products; ores, slag and ash; jewels, jewellery and precious metals; meat and edible meat offal; and other commodities (2009)

Major Imports Energy equipment and energy-related machinery; mineral fuels, mineral oils and related products; electrical machinery and equipment; vehicles, parts and accessories; jewels, jewellery and precious metals; and other commodities (2009)

Major Markets (% of total)

China - 21.79%, Japan - 19.17%, Korea - 7.88%, India - 7.51%, US - 4.94%, UK - 4.36%, NZ - 4.09% (2009)

Major Suppliers (% of total)

China - 17.78%, US - 11.16%, Japan - 8.29%, Thailand - 5.76%, Singapore - 5.49%, Germany - 5.25% (2009)

Total Trade USD330.2bn (2009) Total Trade with Asia USD213.4bn (2009)

Banking System and Bank Accounts

The central bank of Australia is the Reserve Bank of Australia (RBA), which is responsible for monetary policy. Other significant RBA roles include maintaining financial system stability and promoting the safety and efficiency of the payments system.

As of September 2010, there were 58 banks active in Australia with four main domestic banks: National Australia Bank Ltd, Australia & New Zealand Banking Group Ltd, Westpac Banking Corporation and the Commonwealth Bank of Australia.

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Account type Local current1 Local savingsforeign currency current2

foreign currency savings

Resident Yes Yes No Yes

Non-resident Yes Yes No Yes

Credit interest Yes Yes No Yes1. Cheque books are optional.2. Cheque books are not available on foreign currency accounts.

Clearing Systems and Payment instruments

There are four major payment clearing systems in Australia:

Clearing system CommentsCS1 Australian Paper Clearing System (APCS) – an automated clearing

house for cheques, payment orders and other paper-based payment instructions.

CS2 Bulk Electronic Clearing System (BECS), which manages the conduct of exchange and the settlements of bulk electronic low-value transactions in a similar fashion to the paper-based instructions in APCS.

CS3 Consumer Electronic Clearing System (CECS) for proprietary card-based automated teller machine (ATM) and electronic funds transfer at point of sale (EFTPOS) transactions.

CS4 High-Value Clearing System (HVCS), which is integrated with the Real-Time Gross Settlement (RTGS) clearing system. HVCS is for high-value electronic payment instructions.

In Australia, there is only one clearing zone. Cheques are processed overnight for credit to the account with funds held for a minimum of three working days. Interest is calculated on the balance of the account and therefore earns interest for deposited funds even though they have not cleared.

Legal, Company and regulatory

Australia has nine legal systems – the eight state and territory systems and one federal system. The primary regulatory bodies that regulate financial services in Australia are:

• The Australian Prudential Regulation Authority (APRA), which undertakes prudential supervision of deposit-taking institutions, insurance and superannuation funds; • The Australian Securities and Investments Commission (ASIC), which is responsible for market integrity, consumer protection and corporations; and • AUSTRAC is responsible for customer identification, reporting, record keeping and other requirements under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006. It receives information on the movement of cash and other forms of payment in and out of Australia.

Liquidity, Currency and Tax

There are no restrictions on currency movements or cash concentration in Australia; notional pooling and cash concentration are permitted on a single and/or multi-currency basis. Functionality


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Australia does not have an active commercial paper market, therefore treasuries looking for more than just the overnight cash rate on surplus liquidity tend to use term deposits.

Offshore companies will incur withholding tax as per non-residents in the table below.

Tax CommentsInterest withholding tax • Residents: 46.5% without tax file number, Australian business number,

or tax exemption certificates. • Non-residents: 10% flat rate – no tax-free threshold applies for non-residents.

Corporate tax 30%Value-added tax or equivalent A goods and services tax (GST) applies in Australia at the rate of 10%

on the price of taxable supplies. Since most of the banks’ products are “financial supplies”, no GST should apply in the majority of cases. However, there are a few products supplied by banks, which are ‘taxable supplies’ and will attract GST.

Market Watch

No recent or anticipated change of significance.

HSBC Global Payments and Cash Management Tel: [61] (2) 9006 5449 E-mail: [email protected] Trade and Supply Chain Tel: [61] (2) 9006 5100 E-mail: [email protected]


Overview


Total Area 143,998 sq km

Capital Dhaka

Major Language(s) Bengali and English


Currency Taka (BDT)

Central Bank Bangladesh BankGDP 242.2bn (2009 est.); 5.4% real growth rate (est. 2009 est.); 1,470

per capita (2009 est.)Inflation rate (consumer prices) 5.3% (2009 est.)

Trade

Exports f.o.b USD14.4bn (2009) Imports c.i.f USD21.8bn (2009)Major Exports Apparel and clothing

accessories; fish and other aquatic invertebrates; vegetable textile fibres, paper, yarn and fabric; textile articles; and other commodities (2007)

Major Imports Machinery and mechanical appliances; mineral fuels, mineral oils and products; electrical machinery and equipment; cotton; animal or vegetable fats and oils; and other commodities (2007)


US - 20.24%, Germany - 12.75%, UK - 8.64%, France - 6.48%, Netherlands - 5.90% (2009)


China - 16.16%, India - 12.61%, Singapore - 7.55%, Japan - 4.63%, Malaysia - 4.46% (2009)



Bangladesh Bank (BB) is the central bank of Bangladesh. It has legal authority to supervise and regulate the financial sector and issue the country’s currency. It also formulates and implements monetary policy and manages foreign exchange reserves.

The banking system of Bangladesh consists of BB as the central bank, four nationalised commercial banks (which hold 25% of the industry’s assets and 30% of deposits), five government-owned specialised banks, 30 domestic private banks and 9 foreign banks.

For locally incorporated companies, the opening of a bank account requires the following documentation: • Board resolution;

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• Copy of the company’s certificate of incorporation; • Trade license; • Tax identification number; • Transaction Profile; and • Photograph, legal photo identification documents and Personal Information Forms of all signatories, directors, principal shareholders and beneficial owners.

In the case of foreign corporations, all documentation must be attested by the Bangladesh High Commission (Embassy) from the corporation’s country of origin.

The following types of bank accounts are currently available:

Account type Local current Local savings foreign current foreign savings

Resident Yes Yes Yes1 No

Non-resident Yes Yes Yes No

Credit interest No Yes Yes2 No1. Can only be opened subject to travel history and local exchange control regulations, and with special permission from BB.2. Interest applicable only on non-resident foreign currency term deposit accounts and resident foreign currency accounts.

Non-resident BDT accounts can be opened by companies resident outside Bangladesh, subject to adherence to guidelines of BB.

Special notice deposit accounts (seven days’ notice) are allowed for foreign diplomatic missions and their expatriate personnel, foreign airlines and shipping lines in Bangladesh, international non-profit organisations, including charitable organisations, and United Nations organisations and their expatriate personnel.


Clearing system CommentsBB clearing houses Operates in Dhaka and BB branches in seven other cities.Sonali Bank’s clearing houses Operates in 31 towns where there are no BB branches.BB large-value cheque settlement system

For items with value BDT500,000 and above (same-day clearing and clearable within specific clearing area).

BB foreign currency clearing system

Based in Dhaka – clears and settles foreign currency cheques and pay orders.

There are also a limited number of clearing systems in upcountry rural locations. In these collection areas, beneficiary bank representatives physically take cheques to the drawee bank for clearing. If cheques are deposited on Day D, clearing through clearing systems will be completed on Day D+1. Upcountry collection cheques will clear between Day D+3 and Day D+5.


Apart from Bangladesh Bank (BB), other important regulators include the Board of Investment, which handles applications relating to foreign direct investment, the Register of Joint Stock Companies (RJSC), which handles the creation of new companies, and the National Board of Revenue (the tax authority).

Operating a foreign company as a branch or liaison office in Bangladesh requires permission. Applications involve submitting a range of information to the Board of Investment, including: • Corporate details, such as name, address, nationality, place of incorporation;


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details, shareholders’ details and nationality; • Nature of business activity – whether trading, commercial, industrial, consultancy, etc.; • Details of any existing government permission to operate business; • Address where business will operate; • Sources of financing for the proposed business; • Whether any surplus earnings will be remitted abroad; and • Details of any foreign personnel to be employed and details of government approval for their employment.


Single currency domestic cash concentration is allowed, but this can only be done with all the accounts under the same master account. Cross-border cash concentration is not allowed.

Typical local investment instruments for surplus liquidity include short-term deposits, time deposits and notice accounts.

Outward remittance of foreign currency is highly regulated by BB and foreign exchange hedging instruments are not available.

Corporate income tax is levied at 37.5% (for some sectors, the tax rates are slightly different). A 10% withholding tax on interest earned and an excise duty is applied to all bank accounts. No distinction is made between offshore and onshore accounts.

A 15% value-added tax is levied on all banking services charges/commission earned.

Market Watch

Bangladesh Bank has undertaken a project to modernise the country’s payments and clearing system, known as the Bangladesh Automated Clearing House (BACH). BACH will be implemented in two phases: Phase 1 - Bangladesh Automated Cheque Processing System (BACPS), and Phase 2 - Bangladesh Electronic Fund Transfer Network (BEFTN). Phase 1 (BACPS) has been implemented and went live in Bangladesh in November 2010. The main features of BACPS are the adoption of a new cheque design standard with an MICR (Magnetic Ink Character Recognition) code line and the exchange of cheque-image and data instead of paper cheques, for the purpose of clearing and settlement.

Phase 2 will see the implementation of Bangladesh Electronic Fund Transfer Network (BEFTN) which will enable electronic fund transfers between accounts held with different banks. Bangladesh Bank has not specified any timeline for BEFTN implementation, but it is expected to be completed within 2-3 years.



Overview

Population 392,000


Capital Bandar Seri Begawan

Major Language(s) Malay, English, Mandarin and other Chinese Dialects


Currency Brunei Dollar (BND)

Central BankBrunei Currency and Monetary Board and Financial Institutions Division (regulators)

GDP 20.1bn (2009 est.); 0.2% real growth rate (2009 est.); 50,103 per capita (2009 est.)

Inflation rate (consumer prices) 1.2%

Trade

Exports f.o.b USD6.4bn (2009) Imports c.i.f USD2.6bn (2009)Major Exports Mineral fuels, mineral oils,

and products; apparel and clothing accessories; energy equipment and energy-related machinery; aircraft, spacecraft, and related parts; electrical machinery and equipment; and other commodities (2006)

Major Imports Energy equipment and energy-related machinery; vehicles, parts and accessories; iron and steel; electrical machinery and equipment; pharmaceutical products; and other commodities (2006)


Japan - 46.81%, Korea - 13.66%, Indonesia - 9.02%, Australia - 8.91% (2009)


Singapore - 37.2%, Malaysia - 19.0%, Japan - 7.0%, China - 6.0%, Thailand - 5.0%, US - 4.3%, UK - 4.1% (2009)



Brunei has no central bank. The Ministry of Finance, through the Brunei Currency and Monetary Board and the Financial Institutions Division, exercises most of the functions of a central bank.

Brunei currently has a total of eight banks; two local and six foreign. The following types of bank accounts are currently available:

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Resident Yes Yes3 Yes2 Yes3

Non-resident Yes Yes3 Yes2 Yes3

Credit interest No Yes3 No Yes3

1. Overdrafts are not permitted and cheque books are not available for foreign currency current accounts.2. Subject to approval.3. Statement saving accounts only.


A popular domestic payment instrument in Brunei is the cashier’s order; in the absence of a central clearing system, the banks meet daily at the HSBC offices where these orders are exchanged. Clearing typically takes two or three days. Cheques are also commonly used and have the same clearing period, unless the payer and receiver use the same bank, in which case, value is same-day. Telegraphic transfers and drafts are also available.

The manual nature of the clearing process means that an early daily cut off time of 9.30am is necessary; any payments arriving after that time are processed on the following business day.


The Brunei Currency and Monetary Board issues Brunei’s currency and is responsible for maintaining monetary stability, while the Financial Institutions Division acts as the principal licensing and monitoring agency for banks and finance companies operating in Brunei.

There are few restrictions on the type of business that can be set up in Brunei. However, businesses considered as affecting public interests directly – such as banks, finance companies, money lenders and travel agents – must obtain special licences from the appropriate government authorities. All companies with businesses in Brunei must be registered with the Registrar of Companies and have a registered place of business.


Liquidity management such as notional pooling or cash concentration are not generally practised, even on an in-country basis.

There are no exchange control laws in Brunei. Previous legislation was repealed in 2000.

Market Watch


HSBC Global Payments and Cash Management Tel: [673] 2252 339 E-mail: [email protected] Trade and Supply Chain Tel: [673] 2252 336 E-mail: [email protected]


Overview

Population 1.3 billion

Total Area 9.60 million sq km

Capital Beijing

Major Language(s) Putonghua (Mandarin)


Currency Renminbi (RMB)

Central Bank The People’s Bank of ChinaGDP 8,734.7bn (2009 est); 8.5% real growth rate (2009 est.); 6,546 per

capita (2009 est.)Inflation rate (consumer prices) -0.06%

Trade

Exports f.o.b USD1.2tr (2009) Imports c.i.f USD1.0tr (2009)Major Exports Electrical machinery

and equipment; energy equipment and energy-related machinery; apparel and clothing accessories; furniture; and other commodities (2009)

Major Imports Electrical machinery and equipment; mineral fuels, mineral oils, and products; energy equipment and energy-related machinery; ores, slag, and ash; optical, photographic, and measuring equipment, parts and accessories; and other commodities (2009)


US - 18.4%, Hong Kong - 13.8%, Japan - 8.15%, Korea - 4.5%, Germany - 4.15% (2009)


Japan - 13.04%, Korea - 10.2%, US - 7.75%, Germany - 5.57%, Taiwan - 2.4%, Hong Kong - 1.0% (2009)

Total Trade USD2.2tr (2009) Total Trade with Asia USD90.0bn (2009)


The People’s Bank of China (PBOC) is the central bank of China. Its main aim is to formulate and implement monetary policy and to safeguard financial stability. The PBOC also regulates interbank lending and bond markets.

The banking sector is dominated by the “Big Four” state-owned banks: Industrial and Commercial Bank of China, China Construction Bank, Bank of China and Agricultural Bank of China. By the end

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of the five-year transitional period since China’s entry to the World Trade Organization, many of the barriers to foreign bank operations in China have been removed. With local incorporation, foreign global banks, e.g. HSBC, Citigroup, Standard Chartered Bank and Deutsche Bank, etc. have made significant direct investments in China.

A resident company is allowed to open one basic RMB account and, in principle, as many general RMB accounts as they wish. General accounts cannot be used for cash withdrawal and payroll.

Types of FCY accounts: There are various regulatory requirements applicable to the opening and operation of foreign currency (FCY) accounts. Different types of FCY accounts are opened for different purposes, and the operation of these accounts is subject to regulatory restrictions in relation to these specific purposes.

foreign account types inflows Outflows CommentsCapital account To receive capital

injections and capital increases

Payments for current account items and approved capital expenditure

In principle, only one account can be opened with a bank located in the same region as the company and it is subject to SAFE approval

Settlement account Collections for FCY current items (i.e. goods-trade and / or service-trade related items)

Current account items and items approved by the State Administration for Foreign Exchange (SAFE)

No SAFE approval is required

Foreign debt special account

To receive loan proceeds from overseas

As specified in the loan agreement, but cannot be used to repay RMB loans

Foreign debt registration and SAFE approval for account opening required

Foreign debt special loan repayment account

Transferred from other FCY accounts, or conversion from RMB

Repayment of the FCY loan principal and interest

Foreign debt should be repaid through a foreign debt special account, unless otherwise approved by local regulators

FCY loan account (including loan account and repayment account)

To receive the loan proceeds from onshore FCY loans by banks or through entrusted loans

Usage of loan is subject to loan agreement

In principle, conversion to RMB is not allowed unless otherwise approved by SAFE

Foreign investment special account (applicable to foreign companies)

To temporarily receive funds related to direct China investment

Payment of expenses and anything associated with direct investment in China. SAFE’s approval is required for each payment and conversion

• One account only. SAFE’s approval is required for account opening• Used for designated purpose and every transaction requires SAFE approval• Unused funds can be either transferred to respective capital account (when correspondent FIE is set up) or paid out to the foreign investor.


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Account type rMB accounts foreign accounts

Resident Yes Yes

Non-resident Yes (Upon approval by PBOC) Yes

All resident accounts are interest bearing. Details of RMB and FCY accounts are as follows: • RMB deposits: The ceiling interest rates are promulgated by PBOC. • FCY deposits: The ceiling interest rates are promulgated by PBOC for short term deposits (current

account, 7 days call deposit, 1/3/6/12 months time deposit) with amount less than USD3million or equivalent and USD, YEN, EUR or HKD as deposit currencies. Otherwise, favourable interest rates can be offered to customers at the bank’s sole discretion.

Non-resident accounts: • RMB deposits: Same practice as RMB resident account is applied. • FCY deposits: The exact offered rate is at bank’s sole discretion.


Local rMB payment

The China National Advanced Payment System (CNAPS) is the main clearing system for RMB settlement in China, which comprises a high-value payment system (HVPS) and a bulk electronic payment system (BEPS): • HVPS: This is a real-time gross settlement system that has covered all cities in China since June 2005. Payments made via HVPS between the banks with direct membership can take a few seconds or minutes, regardless of their geographic locations. CNAPS HVPS has become the most popular and important clearing channel in China. There is no amount limit via HVPS. • BEPS: This is a low-value clearing system (similar to an automated clearing house or general interbank recurring order) that has been implemented throughout China since 2006. It uses the CNAPS architecture and caters to ordinary credit and debit transactions as well as bulk payments and collection processing with transaction amount no more than CNY50,000. As with HVPS, BEPS caters to both in-city and cross-city transactions.

In-city local clearing systems – HSBC also has membership of most of the local clearing systems where it has a presence. Hence, HSBC can provide customers with access to the in-city clearing houses to facilitate efficient in-city clearing. This is particularly crucial if the customer has a lot of in-city payments/collections.

In China, there are numerous instruments that can be used for in-city and cross-city payments, as well as underlying clearing mechanisms that will determine how quickly and efficiently funds will be credited to recipients’ bank accounts.

rMB payment Priority Amount Selected channelIn-city Low <=CNY50K BEPS / Local clearing system

Any Amount Local clearing system

High Any Amount HVPS

Cross-city Low <=CNY50K BEPS

Any Amount Bank Draft

Low / High Any Amount HVPS


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rMB cross-border payment

rMB Payment Destination Selected ChannelOutward Payment To overseas account Telegraphic Transfer

To domestic account CNAPS - HVPS

Inward Collection From overseas account Telegraphic Transfer

From domestic account CNAPS - HVPS

international and domestic fCy payment

For international and domestic FCY payments, the following clearing channels are available for payments in China.

fCy payment CurrencyTelegraphic transfer

Agent bank clearing

fCy real-time gross settlement – Shenzhen only

Overseas Australian dollar, Canadian dollar, Danish kroner, Euro, Hong Kong dollar, Singapore dollar, Sterling, Swedish krona, Swiss franc, US dollar, Japanese yen, Malaysia Ringgit, and Norwegian krona

Yes No No

Cross-city Australian dollar, Canadian dollar, Danish kroner, Euro, Hong Kong dollar, Singapore dollar, Sterling, Swedish krona, Swiss franc, US dollar and Japanese yen, Malaysia Ringgit, and Norwegian krona

Yes Australian dollar, Euro, Canadian dollar, Hong Kong dollar, Singapore dollar, Sterling, US dollar and Japanese yen

No

In-city Hong Kong dollar and US dollar

Yes Yes No

Australian dollar, Canadian dollar, Euro, Singapore dollar, Sterling and Japanese yen

Yes Yes No

Other currency Yes No No

In-city real-time gross settlement

Hong Kong dollar and US dollar

No No No


The China Banking Regulatory Commission (CBRC) formulates supervisory rules and regulations governing banking institutions, while the State Administration of Foreign Exchange (SAFE) is the government bureau in charge of China’s balance of payments and foreign exchange positions.


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Direct inter-company financing is strictly prohibited in China while Entrusted Loan is the only instrument available to facilitate indirect inter-company financing. Essentially, entrusted loan is a mechanism whereby a Chinese legal entity can borrow / lend money from / to another Chinese legal entity, through a financial institution as an intermediary. Entrusted loan is a main foundation for building up the domestic cash concentration solution.

The practice of planning and managing working capital domestically through RMB cash concentration techniques has been widely accepted. The focus of concentration has changed from the traditional needs of concentrating all cash positions at pool header to how to efficiently utilise internal cash while minimising potential tax liabilities.

Domestic FCY cash concentration solution, which shares the same mechanism as RMB pair has become more focused recently and requirements have been relaxed rapidly, especially since new regulations promulgated by SAFE in 2009. Unlike the RMB pair, domestic FCY cash concentration is subject to SAFE approval.

Key cash concentration tax considerations include: • Stamp duty: In a cash concentration agreement, the pool header company sets up a revolving credit facility for a bilateral entrusted loan relationship with each subsidiary. The borrower (the pool header company or subsidiaries) can borrow or lend as much as it wishes as long as the amount is within the revolving credit facility during the prescribed period. All participants, including commercial banks, pay stamp duty according to the amount of the revolving credit facility at the time the cash concentration master agreement was signed. The current domestic stamp duty for such contracts is 0.005%. • Business tax: In cash concentration, there are typically deposits and withdrawals of the entrusted loans taking place every day between the pool header company and subsidiaries. Business tax is normally 5% with surtax of 0.05% to 0.10% levied on entrusted loan interest income. • Corporate income tax: Any interest earned from an entrusted loan involved in cash concentration is subject to corporate income tax which is standardized at 25% throughout the country. On the other side, the interest cost due to the entrusted loan may not be deducted from taxable income if the ratio of affiliate loan to owners’ equity exceeds the prescribed limit which is stipulated in Article 46 of the Corporate Income Tax Law of China. As of now, the limit is set as 5 for financial institutions (FI) and 2 for non-FI corporates.

Apart from the tax mentioned above, other tax considerations: • A Chinese resident company is liable for income tax on its worldwide income. Non-residents are liable for income tax on Chinese-sourced income. • Information on loans, interest and related expenses has to be disclosed and reported when filing annual tax returns. • Withholding income tax is imposed at 10% for non-resident companies, unless a double tax treaty offers a lower tax rate.

Cash repatriation from China

SAFE eases restrictions on Offshore Lending • Aimed at encouraging enterprises set up in China with capital strength to make additional

Entrusting party

Places deposits Onward lends

EL repayment Inward remittance

Agent bank Borrower


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investments offshore • Eligible companies may extend FX loans to offshore borrowers via direct lending or entrusted loans • Reduces the requirements for offshore lending, expands sources of funds, and simplifies verification and remittance of offshore lending

Applicable SAfE regulationsSAfE regulation No. 24 issued on 9 June 2009

SAfE Shanghai regulation No. 32 issued on 8 March 2010

Domestic Lender Incorporated in China Member of foreign invested MNC group and registered in Shanghai Pudong New District

Overseas Borrower Subsidiaries or joint-stock enterprises of Domestic Lender

Member of same MNC group (e.g. parent of Domestic Lender or affiliate companies)

Traditional cash repatriation method from China in accordance with different business types:

Key documentation required Other considerations frequency

Dividend Repatriation

• Audit report • Capital Verification Report • Board resolution for dividend declaration • Corporate income tax duly paid

• With distributable profits • Registered capital paid on time • Prior year losses set off • Last year’s Interim dividend possible but not common

Once a year (or twice at most)

Service Fees (not relating to intangible assests)

• Service agreement Invoice • Tax clearance certificate

• Registration of agreement normally not required • Clearance with tax bureaus required • Management fee may not be tax deductible

No restriction

Repayment of Shareholder Loan

• Loan agreement registered with SAFE • SAFE approval for loan repayment • Tax clearance certificate for loan interest

• SAFE approval for repayment of loan principal and interest required • Loan repayment should abide by terms of loan agreement

In accordance with relevant terms of loan agreement

Trade between Overseas and PRC entity

• Sales and purchase agreement • Customs declaration documents • Other supporting documents required by SAFE per business type

Registered in the list of “Eligible customers for outward payment due to import business”.

No restriction


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Royalty Payments/Technical Service Fees

• Licensing agreement Invoice • Approval or registration certificate issued by PRC authorities •Tax clearance certificate

• Registration with relevant authorities required • Special audit report on the sales amount is required if the royalty is related to sales commission • Charging basis and payment terms acceptable to approval and tax authorities

No restriction

Capital Reduction • Board resolutions • Approval from original approval authorities •SAFE approval notice

• Cash to extract is capped under paid-up registered capital • Registered capital after reduction cannot be lower than statutory minimum • Resistance from local government • Need to notify creditors and announce publicly

N/A

Offshore Lending • Loan agreement • SAFE approval notice

Subject to local SAFE approval

N/A

Market Watch

The following SAFE regulations came into effect in 2009: • Regulation 24 (Circular No: Huifa [2009] 24): Under this regulation, qualified domestic enterprises can establish direct inter-company lending with their legally established overseas wholly owned subsidiaries or invested companies. This circular also expands capital sources available to domestic enterprises for overseas lending, by permitting these enterprises to use their own foreign exchange, RMB-purchased foreign exchange or SAFE-approved FCY cash pools for cross-border lending within specified limits. This new regulation has several purposes including: facilitation and support of domestic enterprises that are using and operating foreign exchange funds, and to promote efficient capital usage by these firms; expansion of financing channels for overseas enterprises; improvement of statistical monitoring and risk precaution mechanisms for overseas lending; and promotion of the “going out” overseas expansion strategy for domestic enterprises. • SAFE Regulation 29 (Circular No: Huifa [2009] 29): Under this regulation, SAFE allows all qualified local banks and foreign-invested banks to open domestic foreign exchange accounts for overseas institutions. Previously, only foreign-invested banks and selected local banks opened offshore accounts for overseas institutions. The new regulation has intensified and promoted strong competition. • Regulation 49 (Circular No: Huifa [2009] 49): Under this regulation, qualified domestic enterprises can establish domestic foreign currency cash concentration on top of the entrusted loan framework. Any setup of FCY cash concentration service is subject to SAFE approval.

In April 2009, it was announced that five mainland cities (Shanghai, Guangzhou, Shenzhen, Zhuhai and Dongguan) and around 400 companies could participate in the pilot project that allows RMB to be used in cross-border trade payments. Participating firms can benefit from reduced costs and risk associated with FCY exchange. The project is viewed as a first step towards the internationalisation


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of the RMB. In June 2010, this scheme was further expanded to 20 pilot cities and provinces (Beijing, Tianjin, Inner Mongolia, Liaoning, Jilin, Heilongjiang, Shanghai, Jiangsu, Zhejiang, Fujian, Shandong, Hubei, Guangdong, Guangxi, Hainan, Chongqing, Sichuang, Yunnan, Xizang and Xinjiang), and restrictions on overseas counter-party countries and regions were also removed.

In August 2010, SAFE issued a Circular which allows selected enterprises in Beijing, Guangdong (including Shenzhen), Shandong (including Qingdao) and Jiangsu to keep export proceeds in overseas bank accounts. In each province/city, up to 10 enterprises will be allowed to participate in the scheme. Selected enterprises can open export proceeds accounts in banks registered in foreign countries (including Hong Kong, Macau and Taiwan). The pilot test began on 1 Oct 2010 and will last for one year.



Overview



Capital n/a

Major Language(s) Cantonese and English


Currency Hong Kong Dollar (HKD)

Central Bank Hong Kong Monetary Authority (regulator)GDP 300.8bn (2009 est); -3.6% real growth rate (2009 est.); 42,574 per


Trade

Exports f.o.b USD318.8bn (2009) Imports c.i.f USD347.7bn (2009)Major Exports Electrical machinery

and equipment; energy equipment and energy-related machinery; jewels, jewellery and precious metals; toys, games and sports equipment, parts and accessories; apparel and clothing accessories; and other commodities (2009)

Major Imports Electrical machinery and equipment; energy equipment and energy-related machinery; jewels, jewellery and precious metals; toys, games and sports equipment, parts and accessories; plastics and plastic articles; and other commodities (2009)


China - 51.2%, US - 11.6%, Japan - 4.4% (2009)


China - 46.4%, Japan - 8.8%, Singapore - 6.5%, US - 5.3% Taiwan - 0.3%(2009)



The Hong Kong Monetary Authority (HKMA) is the government authority in the Hong Kong Special Administrative Region (SAR) responsible for maintaining banking and monetary stability.

Hong Kong has one of the highest concentrations of banking institutions in the world; 69 of the 100 largest banks globally have operations there. As of October 2010, there were 196 authorised institutions operating in Hong Kong.


Market Analysis: Hong Kong SAR


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Account type Local current1 Local savings foreign current1 foreign savings

Resident Yes Yes Yes1 Yes

Non-resident Yes Yes Yes1 Yes

Credit interest No Yes No Yes1. US dollar (USD) and Renminbi (RMB) cheque books are available.


There are three payment settlement types operating within the local clearing environment: real-time gross settlement (RTGS) payments, paper cheque clearing and electronic clearing.

Clearing system CommentsRTGS payments: HKD, USD, euro (EUR) and RMB

• Clearing House Automated Transfer System (CHATS) payments are interbank electronic payments settled on a RTGS basis, i.e. as opposed to end-of-day net settlement. • RTGS provides payment-versus-payment (PVP) settlement for foreign exchange trades to mitigate settlement risk. PVP settlement currencies include HKD, USD, EUR and RMB, and also between USD and ringgit, USD and Indonesian rupiah. • CHATS is operated by Hong Kong Interbank Clearing Ltd (HKICL), a company jointly owned by the HKMA and the HKAB.

Paper cheque clearing: HKD, USD and RMB

Cheque image presentation for clearing is used for cheques below HKD100,000. Settlement of cheques is on a D+1 basis. (D being the cheque deposit date). In Hong Kong, cheque clearing is available for HKD, USD and RMB cheques.

Electronic Clearing • Introduction of additional settlement for autocredit by HKICL in November 2009. • In September 2010 RMB CCASS settlement was implemented in the local RMB Clearing ready to support settlement of RMB-denominated securities.

Cross-border clearing • In March 2009, the Hong Kong RTGS system established a cross-border linkage arrangement with mainland China for two-way cross-border RTGS settlement of HKD, USD and EUR. • Two-way cross-border cheque clearing is available between Hong Kong and Guangdong/Shenzhen in mainland China. Between Hong Kong/Guangdong, the service applies to HKD and USD cheques, and for Hong Kong/Shenzhen for USD cheques only. • One-way clearing of RMB cheques is available for cheques drawn on banks in Hong Kong and presented to banks in Guangdong province, including Shenzhen. Also available is one-way clearing for HKD cheques drawn on banks in Hong Kong and presented to banks in Macau.


English common law and rules of equity form the basis of the legal system in Hong Kong. As specified in the Basic Law, the common law, rules of equity, ordinances, subordinate legislation and customary law previously in force before July 1997 have remained unchanged, except for any that contravene the Basic Law, and are subject to any future amendment by the legislature of the Hong Kong SAR.


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Hong Kong is relatively relaxed in terms of regulation of liquidity management: single currency, multi-currency, cash concentration and notional pooling are all permitted. There are no restrictions on foreign exchange and currency movements.

However, careful tax efficiency considerations should be reviewed, with particular regard to the physical movement of funds among legal entities with onshore accounts. Due to the absence of withholding tax in Hong Kong’s taxation frameworks, inter-company interest income sourced from an onshore account may be taxable and interest payments may not be tax deductible. As a result, cross-border movement of funds with offshore legal entities is generally preferable, as the receipt of interest income offshore is not likely to be subject to tax. (Obtaining independent advice on the accounting, tax, and legal consequences of entering into any liquidity management arrangement is recommended.)

The standard rate of corporate profits tax is currently 16.5%. Popular investment instruments for short-term HKD liquidity are time deposits and money market

savings accounts.

Market Watch

Momentous developments for the cross-border renminbi trade settlement scheme launched in July 2009. In June 2010, People’s Bank of China (PBoC) expanded the mainland locations covered by the scheme to 20 provinces and cities. Also, the other leg of the cross-border trade is no longer restricted to Hong Kong, Macau and Association of Southeast Asian Nation (ASEAN) countries, but extended to the rest of the world. Following this expansion, on 19 July 2010 the Hong Kong Monetary Authority signed a supplementary memorandum of co-operation with PBoC on the expansion of the RMB trade settlement pilot scheme and the Settlement Agreement on the Clearing of RMB Business was also revised accordingly. This in effect removed the last restrictions on Hong Kong’s renminbi inter-bank market, creating a new platform for renminbi investment product development and consolidating Hong Kong’s role as a renminbi offshore clearing centre.

Following the initial launch of the SWIFTNet migration project in May 2009, which allows banks to use SWIFT messages for payment instructions on the SWIFTNet platform, the second phase of the project covered the migration of the interactive user interfaces for account enquiry and reporting functions to the SWIFTNet platform in July 2010. The whole implementation increases the efficiency of participating banks, as it enhances interoperability between Hong Kong’s domestic RTGS systems and the global platform. It also helps in attracting overseas financial institutions to use Hong Kong’s RTGS systems with its more open and convenient access.

Other local clearing developments include: • Since 25 December 2009, the RTGS service for USD, EUR and RMB operates on Hong Kong public holidays falling on Monday to Friday, except 1 January. The objective is to serve international settlement and further strengthen Hong Kong’s position as an international financial centre.

• In addition, there are ongoing discussions between the HKMA and the central banks of other countries/regions (including the Middle East and various East Asian countries) regarding the feasibility of establishing links between the RTGS systems of these countries to facilitate settlement activities across the region.

• HKICL will launch an initiative in early 2011 in which all member banks will use Direct Debit Authorisation Exchange (DDAE) to exchange DDA instructions by file transfer via HKICL instead of delivery of hard copy reports between member banks. The effective date of this initiative was 10 Jan 2010 and it can be foreseen that the security and operational efficiency of DDA information exchange between member banks will be improved significantly.

• HKICL will also implement the RMB Autodebit and Autocredit System, adopting a cloning approach


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to replicate the functionalities of the existing Autopay System in HKD.The launch date of the RMB Autodebit and Autocredit service is 21 March 2011.



Overview

Population 1.2 billion


Capital New Delhi

Major Language(s) Hindi and English, with more than 20 other official languages

Time Zone GMT + 5.5 hours (New Delhi)

Currency Indian Rupee (INR)

Central Bank Reserve Bank of India (RBI)GDP 3,528.6bn (2009 est.); 5.4% real growth rate (2009 est.); 2,932 per

capita (2009 est.)Inflation rate (consumer prices) 8.7%

Trade

Exports f.o.b USD165.2bn (2009) Imports c.i.f USD257.7bn (2009)Major Exports Jewels, jewellery and

precious metals; mineral fuels, mineral oils, and products; electrical machinery and equipment; energy equipment and energy-related machinery; and other commodities (2009)

Major Imports Mineral fuels, mineral oils, and products; jewels, jewellery and precious metals; electrical machinery and equipment; energy equipment and energy-related machinery; organic chemicals; and other commodities (2009)


UAE - 12.5%, US - 11.1%, China - 6.2% (2009)


China - 11.2%, US - 6.5%, UAE - 6.0%, Saudi Arabia - 5.7%, Australia - 4.2%, Germany - 4.2%, Singapore - 2.4% (2009)



The Reserve Bank of India (RBI) is the central bank of India and the main regulator for banks. India’s commercial banking sector is made up of public-sector banks including the State Bank of India group and 20 other nationalised banks, private-sector banks and foreign banks. Although the public-sector banks have a large network of branches, the Indian private-sector banks are fast catching up in terms of revenue, size and business growth.

Customers who are not incorporated in India and have branches, liaison or project offices in India, are

Market Analysis: India


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regulated by Section 6(3)(i) of the Foreign Exchange Management Act 1999. These companies with approval from the RBI can open a bank account in India.

At the time of opening of the bank account, the account holder is required to furnish an undertaking to the authorised dealer that debits to the account are for the purpose of investments in India, and credits representing sale proceeds of investments will be in accordance with RBI regulations.


Account type Local current foreign current

Resident Yes Yes

Non-resident Yes Yes


Electronic clearing systems CommentsReal-Time Gross Settlement (RTGS)

• Electronic payments instructions are processed in real time and on a gross basis.

• Intended for systemically important payments, such as treasury, inter-bank, statutory and high value customer payments.

• Provides deal-by-deal instant settlement and continuous gross settlement without netting.

• Minimum amount permitted for transfer is INR100,000.• Credit is received within two hours of transaction. • More than 70,000 branches enabled on RTGS.

National Electronic Funds Transfer (NEFT)

• NEFT is an electronic funds transfer system between banks using the SFMS (Structured Financial Messaging Solution) messaging application.

• Intended for day-to-day payment requirements of customers, such as payment to suppliers.

• Runs on a centralised clearing and settlement system supported by the RBI and is aimed as a substitute for cheque payments.

• More than 70,000 branches enabled on NEFT.National/Electronic Clearing Service (N/ECS)

• Enables large-volume transfers of small-value transactions.• Intended for salary, interest, dividend, commission and other bulk

repetitive payments.• Institutions and corporations disbursing interest or dividends to

their investors use this payment mode.• Works on a one-day cycle. • Transaction details and settlement details are captured on

diskettes for data transfer.• More than 48,000 branches enabled on NECS.

Cheques remain the most common method of payment in India. Currently there are 1,149 local clearing houses across the country, with those in Indian metropolitan areas being controlled by the central bank, while clearing in non-metropolitan areas and smaller towns is usually run by state-owned banks.

Historically, the clearing systems have been local and confined to a defined jurisdiction covering all the banks situated in the area under a particular zone. However, with the introduction of the Speed Clearing Service and the cheque truncation system, clearing houses are now empowered to process instruments from other jurisdictions and areas.


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In addition, regulators are encouraging electronic payments through NEFT, RTGS and ECS, as well as direct debits and direct credits.


Apart from the RBI, other important regulatory bodies in India include:• The Securities Exchange Board of India (SEBI), which regulates capital market activities;• The Central Board of Excise and Customs; • The Central Board of Direct Taxes, which provides essential inputs for policy and planning of direct taxes in India, and is responsible for administration of direct tax laws through the Income Tax Department; and • The Insurance Regulatory and Development Authority (IRDA), which regulates the insurance industry.

Requirements for establishing a company in India are governed by the Companies Act, 1956. Among others, the key requirements include the following provisions:• Private companies should have a minimum paid-up capital of INR100,000 or such higher paid-up capital as may be prescribed. A public company should have a minimum paid-up capital of INR500,000 or such higher paid-up capital as may be prescribed. Please note that exact capital requirements vary according to industry sector.• A company may be formed by any seven or more persons (in the case of a private company any two or more persons) by subscribing their names to a memorandum of association and otherwise complying with the requirements of the Companies Act as regards registration.• No company shall be registered by a name which, in the opinion of the central government, is undesirable. A name which is identical with or too nearly resembles the name by which a company in existence has been previously registered or a registered trade mark, or a trade mark which is subject of an application for registration, of any other person under the Trade Marks Act, 1999 may be deemed to be undesirable by the central government. • As regards the incorporation of a subsidiary company in India of a foreign company, the usual provisions of the Companies Act apply as regards incorporation and other day-to-day corporate matters. However, investment in India by a foreign company by way of incorporating a subsidiary must also comply with the government’s current foreign direct investment policy and other regulatory requirements.


Under the provisions of the Foreign Exchange Management Act, 1999, foreign companies in India are authorised to remit profits, royalties, dividends and capital, subject to foreign exchange controls administered by the RBI. Remittances are permitted only after accounts have been audited and due taxes have been paid. Foreign exchange hedging is not permitted and deposits in foreign currency are restricted by the central bank.

Only single currency cash concentration is allowed in India and in a cash concentration structure interest payable by one participating company to another is subject to withholding income tax.

Cash concentration across legal entities (pool vs main) can trigger significant tax implications, based on legal status and holding structure of the participating entities. Any advance or loan given by a closely held company to either its shareholder(s) holding 10% or more of the voting power or any other company in which such shareholder(s) has substantial interest, is assumed as taxable dividends in the hands of the receiving company to the extent the lending company possesses accumulated profits. Two relevant exceptions to this rule are:• Where lending forms a substantial part of the lending company’s business; • Where the lending company is a listed company or is a subsidiary of a listed company.


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Tax deductibility of the cost of funds for the lending company may be impacted where it is utilised to fund other group entities. Also, interest payable between such group companies will be subject to withholding tax at 20% (plus surcharge and cess as applicable) on a gross basis, which will create cash flow gaps. Interest income arising from the pooling will be taxable at 30% (plus surcharge and cess as applicable). If any of the lending entities are on an income-tax holiday, such interest income may not be covered by the holiday.

Notional pooling is not permitted in India. Common investment instruments used by corporates for surplus liquidity include term deposits,

cluster deposits, and mutual funds. (The previous alternative of exchange earner’s foreign currency (EEFC) deposits ceased to exist as of 31 October 2008.)

Corporate tax rates are as follows:

Company regular tax

Tax rate (inclusive of applicable surcharge and cess )

Domestic company

(a) Where total income is more than INR10m(b) Where the total income is equal to or less than INR10m

33.2175%30.90%

Foreign company

(a) Where total income is more than INR10m(b) Where the total income is equal to or less than INR10m

42.23%41.20%

Withholding tax rates for foreign companies (subject to surcharges and cess wherever applicable) are as follows:

Source of income

Withholding tax rate for non-treaty foreign companies

Withholding tax rates for US companies carrying out business in india under the india–US tax treaty

Dividends Dividends referred to in Section 1150 of the Income Tax Act are exempt. Any income received in respect of units of a mutual fund specified under Section 10(23D) or the specified company is also exempt. In other cases the rate is 20%.

15% if at least 10% of the voting stock of the company paying the dividend is held by the recipient. In other cases, the rate is 25%.

Interest income

20% on money borrowed in foreign currency.

10% if the loan is granted by a bank or similar financial institution, including insurance company. In other cases, the rate is 15%.

Royalties 10% where the agreement is made on or after 1 June 2005. For agreements made prior to 1 June 2005, there are different rates depending on the date when the agreement was made.

10% for equipment rental and for ancillary or subsidiary services thereto. In other cases, 15%.


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Technical services

10% where the agreement is made on or after 1 June 2005. For agreements made prior to 1 June 2005, there are different rates depending on the date when the agreement was made.

10% for equipment rental and for ancillary or subsidiary services thereto. In other cases, 15%.

Other income

40%, plus surcharge and cess as applicable.

Nil if treaty benefit is available. Otherwise, the tax rate is 40%, plus surcharge and cess as applicable.

Market Watch

India is undergoing significant changes and improvements to its clearing infrastructure. Some major developments and initiatives include:

Increased use of electronic clearing systems, with significant growth in the use of NEFT and RTGS: In line with the RBI’s vision for an increased role for electronic payments in India, the RBI is upgrading and promoting electronic payments systems. This is evident in the percentage growth in the volume and value of electronic payments compared to paper payments, as shown below.

year-on-year growth 2004–05 2005–06 2006–07 2007–08 2008–09 2009–10Paper volume 14% 10% 6% 7% –5% -2%Paper value –10% 8% 6% 11% –5% -17%Electronic volume 37% 25% 33% 41% 25% 10%Electronic value 109% 35% 61% 342% 38% 65%Source: RBI web site

Phasing out of paper-based high-value clearing: RBI discontinued High Value Clearing in March 31, 2010. Statutory payments, such as direct and service tax, excise and customs duty, are already required to be made electronically.

Cheque truncation system: Under the cheque truncation system, instead of the physical instrument, an electronic image of the cheque is sent to the drawee branch along with the relevant cheque-related information. This effectively reduces the turnaround time for the processing of cheques, along with the associated cost of transit and delay in processing, etc. and speeds up the process of cheque realisation. A pilot scheme for the system is currently underway in the National Capital Region (New Delhi and four surrounding states).


Overview



Capital Jakarta

Major Language(s)Bahasa Indonesia (official), Dutch, English and 300 regional languages

Time ZoneGMT + 7 hours (West); GMT + 8 hours (Central); GMT + 9 hours (East)

Currency Indonesian Rupiah (IDR)

Central Bank Bank IndonesiaGDP 960.8bn (2009 est.); 4.0% real growth rate (2009 est.); 4,149 per

capita (2009 est.)Inflation rate (consumer prices) 5%

Trade

Exports f.o.b USD117.0bn (2009) Imports c.i.f USD97.0bn (2009)Major Exports Mineral fuels, mineral

oils, and products; animal, vegetable fats and oils; electrical machinery and equipment; ores, slag and ash; rubber and rubber articles; and other commodities (2009)

Major Imports Mineral fuels, mineral oils, and products; energy equipment and energy-related machinery; electrical machinery and equipment; iron and steel; organic chemicals; and other commodities (2009)


Japan - 16.0%, Singapore - 8.8%, US - 9.4%, China - 9.9%, Korea - 7.0%, India - 6.4%,Malaysia - 5.9% (2009)


Singapore - 16.04%, China - 14.4%, Japan - 10.2%, US - 7.3%, Malaysia - 5.9%, Korea - 4.9%, Thailand - 4.8% (2009)



The central bank is Bank Indonesia (BI), whose position is regulated by statute. As a public legal entity, BI has the authority to issue policy rules and regulations; while as a civil legal entity, BI is able to represent itself in and outside the court of law.

There are 122 banks with more than 13,000 branches in Indonesia. These consist of state-owned banks, local private banks (foreign exchange licensed, and non-foreign exchange licensed banks),

Market Analysis: Indonesia



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aforeign banks and the regional development bank or Bank Pembangunan Daerah. The following types of bank accounts are currently available:

Type of corporate

entity

Non-interest bearing current account

interest-bearing current account

Savings account

Credit facility

iDrforeign currency

iDrforeign currency

Resident No Yes Yes Yes Not applicable Yes

Non-resident No Yes Yes Yes Not applicable No

Foreign companies can open IDR current accounts.


Domestic funds transfer Low-value funds transfer via Sistem Kliring Nasional (SKN): On 22 July 2005, BI introduced the SKN

national clearing system for low-value payments (below IDR 100m) which runs on a net settlement system basis with two settlement cycles daily. SKN enables voucherless or electronic clearing by connecting all the clearing operators in Indonesia with BI’s headquarters. Starting 2Q10, to further improve the clearing process efficiency, BI enhanced the SKN system which enables banks to monitor their balance position at BI in real-time. This enhancement allows BI to perform SKN transactions settlement from banks on almost a real-time basis from the previous two settlement cycles daily.

High-value funds transfer via the real-time gross settlement (RTGS) system: The RTGS system allows for real-time high-value IDR funds transfer between banks in Indonesia. All fund transfers above IDR100m are made via RTGS. RTGS is centralised at BI’s headquarters in Jakarta. Banks whose headquarters are located in Jakarta have the option of registering as direct members of RTGS. For banks whose headquarters are located outside Jakarta or banks that are not registered as a direct member, access to RTGS is via a correspondent bank with direct RTGS membership.

Domestic cheque clearing Inter-city clearing: There are 55 banks registered as direct members of the inter-city clearing scheme,

which was introduced by BI in 2002 to shorten cheque collection times. Inter-city clearing enables registered bank members to clear cheques issued by any registered member via its headquarters, regardless of whether the cheque instrument itself was issued by one of its remote branches. Corporate customers receiving upcountry cheques on a regular basis will have the cleared funds credited to their corporate account (if the issuing bank is a registered member of inter-city clearing) one day after the clearing date. Therefore, cheques issued and deposited to a bank branch that is a direct member of inter-city clearing will be processed on a local clearing basis, thereby making cleared funds available to accounts more quickly.

Upcountry cheque clearing – Inkaso: Cheques issued by non members of inter-city clearing must be cleared in the same city as the issuing branch, which has been designated as an upcountry cheque collection (Inkaso) processing centre. The processing of upcountry cheques should take a maximum of 27 working days.


Apart from BI, there are several other regulatory bodies which have influence over the banking system. The Indonesian Capital Market and Financial Institution Agency (Badan Pengawas Pasar


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a Modal dan Lembaga Keuangan – BAPEPAM–LK) and Indonesia Stock Exchange also have a significant regulatory role, particularly in relation to the settlement of marketable securities and related accounts.

An Indonesian limited liability company is established by two or more parties in a notarial deed and obtains its legal entity status after approval by the Minister of Laws and Human Rights. The minimum authorised capital is IDR50m, of which 25% has to be paid when submitting an application.

Any company with foreign investment participation has to obtain approval from the Indonesian Coordinating Board (Badan Koordinasi Penanaman Modal – BKPM). The government has in force a prohibition list that prevents certain types of business from being owned by foreign corporations.

In 2004, the Indonesia Deposit Insurance Corporation (Lembaga Penjamin Simpanan (LPS)) was established and is responsible for insuring all depositors’ funds. The LPS determine from time to time the maximum amount secured under this deposit insurance scheme.


IDR currency may not be remitted outside Indonesia. IDR transfer to non-resident accounts is restricted unless there is valid underlying economic activity.

For amounts up to IDR500m in a day, the underlying economic reasons must be stated in the fund transfer; for amounts above IDR500m, proof of documentation must be supplied in support of the underlying economic reasons in Indonesia.

Resident and non-resident account holders are required to fill in a code for central bank foreign exchange monitoring purposes for any foreign currency (FCY) transfer with a value equal to or greater than USD10,000.

Under BI Regulation Number: 10/28/PBI/2008, the following regulations regarding foreign exchange purchase transactions apply: • Purchases of FCY against IDR by a resident/non-resident of a value not exceeding USD100,000 should be accompanied with a formal declaration with stamp duty signed, stating that the foreign exchange purchase transaction against IDR does not exceed USD100,000 or its equivalent per month across all banks in Indonesia. • For purchases of FCY against IDR above USD100,000 or its equivalent per month across all banks in Indonesia, the following documents should be submitted: – Copy of tax identity (this does not apply for non-residents); and – Documents evidencing the underlying transaction.

Banks are only permitted to conduct foreign exchange derivative transactions of FCY against IDR to non-residents of up to USD1m or equivalent per individual transaction and each bank’s outstanding gross position, unless those transactions are conducted for hedging purposes as part of an investment in Indonesia with a time frame of no less than three months, merchandise exports and imports by means of a letter of credit, and/or domestic trade by means of domestic letter of credit (where supporting documents are required). Derivative transactions are restricted to forwards, swaps and options.

Non-residents are not entitled to credit facilities in local currency and/or FCY. However, this restriction is not applicable to the following: • Syndicated credit, with conditions that the lead bank is a prime bank, credit is being extended for project financing in the real sector for productive ventures in Indonesia, and the contribution of foreign banks acting as syndicate members is greater than the contribution of domestic banks; • Credit cards and consumer loans; • Intra-day overdraft in IDR and FCY, with the condition that it is supported by authenticated documents showing confirmation of same-day incoming remittances; and • IDR and FCY overdraft liable to administrative charges negotiated by foreign parties of claims from the agency appointed by the government for the management of bank assets within the framework


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aof Indonesian bank restructuring, for which payment is guaranteed by a prime bank. Notional pooling is permitted, however its use is not widespread. Time deposits are the most commonly used instrument for the investment of short-term surplus

liquidity, although treasury bills are also used. Government bonds (and, to a lesser extent, mutual funds) are used for longer dated liquidity. Most liquidity is at the short end of the curve, typically between one to three months.

Interest is subject to withholding tax of 20% or a lower applicable tax treaty rate. Starting July 2009, settlement of tax payments through Bank Persepsi, which were previously

performed twice a week by banks, changed to same-day settlement. For late settlement, banks will be penalised 1% daily of the total tax payment value collected.

On 3rd of September 2010, BI rolled out a new RRR-LDR tie-up policy in which banks have a grace period of half a year till 1 March 2011 to keep their loan-to-deposit ratios within the 78-100% band. Banks which abide by this will then enjoy a 2.5 ppt “rebate” on the reserve requirement ratio.

Starting 1st of November 2010, the primary reserve requirements, whereby banks have to deposit cash amounts with the central bank increased from 5% to 8%. The secondary reserve requirement, which banks can fulfill in the form of government bonds, remains unchanged at 2.5%.

Market Watch

In general, it is advisable to hold discussions with the central bank and the tax authorities before embarking on any notional pooling schemes, or at the very least solicit an opinion from a suitable advisor.


Overview



Capital Tokyo

Major Language(s) Japanese


Currency Yen (JPY)

Central Bank Bank of Japan (BOJ)GDP 4,186.7bn (2009 est.); -5.4% real growth rate (2009 est.); 32,116

per capita (2009 est.)Inflation rate (consumer prices) -1.1%

Trade

Exports f.o.b USD581.6bn (2009) Imports c.i.f USD551.9bn (2009)Major Exports Electrical machinery and

equipment; vehicles, parts and accessories; energy equipment and energy-related machinery; optical, photographic, and measuring equipment, parts and accessories; and other commodities (2009)

Major Imports Mineral fuels, mineral oils, and products; electrical machinery and equipment; energy equipment and energy-related machinery; ores, slag and ash; optical, photographic, and measuring equipment, parts and accessories; and other commodities (2009)


China - 18.9%, US - 16.4%, Korea - 8.1%, Hong Kong - 5.5% (2009)


China - 22.2%, US - 11.0%, Australia - 6.3%, Saudi Arabia - 5.3%, UAE - 4.1%, Korea - 4.0%, Indonesia - 4.0% (2009)

Total Trade USD1.1tr(2009) Total Trade with Asia USD558.9bn (2009)

Market Analysis: Japan



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The central bank is the Bank of Japan (BOJ), which controls monetary policy. There are approximately 650 banks in Japan, including 60 foreign banks.


Account type Local current Local savings foreign current1 foreign savings

Resident Yes Yes Yes Yes

Non-resident Yes Yes Yes Yes

Credit interest No Yes No Yes1. Foreign currency cheque books are not available in Japan.

Account opening procedures for non-resident companies are broadly the same as for local companies. If the entity concerned is not a subsidiary, then different documents will be required, such as a certified copy of commercial registration that has been verified by the relevant embassy.


There are four clearing and settlement systems operating in Japan, each of which is intended for different settlement purposes:

Clearing system CommentsBank of Japan Net (BOJNet) BOJNet is the interbank clearing system. It allows banks with

accounts with BOJ to transfer funds online between these accounts. BOJNet is owned by the BOJ.

Foreign Exchange Yen Clearing System (FX–YCS)

FX–YCS is the cross-border JPY clearing system. All clearing services involving non-residents are provided through this system. The cut-off time is 2:00pm.

Zengin System (domestic funds transfer system)

This is an electronic funds transfer system between domestic JPY accounts. The cut-off time is 3:25pm.

Tokyo Clearing House and 121 local clearing houses

Tokyo Clearing House is where paper-based items such as promissory notes and cheques are exchanged for clearing. Transactions in Osaka are cleared through the agent bank.

Bank-neutral system CommentsANSER (Automatic Answer System for Electronic Requests)

ANSER is not a local clearing system, but part of the de facto public infrastructure run by NTTData in the local banking industry for bank-neutral, real-time Zengin data interchange. ANSER is mostly used for intra-day, cross-bank cash concentration of resident JPY liquidity. The cut-off time is 3:00pm.

Please also see the Market Watch section regarding proposed changes to clearing.


The Financial Services Agency (FSA) acts as the regulator for the banking and financial sector in Japan.

Residency status is determined by the existence of a permanent establishment in Japan. Branches


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of foreign incorporated companies are considered as residents, in addition to companies’ Japanese subsidiaries.

Non-residents are in most instances not subject to any reporting requirements to the Japanese authorities. Residents must comply with the authorities’ reporting requirements for non-trade related transactions involving non-residents for any amount over JPY30m or equivalent. The reports are submitted to the Ministry of Finance via BOJ.

The Financial Instruments and Exchange Law came into effect on 30 September 2007. This law regulates how financial institutions can sell high-risk products. Similar rules were instituted into banking law with regard to the handling of non-JPY deposits. As a result, customers are classified as either professional or amateur. Foreign corporations are regarded as professional by default, but have the option to be switched to amateur status. (Banks are required to give notice of this option before handling transactions.) If a foreign corporation opts for amateur status, then the bank is required to provide it with a document containing charges and risk information, together with an explanation of the product.

Corporations incorporated in Japan are classified as professional by default if the corporation’s paid-up share capital is JPY500m or more, or if its stock is listed, etc.

There has been discussion in the market on whether lender registration is required for inter-company loans between sister companies in Japan. However, according to the Money-Lending Business Control and Regulation Law in Japan, the FSA clearly states in a letter dated 26 June 2008 that for companies that conduct inter-company lending, i.e. JPY sweeps, with other sister companies, lender registration is required.

The Fund Settlement Law came into effect in April 2010 allowing non-banking businesses to start providing money remittance services. The law was enacted to regulate all money transfer businesses including non-banks to protect consumers from this risk. The law is expected to encourage increased competition, product innovation and pricing reduction for cross border remittances of retail customers.

Amended tax regulation for dividends from overseas subsidiaries: In order to repatriate overseas income, the tax regulations have been amended to exclude dividends from overseas subsidiaries in a tax write-off. This became effective in the 2009 accounting year in Japan.


While notional pooling is not prohibited by regulation, it is effectively impossible due to vague tax treatment. Cash concentration is permissible.

Deposits are typically used as the investment instruments of choice for liquidity structures. However, as current interest rates in Japan are low, onshore cash concentration in JPY is not actively practised as corporations prefer to seek higher-yield possibilities in other locations/currencies.

As mentioned, with reference to the Money-Lending Business Control and Regulation Law in Japan, the FSA has clarified that inter-company lending/sweeping between sister companies would require lender registration.

The maximum effective tax rate – after amalgamating corporation tax, inhabitants’ tax and enterprise tax, and allowing for business tax deductions – is 40.69%.

A withholding tax of 20% applies to dividends (reduced to 7% for listed shares except for individuals holding more than a certain ratio of an outstanding number of shares), inter-company loan interest and royalty payments to non-residents. A 15% withholding tax is applied to all bank deposit interest and bond interest to non-residents, but there are more than 56 bilateral double taxation treaties in place that can reduce the withholding tax rate. To comply with transfer-pricing regulations, all inter-company transactions must be made at arm’s length.

A 5% consumption tax applies to banking charges associated with domestic transactions and must be an element of any quoted price.


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Market Watch

The Bank of Japan decided to adopt zero interest rate policy on 5 Oct 2010 by cutting its key interest rate to virtually zero. The target rate for unsecured overnight call loans was reduced to 0-0.1% from 0.1%. The decision underscores growing worries about the Japanese economy troubled by strong yen and falling prices.

HSBC Global Payments and Cash Management Tel: [81] (3) 5203 3133 E-mail: [email protected] Trade and Supply Chain Tel: [81] (3) 5203 3565 or 3222 E-mail: [email protected]


Overview



Capital Seoul

Major Language(s) Korean


Currency Won (KRW)

Central Bank Bank of KoreaGDP 1,352.5bn (2009 est.); -1.0% real growth rate (2009 est.); 27,791

per capita (2009 est.)Inflation rate (consumer prices) 2.6%

Trade


equipment; ships and boats; energy equipment and energy-related machinery; vehicles, parts and accessories; optical, photographic, and measuring equipment, parts and accessories; and other commodities (2009)

Major Imports Mineral fuels, mineral oils, and products; electrical machinery and equipment; energy equipment and energy-related machinery; iron and steel; optical, photographic, and measuring equipment, parts and accessories; and other commodities (2009)


China - 23.2%, US - 10.1%, Japan - 5.8%, Hong Kong - 5.3% (2008)


China - 16.8%, Japan - 15.3%, US - 9.0%, Saudi Arabia - 6.1%, UAE - 2.9%, Australia - 4.6% (2008)



The central bank is the Bank of Korea (BOK). The Financial Supervisory Service regulates the banking sector.

Since the 1997 Asian financial crisis, there has been consolidation in Korea’s banking industry. At the instigation of the government, many major domestic banks merged to improve their financial health. Notable examples are Citibank’s merger with Korea First Bank and Standard Chartered’s merger with Hanmi bank. The crisis also brought tighter regulations in the banking industry, especially in the way

Market Analysis: Korea

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financial transactions were conducted among businesses. At present, there are around 15 domestic banks, the largest of which dominate the local market,

while foreign banks have been more successful in tapping offshore business. Documentation requirements for opening bank accounts are not particularly onerous and include

standard items such as certificates of business registration, etc. The following types of bank accounts are currently available:

Account type Local current1 Local savings foreign current1 foreign savings


Non-resident Yes Yes1 Yes Yes

Credit interest No2 Yes No Yes1. To encourage local currency deposits, the government permits non-residents to open two types of local currency accounts

under the current regulations: a non-resident free won account (Savings account (NRF) and current account (NCA)) or a non-resident won account. For non-resident free won account, non-residents are free to remit funds abroad without underlying documents, although local deposit/withdrawal/transfer is restricted. For the non-resident won account, non-residents can make local deposits/withdrawals, although remitting funds abroad is restricted.

2. Due to BOK regulations, current accounts pay no interest.


Clearing system CommentsHigh-value clearing system (BOK-Wire)

The Bank of Korea Financial Wire Network (BOK-Wire) is an online network which connects the central bank and participating financial institutions for real-time gross settlement (RTGS) across current accounts held with BOK. The cut-off time is 3:00pm.

Local foreign currency clearing system

There are two kinds of local foreign currency clearing system in Korea. One is a clearing system provided by Korea Exchange Bank, Kookmin Bank and Shinhan Bank through their CLS (Continuous Linked Settlement) memberships using SWIFT network. The cut-off time is 3:00pm for US dollars and euros, and 9:50am for Asian currencies. The other uses KFTC infrastructure instead of SWIFT network. On 22nd October 2010, KFTC started a real-time foreign exchange payment service which is similar to the local currency payment system using KFTC infrastructure. Kookmin, Shinhan, Woori, and Korea Exchange bank act as settlement banks. The cut-off time is 4:30 pm.

Retail payment clearing system The retail payment systems comprise the cheque clearing system, the bank giro system, the Online Funds Transfer (OFT) system, the Electronic Financial Information Network (EFIN) system, the interbank cash dispenser/automated teller machine (CD/ATM) system, the electronic fund transfer at the point of sale (EFTPOS) system, and the Cash Management Service (CMS) system. All these payment systems are managed by the Korea Financial Telecommunications and Clearings Institute (KFTC), a non-profit clearing and financial data relay centre established and jointly owned by member banks. The cut-off time is 4:00pm for the OFT system, and 11:00pm for the EFIN and CD/ATM systems.


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In addition to BOK, the Ministry of Strategy and Finance is responsible for formulating rules and regulations relating to the banking and finance sector and the economy as a whole.

When foreign investors wish to set up a subsidiary in Korea by acquiring newly issued/outstanding stock of a company, they must submit the required declaration form through a FX (Foreign Exchange) designated bank and take the necessary procedures for capital injection advised by the bank. The minimum level of injection for foreign direct investment companies is KRW50m.

Branches of foreign corporations must designate a foreign exchange bank through which to channel working capital, and repatriate the branch’s retained earnings so that the overseas head office can manage its money.


Transactions between resident and non-resident accounts and cross-border payment transfers are highly regulated under FETR (Foreign Exchange Transaction Regulation). To comply with the FETR, it is necessary to submit any underlying documents to the designated foreign exchange bank for the transaction. However, there is no restriction or limit regarding exchange into KRW or other foreign currencies.

Foreign exchange regulations on non-resident accounts in local currency are as follows:

Account type general regulationsNon-resident free won account

• Deposits from overseas and repatriation of funds out of Korea are allowed without restriction. • Local payments/collections are generally not allowed except for the transactions permitted by local foreign exchange regulations (e.g. a result of normal trading activities).

Non-resident won account • Local deposit and withdrawal are allowed without restrictions. • No repatriation of funds out of Korea from this account is allowed, except for the transactions permitted by local foreign exchange regulations.

Cash concentration and notional pooling between resident and non-resident is allowed up to USD30m for inter-companies under FETR, but BOK approval is required. Cash concentration means inter-company lending, hence a tax implication issue arises. Single currency cash concentration between residents and between residents and non-residents could be provided by HSBC SEL. In case of cash concentration, a withholding tax on interest arising from inter-company lending is levied on the borrowing company.

Corporate customers should be aware of their planning of liquidity management, as the cash concentration between residents and non-residents is permitted up to USD30m (no limit between residents). The tax implication for inter-company lending should be applied in this case. A fair market interest rate should apply to inter-company lending. Currently the rate is 8.5% or the weighted average borrowing rate of the lender. Withholding tax on the interest arising from inter-company lending between residents is 25%. Currently the withholding tax on interest income for corporate customers is 14%.

The withholding tax rate for non-residents varies, and depends on international tax treaties where they exist.


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Market Watch

The government is continuing its policy of gradual deregulation, as witnessed by legislation such as the Financial Investment Services and Capital Market Act promulgated in 2007 and the government’s intention to raise the shareholding cap on non-financial company ownership of banks.


Overview

Population 526,000

Total Area 29 sq km

Capital n/a

Major Language(s) Cantonese, Portuguese and English


Currency Pataca (MOP)

Central Bank The Monetary Authority of Macau (AMCM)GDP USD21.2bn (2009 est), 2.2% real growth rate (2009 est.),

USD38,954 per capita (2009 est.)Inflation rate (consumer prices) 1.2%

Trade

Exports f.o.b USD96.0m (2009) Imports c.i.f USD4.6bn (2009)Major Exports Apparel and clothing

accessories; jewels, jewellery and precious metals; electrical machinery and equipment; mineral fuels, mineral oils, and products; and other commodities (2009)

Major Imports Mineral fuels, mineral oils, and products; electrical machinery and equipment; jewels, jewellery and precious metals; energy equipment and energy-related machinery; clocks and watches, parts and accessories; and other commodities (2009)


Hong Kong - 39.2%, US - 17.1%, China - 14.6%, Germany - 3.9% (2009)


China - 31.4%, Hong Kong - 11.0%, Japan - 8.2%, France - 8.0%, US - 6.0% (2009)



The Monetary Authority of Macau (AMCM) was established in 1989 with the function of a quasi-central bank and the power to supervise the financial system of the Macau Special Administrative Regon (SAR), covering both banking and insurance sectors.

At present, there are 28 banks in Macau: 12 are locally incorporated (including the postal savings office) and 16 are branches of overseas banks. With the exception of two offshore banks, all banks in Macau are fully licensed retail banks.

On the insurance side, there are 24 insurance companies, 11 of which are life companies while the

Market Analysis: Macau SAR



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ARremaining 13 are involved in non-life business. Eight are local companies and the rest are branches of

overseas companies. The authority for the supervision, coordination and inspection of insurance activities rests with the

Chief Executive, while the actual execution of these functions is carried out by AMCM through its Insurance Supervision Department.

There are no particular restrictions on opening bank accounts in Macau. However since Macau law is Continental Law (rather than Common Law) the Commercial Code applies to new company formations (e.g. partnerships are not allowed).

For foreign corporations, a beneficial ownership declaration is required. The following types of bank accounts are currently available:




Credit interest No Yes No Yes


The local clearing system is owned, managed and run by the AMCM. Both MOP and Hong Kong dollar (HKD) domestic cheques can be cleared in two days. There is no settlement through the Macau clearing system on Saturday and Sunday.

At present, Macau has no real-time gross settlement (RTGS) system or electronic automated clearing houses (ACHs). Therefore, most companies use the in-house ACH facilities of major banks for standing orders, direct debits and SWIFT payments. Cheques are also commonly used, denominated in either MOP or HKD. In the absence of RTGS and ACHs, clearing in Macau is mostly paper-based.


There are no exchange control regulations. For local companies involved in exports, 40% of the relevant foreign currency transaction amount is surrendered to the government to exchange into MOP.

The AMCM is the regulatory body responsible for supervising the banking and insurance sectors. This includes the supervision of bureau de change. For banks registered as an overseas branch in Macau, there is no capital requirement.

There are four basic steps to establishing a company in Macau: • Application regarding the admissibility of a trade name, which should be submitted to the Commercial Registry Office (CRCBM) and include a clear definition of the company’s objectives. • Completion and signing of the company’s memorandum and articles of association (which must be done within 60 days of obtaining the trade name). This can be done through the Macao Trade and Investment Promotion Institute’s private notary, a Macau-registered lawyer, or by the applicant and certified by a notary. • Registration of the company (must be completed within 15 days of signing the memorandum of association) with the CRCBM, which requires submission of the following: – Letter of application with verified signature; – Company constitution document; – List of shareholders with copies of their ID; – List of board members; – Company board’s letter of appointment; – Copy certificate of admissibility of the company’s trade name; and


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AR – List of names of the administrative board.

• Making a declaration of commencement of operation to the Macau Finances Services Bureau, which must include: – Completed industrial tax form with verified signature; – List of shareholders with copies of their ID; – List of board members and their letter of appointment; – Certificate of registration issued by the CRCBM; – Copy of the memorandum and articles of association; and – Payment of the industrial tax (see “Liquidity, Currency and Tax” section).


Macau has fairly “benign” banking regulations compared to other Asia-Pacific territories and countries. However, there are regulations that restrict liquidity management. For example, in-country notional pooling is only permitted subject to validation of enforceability right of set-off, while MOP cross-border notional pooling and MOP cross-border sweeping are not permitted.

The following is a list of the key areas of taxation affecting companies with operations in Macau: • Property tax – 16% of rental income; • Industrial tax – a fixed fee of MOP300 on each business activity; • Complementary (profits) tax – sliding scale tax rates averaging 12% on income over MOP300,000; and varying between 3% and 12% for income below this level; • Professional tax of between 7% and 12% charged on the individual’s annual income in excess of MOP120,000; • Stamp duty of 3% on transfer of real estate worth over MOP4m; and • Social security contributions – the monthly contribution made by the employer is MOP30 per resident employee and MOP45 per non-resident employee.

There is no withholding tax in Macau.

Market Watch

After further relaxation of the RMB trade settlement scheme announced by the People’s Bank of China (PBOC) in July 2010, the RMB business scope of banks in Macau has further expanded. However, compared to Hong Kong, services allowed in Macau are still more restricted and approval from Monetary Authority of Macau (AMCM) often needs to be sought on a case by case basis.



Overview



Capital Kuala Lumpur

Major Language(s)Bahasa Malaysia, English, Mandarin, and other Chinese dialects, and Tamil


Currency Ringgit (MYR)

Central Bank Bank of Negara Malaysia (BNM)GDP 376.2bn (2009 est.); -3.6% real growth rate (2009 est.); 13,551 per

cpaita (2009 est.)Inflation rate (consumer prices) -0.1%

Trade


and equipment; energy equipment and energy-related machinery; mineral fuels, mineral oils, and products; animal, vegetable fats and oils; rubber and rubber articles; and other commodities (2009)

Major Imports Electrical machinery and equipment; energy equipment and energy-related machinery; mineral fuels, mineral oils, and products; vehicles, parts and accessories; plastics and plastic articles; and other commodities (2009)


Singapore - 14.0%, China - 12.2%, US - 11.0%, Japan - 9.8%, Thailand - 5.4%, Hong Kong - 5.2% (2009)


China - 14.0%, Japan - 12.5%, US - 11.2%, Singapore - 11.1%, Thailand - 6.1%, Korea - 4.6% (2009)



The financial industry is governed by the Banking and Financial Institutions Act of 1989 (BAFIA) and regulated by Bank Negara Malaysia (BNM), the central bank of Malaysia, which is responsible for monitoring and supervising the banking and financial systems of the country and administrating its exchange control regulations.

Malaysia’s banking sector has undergone consolidation in recent years. There are now nine local commercial banks, 14 foreign commercial banks, 15 investment banks, 11 Islamic banks and 7

Market Analysis: Malaysia


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a International Islamic Banks. An international offshore financial centre is located in Labuan, East Malaysia.


Account type Purpose

Local currency accounts:

Current Cheque book provided, non-interest-bearing account

Savings No cheque book provided; interest-bearing accountTime deposit Interest-bearing account with various fixed maturity tenures

ranging from one to 60 months

Foreign currency accounts:

Current Cheque book provided, non-interest-bearing account

Savings No cheque book provided; interest-bearing accountTime deposit Interest-bearing account with fixed maturity tenures of one,

three, six, nine and 12 monthsCorporates are prohibited from maintaining local and foreign currency savings accounts.


Clearing system CommentsRENTAS (Real-Time Electronic Transfer of Funds and Securities)

RENTAS is a nationwide, real-time gross settlement system (RTGS) for electronic domestic payments. The current minimum amount for third party payments is MYR10,000 for conventional and Islamic accounts through manually initiated transactions. The minimum threshold limit for Internet banking channels is currently set at MYR50,000. There is no limit for accounts favouring RENTAS members’ own accounts. The limit is not applicable to payments in favour of BNM, federal ministries, state governments and other government bodies such as the Social Security Organisation, Employees’ Provident Fund or any institutions specified by BNM.

CTCS (Cheque Truncation and Conversion System)

Cheque Truncation uses the electronic image and Magnetic Ink Character Recognition (MICR) data of the cheque and not the physical cheque to process clearing. Cheques are digitally transmitted, thus efficiently reducing time needed for payment transactions.

IBG (InterBank Giro) IBG, operated by MEPS (Malaysian Electronic Payment Services) since October 2000, involves an exchange of digitised transactions to effect payment orders that are less than MYR100,000 per transaction1. IBG services are currently available between participating banks that are MEPS members only. Transfer of funds between an external account2 and resident account are allowed up to RM5,000 per day in aggregate for any purpose.

1. MEPS is in discussions with banks to increase the current threshold of MYR100,000 to MYR500,000 with the roll-out schedule planned in phases from November 2010 to September 2011

2. An external account means a MYR account maintained with financial institution in Malaysia by a non-resident or where the beneficiary of the funds is a non-resident.


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aLegal, Company and regulatory

In addition to Bank Negara Malaysia, other important regulatory/government bodies in Malaysia include: • Malaysia’s Ministry of Trade & Industry (MITI); • Companies Commission of Malaysia (SSM); • Royal Malaysian Customs; and • The Inland Revenue Board.

Incorporation of a local company in Malaysia includes the following procedures: • A name search with the SSM, using Form 13A; and • Lodgement of incorporation documents, including: – Memorandum and articles of association; – Form 48A (Statutory declaration under oath by the promoter(s) of a company confirming, amongst other things, that he/she is not an undischarged bankrupt, has not been convicted/imprisoned of the prescribed offences and consenting to act as a director of the company [minimum requirement of at least 2 directors resident in Malaysia]); – Form 6 (Declaration of compliance with Companies Act requirements by the company secretary); and – Form 13A and a copy of the SSM letter approving the company’s name.

Registration of a foreign company in Malaysia follows a similar procedure in terms of name search, but the registration documents required include: • Certified copy of the certificate of incorporation or registration of the foreign company in its home jurisdiction; • Certified copy of the foreign company’s charter, statute or memorandum and articles of association or other instrument defining its constitution; • Form 79 (Return by foreign company giving particulars of its directors and changes of particulars); • Where the Form 79 includes directors resident in Malaysia who are members of the local board of directors, a Memorandum by the foreign company stating the powers of the local directors; • Memorandum of appointment or power of attorney authorising the person(s) residing in Malaysia, to accept service of process and notices on behalf of the foreign company; • Form 80 (Statutory declaration by agent of foreign company); and • Form 13A and a copy of the SSM’s letter approving the company’s name.


Only local currency cash concentration and notional pooling are permitted in Malaysia. However, companies wishing to participate in cross-border foreign currency cash concentration can first apply for permission from BNM

However, in practice, comparatively few banks offer notional pooling because of the associated reserve requirements. Notional pool accounts are taken into account when calculating reserve requirements, so there is a cost to banks in terms of reserves they must set aside for what is effectively virtual money in the notional pool. Where banks do offer notional pooling this additional cost has to be covered. Therefore, unless there are significant countervailing considerations relating to matters such as inter-company lending/tax, notional pooling may not always prove cost-effective.

Time deposits, wholesale money market deposits and repurchase agreements (repos) are available to companies looking for return on short- to medium- term liquidity. Central bank regulations forbid banks from paying interest to corporates on current accounts and also forbid corporates from holding savings accounts. Repos are therefore the legally acceptable alternative. While longer term local currency commercial paper is available, liquidity and yield-to-risk options are limited.

In its efforts to promote international trade and a conducive business environment in Malaysia, BNM


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a has further liberalised the Foreign Exchange Administration Rules in allowing: • Trade settlement between resident and non resident in ringgit. The settlement by non-resident shall be conducted via their ringgit account maintained with licensed onshore banks; or convert foreign currency into ringgit with licensed onshore banks or with the appointed overseas branches of banking groups of the licensed onshore banks. • Borrowing of any amount in foreign currency by a resident company from its non-resident non-bank related company, in addition to its non-resident non-bank parent company. • Hedging for anticipated current account transactions to the cumulative amount received or paid in the preceding 12 months by residents with the licensed onshore banks by abolishing the limit. • Please refer to the BNM website for further information, www.bnm.gov.my

Types of income subject to withholding tax for non-residents include:

Payment type Withholding tax rateContract payment1 10% and 3%Interest2 15%Royalty2 10%Technical advice, assistance or services performed in Malaysia, rent/payment for use of moveable property

10%

Real estate investment trust (REIT)3: (i) Other than a resident company (ii) Non-resident company (iii) Foreign institutional investors (e.g. pension funds, collective investment schemes)

10% 25% 10%

1. Where the non-resident has a permanent establishment in Malaysia.2. Withholding tax rates may be reduced under the relevant double taxation agreement between Malaysia and the non-

resident’s jurisdiction.3. The above withholding tax rate imposed on a REIT is effective from 1 January 2009 to 31 December 2011.

Market Watch


HSBC Global Payments and Cash Management Tel: [60] (3) 8312 3696 E-mail: [email protected] Trade and Supply Chain Tel: 1 800 88 3898 E-mail: [email protected]


Overview



Capital Port Louis

Major Language(s)English (official language), French (widely spoken), Creole (local dialect)


Currency Mauritian rupee (MUR)

Central Bank The Bank of MauritiusGDP 15.8bn (2009 est.); 2.1% real growth rate (2009 est.); 12,356 per


Trade


accessories; meat, fish and other aquatic invertebrates; sugars and sugar confectionary; and other commodities (2009)

Major Imports Mineral fuels, mineral oils, and products; energy equipment and energy-related machinery; electrical machinery and equipment; fish and other aquatic invertebrates; and other commodities (2009)


UK - 27.0%, France - 21.2%, US - 8.3%, Italy - 5.5%, Belgium - 2.6%, Madagascar - 6.4%, UAE - 0.3% (2009)


India - 18.7%, China - 12.6%, France - 11.8%, South Africa - 8.7% (2009)



The central bank is the Bank of Mauritius, which acts as the local regulator for the banking industry. It does so within various acts of legislation, including the Banking Act 2004, Bank of Mauritius Act 2004, Companies Act 2001, and Financial Intelligence and Anti Money Laundering Act 2002, Prevention of Terrorism Act 2002, Convention for the Suppression of the Financing of Terrorism Act 2003, Borrowers Protection Act 2007, Data Protection Act 2009 and Insolvency Act 2009.

Market Analysis: Mauritius


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s The following types of bank accounts are currently available:

Account typeLocal Currency Current Savings

foreign Currency Current Savings

Resident Yes Yes Yes1 Yes

Non-resident2 Yes Yes Yes1 Yes

Credit interest No Yes No Yes1. Foreign currency cheque books are not available.2. For opening of non-resident accounts, a letter of introduction from an acceptable bank may be required.


Clearing system CommentsMACSS (Mauritius Automated Clearing and Settlement System)

This is a specially designed large-value interbank payment system, which is based on real-time gross settlement (RTGS) principles. It was introduced on 15 December 2000 and is operated by the Bank of Mauritius. The cut-off time is 3:30pm.

Paper Cheque Clearing Cheque clearing takes place at the Port Louis Clearing House, with cheques physically exchanged and clearing information and settlement done through MACSS by the submission of electronic files to the Bank of Mauritius. Cheque payments between customers of the same bank typically take one working day to clear; between customers of different banks it takes two working days.

As Mauritius does not have a local automated clearing house (ACH) system allowing for high-volume low-value payments between banks, MACSS is used for all electronic payments. There is no minimum payment value requirement for using the system.

As mentioned earlier, anti-money laundering requirements have tightened appreciably and the purpose of all payments must now be stated.

Cash Management Solutions at a glance:

investment ProductTransaction Management

Liquidity ManagementPayments CollectionsTime depositTreasury bills

Cheques/demand draftsElectronic paymentsCorporate credit cardsDirect debitsPayments Advising

Cash collection1

Cheque collection2

Overdraft facilities3

Auto-sweeping (In country)

1. Cash management services are delivered via HSBCnet, HSBC’s electronic banking systems.2. Through branch network.3. Subject to credit approvals.

Payment Capabilities and Cut-off times

Electronic Payments

MACSS GIRO/ACH Payroll International Funds transfer

Yes N/A Yes Yes1

15:00 N/A 15:00 13:00/14:001

1. Depending on the currency of transfer.


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Foreign Currency Domestic cheque

Bank Demand Draft

Cheque Outsourcing (via HSBCnet)

Petty Cash Payment Advising

Yes Yes Yes N/A Yes YesN/A N/A Available during

branch hoursN/A Available during

branch hoursN/A


For non-banking financial services, the local regulator is the Financial Services Commission. The Companies Act 2001 provides for several types and categories of companies:

• Domestic company; • Company holding a Category 1 Global Business Licence; and • Company holding a Category 2 Global Business Licence. These companies may be: • Limited by shares: A company formed on the principle of having the liability of its shareholders limited by its constitution to any amount unpaid on the shares respectively held by the shareholder. • Limited by guarantee: A company formed on the principle of having the liability of its members limited by its constitution to such amount as the members may respectively undertake to contribute to the assets of the company in the event of its being wound up. • Limited by both shares and guarantee: A company whose constitution limits its life to a period not exceeding 50 years from the date of its incorporation. However, this period may be extended to a maximum of 150 years. Its constitution contains the specific matters as laid down in the law.


Mauritius has free and liberal financial and money market policies with no exchange controls. Investment instrument options for surplus liquidity are simple; most companies use term deposits. Corporate income tax rate is 15%. There are two classifications of companies operating in the global business (offshore) sector:

• GBC1 Companies: Category 1 Global Business Companies; and • GBC2 Companies: Category 2 Global Business Companies. Each classification has a different tax regime. A GBC1 is taxed on its chargeable income at the corporate income tax rate of 15%, but can claim a deemed foreign tax credit of 80%, thus resulting in an effective tax rate of 3%. This rate can be further reduced if the actual foreign tax paid on the chargeable income is higher. A GBC2 is tax-exempt.

Capital gains are exempt in Mauritius. There is no withholding tax on interest paid to companies and non-resident individuals. Profitable firms are required to spend 2% of their profits on corporate social responsibility (CSR)

activities approved by the government or to transfer these funds to the government to be used in the fight against poverty.

Market Watch

Mauritius has a number of double taxation agreements already in place and is currently looking to establish more. The government is generally keen to provide incentives for the financial services industry to expand in the country. By establishing a favourable tax regime, the intention is to attract


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s more foreign direct investment. Of notable importance is a USD500m investment agreement struck between the Tianli Group of

China and the Government of Mauritius, resulting in the creation of the Mauritius Tianli Economic and Trade Cooperation Zone, which is expected to lead to the creation of 7,500 direct and indirect jobs.



Overview



Capital Wellington

Major Language(s) English and Maori


Currency New Zealand dollar (NZD)

Central Bank The Reserve Bank of New ZealandGDP 115.1bn (2009 est.); -2.2% real growth rate (2009 est.); 26,625 per


Trade

Exports f.o.b USD25.0bn (2009) Imports c.i.f USD25.7bn (2009)Major Exports Dairy produce and products

of animal origin; meat and edible meat; offal; wood and wood articles; mineral fuels, mineral oils, and products; energy equipment and energy-related machinery; and other commodities (2009)

Major Imports Mineral fuels, mineral oils, and products; energy equipment and energy-related machinery; electrical machinery and equipment; vehicles, parts and accessories; aircraft, spacecraft, and related parts; and other commodities (2009)


Australia - 23.3%, US - 9.6%, China - 9.2%, Japan - 7.1%, UK - 4.2% (2009)


Australia - 18.4%, China - 15.1%, US - 10.5%, Japan - 7.2%, Germany - 4.2 %, Singapore - 4.1% (2009)



The Reserve Bank of New Zealand (RBNZ) is the central bank of New Zealand. It is responsible for monetary policy, currency and the maintenance of the financial system. It also has a policy and operational role in respect of the in-country payment settlement systems.

There are currently 19 banks registered in New Zealand. Due to the close economic ties between Australia and New Zealand, many of the local and international banks in Australia can also be found in New Zealand.

Market Analysis: New Zealand


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land The following types of bank accounts are currently available:




Credit interest Yes Yes Yes Yes


New Zealand has a very developed and sophisticated cash management infrastructure. Its foundation is based on the foresight of local banks nearly 40 years ago, beginning with the creation of three centralised electronic clearing houses providing overnight settlement, securities trading, and interbank/high-value, same-day transactions. The benefits continue to accrue today, and over 90% of all payments are made electronically.

Clearing system CommentsInterchange and Settlement Ltd (ISL)

A low-value clearing system used for paper-based and overnight clearing files. Cheques, direct debits/credits and automatic payments are interchanged among the banks with value being given for the day the payment enters the system. Single payments (also known as priority payments) are also cleared through ISL. These are interchanged and settled in the same manner as files – with value also given for the day the payment enters the system.

Austraclear The primary real-time gross settlement (RTGS) system for settlement of securities trading and clearing transactions. No minimum value requirement applies.

Same-day cleared payments (SCP)

SCP is also used for RTGS transactions. It is commonly used for settlement of interbank, property and share transactions and some commercial payments. No minimum value requirement applies.


While New Zealand is a relatively deregulated environment in which to conduct business, corporates need to take into account the country’s tax regulations, restrictions on cross-border transactions as well as flow of financial information in certain circumstances.


New Zealand has no regulatory restrictions on pooling or cash concentration. However, while notional pooling and cash concentration are not restricted, in practice relatively few banks offer notional domestic currency pooling or cross-border cash concentration.

There is limited commercial paper available, so most corporate surplus liquidity tends to be invested in money market and term deposits.

While there are certain restrictions on cross-border transactions and the flow of financial information, there are no specific regulations governing foreign exchange transactions in New Zealand.

Profits earned by a company are taxed at the company tax rate of 28% for the 2011–12 income year. There is no capital gains tax in New Zealand. Withholding taxes levied in New Zealand vary according to domicile and category of payment (e.g.

interest, dividends, royalties, etc.).


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Overview



Capital Manila

Major Language(s) Filipino and English


Currency Philippine peso (PHP)

Central Bank Bangko Sentral ng Philipinas (BSP)GDP 326.1bn (2009 est.); 1.0% real growth rate (2009 est.); 3,536 per


Trade


equipment; machinery and mechanical applicances; vehicles, parts and accessories; optical, photographic, and measuring equipment, parts and accessories; wood and wood articles; and other commodities (2009)

Major Imports Electrical machinery and equipment; mineral fuels, mineral oils, and products; machinery and mechanical applicances; vehicles, parts and accessories; cereals; and other commodities (2009)


US - 17.5%, Japan - 16.2%, China - 7.6%, Singapore - 6.6%, Germany - 6.5%, Hong Kong - 8.3%, Korea - 4.7% (2009)


Japan - 16.2%, US - 17.5%, Singapore - 6.6%, China - 7.6%, Taiwan - 3.5% (2009)



The Bangko Sentral ng Pilipinas (BSP), the primary regulator, issues policy guidelines for general bank supervision.

There are 38 banks active in the Philippines, with all but three of the major local banks being majority-owned and controlled by the private sector. Foreign banks, of which there are 17, can operate as a branch or a subsidiary subject to the same regulations as the local commercial banks. The Philippines’

Market Analysis: The Philippines



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banking sector is considered overpopulated, and a trend towards consolidation continues. Documentation requirements for opening corporate bank accounts include identification documents

(Securities and Exchange Commission registration and articles of incorporation for corporations) to satisfy Know Your Customer (KYC) requirements and a Board Resolution/Secretary’s Certificate.

If foreign corporations are registered to do business in the Philippines, there are no special requirements regarding their bank accounts. If they are not registered, then they are considered non-resident accounts and limitations in terms of repatriation of funds will apply.


Account type Local current2 Local savings2 foreign current2 foreign savings2


Non-resident1 No No Yes Yes

Credit interest Yes Yes Yes Yes1. Accounts opened by non-resident companies must be funded by inward remittances of foreign currencies, or by over-the-

counter deposits of local currency as long as there is proof that the source is income derived from a property or asset located in the Philippines.

2. Account types: CUN (current accounts) and SSV (savings accounts) are available.


There are three major local currency clearing systems in The Philippines: the cheque clearing infrastructure for paper-based payments (TCCH), Financial Information Service Co. Ltd (FISC) and the automated clearing house (ACH) for electronic payments:

Clearing system CommentsPhilippine Clearing House Corporation (PCHC) local cheque clearing

This is a paper-based clearing system operated by PCHC, which is the only entity authorised by BSP to clear cheques in Metro Manila and its integrated regions. Local currency cheques and cashier’s orders take three working days to clear.

PCHC regional cheque clearing Local currency cheques presented by banks and branches located in specific provinces are cleared through BSP and PCHC. These cheques usually take seven days to clear.

Provincial cheques for collection Cheques presented through areas not mentioned in either local or regional clearing are mailed to these areas and cleared in approximately 30–45 working days. Such items are also referred to as out-of-town cheques.

PCHC PHP and US dollar (USD) foreign exchange clearing

Funds in local currency can be electronically transferred between member banks’ head offices through PCHC end-of-day-netting. Electronic interbank transfers are now settled within 24 hours or by the next working day. The cut-off time is 4:00pm.

PDDTS (Philippines Domestic Dollar Transfer System)

The PDDTS has online, real-time and end-of-day batch netting transfer capabilities with final settlement on the same day. All USD transfers processed via the real time gross settlement (RGTS) mode are delivered through PDDTS online. The cut-off time is 3:00pm.

PPS (Philippine Payment System or PhilPaSS)

The PhilPass is the Philippines’ version of RTGS for PHP. Payments are sent via SWIFT and are a same-day transfer provided within set cut-off times, with settlement on the same day via BSP. The cut-off time is 3:00pm.


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Clearing systems in the Philippines are owned and operated by the Banker’s Association of the Philippines (BAP), which in turn is owned by BAP member banks.

Many banks offer cheque outsourcing and low-value electronic payments. Some also offer on-site cheque-writers and payments advising.

Banks with nationwide branch networks allow over-the-counter deposit of cheques and cash at any point in the network to a single account. Foreign banks, whose branch networks are not as extensive, will usually partner with local banks, enabling payments through the latter’s branches into a central account. Both local and foreign banks offer collections outsourcing via a third-party courier. Electronic collections via direct electronic debit of accounts are implemented within a single bank as the country lacks the infrastructure to enable this seamlessly on an interbank basis.


Apart from the central bank, other relevant regulatory bodies include the Securities and Exchange Commission, the Insurance Commission and the Philippine Deposit Insurance Corporation.

There are no minimum capitalisation requirements for companies in unregulated industries, but these do apply in the case of the financial services industry. This distinction also applies to local subsidiaries of foreign corporations.


Some banks offer automated sweeping and cash concentration services. Overdrafts and, consequently, offsetting of negative and positive balances, are not allowed in the Philippines. Notional pooling is not allowed.

The most common investment instruments for surplus liquidity are time deposits, but there is also some activity in commercial paper and other money market instruments.

There are several restrictions and regulatory requirements that are intended to curb speculative attacks against PHP, which is not readily convertible into other currencies.

Corporate income tax is levied at 32%, while a 20% withholding tax is applied to all interest income. Documentary stamp tax applies to all time deposit products. Any interest paid on a deposit account that is 50% higher than the regular CASA rates is also subject to documentary stamp tax. There are no offshore/onshore distinctions as regards corporate taxes.

Market Watch

In general, the regulatory landscape in the Philippines is fluid. Therefore any corporation contemplating direct foreign investment in the Philippines is well-advised to seek professional advice in advance.



Overview


Total Area 705 sq km

Capital n/a

Major Language(s) English, Malay, Mandarin and Tamil


Currency Singapore Dollar (SGD)

Central Bank Monetary Authority of Singapore (MAS)GDP 234.8bn (2009 est.); -3.3% real growth rate (2009 est.); 49,433

per capita (2009 est.)Inflation rate (consumer prices) -0.2%

Trade


and equipment; energy equipment and energy-related machinery; mineral fuels, mineral oils, and products; organic chmeicals; and other commodities (2009)

Major Imports Electrical machinery and equipment; mineral fuels, mineral oils, and products; energy equipment and energy-related machinery; aircraft, spacecraft, and related parts; and other commodities (2009)


Hong Kong - 11.5%, Malaysia - 11.4%, China - 9.7%, Indonesia - 9.6%, US - 6.6%, Korea - 4.6%, Japan - 4.5% (2009)


US - 11.9%, Malaysia - 11.6%, China - 10.55%, Japan - 7.6%, Indonesia - 5.8%, Korea - 5.7%, Taiwan - 2.0% (2009)



The Monetary Authority of Singapore (MAS) is the central bank of Singapore. It formulates and executes Singapore’s monetary policy, manages its foreign reserves and issues Singapore’s currency and government securities. As supervisor and regulator of Singapore’s financial services sector, it has prudential oversight over the banking, securities, futures and insurance industries.

Singapore’s three large local banking groups, DBS, UOB and OCBC dominate the local retail banking scene. In order to liberalise the banking sector in Singapore, MAS has awarded qualifying full bank status to a number of foreign banks, which will allow them to open up to 25 sub-branches or offsite

Market Analysis: Singapore


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re automated teller machines. Other foreign banks have been awarded wholesale bank status to allow them to serve commercial customers in Singapore.

Documentation requirements for opening bank accounts for local corporations include items such as the necessary corporate authorisations, shareholder list, memorandum and articles of association, etc. However, for foreign corporations wishing to open bank accounts there are additional requirements, including: • Certificate of incumbency issued by professional/registered agent or a director’s declaration detailing particulars of the directors and principal shareholders; • Certification letter from a certified public accountant/lawyer of a European Union/Financial Action Task Force member jurisdiction certifying that the information contained in the certificate of incumbency or director’s declaration is correct and accurate; • Certified true copy of certificate of good standing (for tax haven countries); and • Letter of authorisation to debit account opening fee (for tax haven countries).


Account typeLocal currency current

Local currency savings1

foreign currency current

foreign currency savings1


Non-resident Yes Yes Yes Yes1. In Singapore, savings accounts are not offered to corporates.


TMAS governs the cheque and electronic clearing system in Singapore. All banks adopted the five-day clearing week system on 15 May 2006. There are three principal clearing systems in Singapore:

Clearing system CommentsMAS Electronic Payment System (MEPS+)

MEPS+ is a real-time gross settlement (RTGS) system. It enables instantaneous and irrevocable transfer of funds (SGD) and Singapore government securities. The cut-off times are 4.30pm for electronic instructions and 3:30pm for paper instructions.

Cheque Truncation System (CTS)

The CTS is an image-based automated clearing system for SGD and locally issued US dollar cheques. It is operated by Banking Computer Services Pte Ltd (BCS). All banks participating in this clearing system use image-based technology to provide a cheque clearing service. The cheque deposit cut-off times are: SGD Cheques: • Monday to Wednesday, 3:00pm. Funds available on the next banking day after 2:00pm; • Thursday, 3:30pm. Funds available the next banking day after 2:00pm; and • Friday, 3:30pm. Funds available the next banking day after 2:00pm. USD Cheques: • Monday to Friday, 1:00pm. Funds available on the next banking day after 2:00pm

GIRO System (automated clearing house – ACH)

The eGIRO system is also operated by the BCS. It is designed for electronic transfer of high-volume smaller-value payments. The cut-off time is 5:00pm


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Singapore’s regulatory environment is among the least restrictive in the world and is complemented by a similarly competitive tax environment. Low withholding taxes and double taxation agreements with more than 50 countries provide a favourable environment for large corporates looking to establish regional treasury centres.

MAS does not encourage the internationalisation of the SGD; therefore, restrictions apply to the extension of credit facilities that are denominated in SGD to non-resident financial institutions.

The banking secrecy provisions of the Banking Act of Singapore prohibit the disclosure of customer information except in circumstances permitted in the act.

Singapore provides incentives (mainly tax-related) for locating a company’s operational headquarters (OHQ) or a finance and treasury centre (FTC) in Singapore. There are also incentives for locating regional treasury centres (RTC), subject to pre-defined minimum criteria set out by the Singapore government.

A foreign entity may invest in Singapore either through a locally registered branch or an incorporated subsidiary. There is no restriction on the percentage of equity ownership, nor any restriction on the repatriation of profits out of the country, so funds can easily be remitted in and out of Singapore.

In general, there are no minimum capitalisation requirements in Singapore (except for financial institutions) and there are no thin capitalisation rules. Further information on regulatory requirements can be found at www.acra.gov.sg.


Singapore has a large number of treasury centres, managing foreign exchange and liquidity on behalf of the region. In general, there are no restrictions on liquidity management structures in Singapore, enabling complex structures to be put in place. This applies to both cash concentration and notional pooling on both a multiple- or single-currency basis. This enables large multinational companies to set up their regional liquidity centres and shared service centres in Singapore.

A wide range of local yield enhancements options are available for surplus liquidity. Interest-bearing local and foreign currency current accounts are commonly used, as well as money market funds and structured deposits.

Singapore’s liberal financial system generally does not have any currency or capital controls. However banks have to observe the government’s policy of discouraging the internationalisation of the SGD (as mentioned earlier). MAS’s policy on the non-internationalisation of the SGD essentially restricts the lending of SGD by banks in Singapore to non-resident financial institutions for the purpose of speculation in the SGD currency market: • Banks in Singapore may not extend aggregate SGD credit facilities exceeding SGD5m to non-resident financial institutions where they have reason to believe that the proceeds may be used for speculation against SGD. • For a SGD loan to a non-resident financial institution exceeding SGD5m or for a SGD equity or bond issue arranged by a bank in Singapore for a non-resident financial institution where the proceeds will be used to fund overseas activity, the SGD proceeds must be swapped or converted into foreign currency before remitting outside Singapore.

These SGD lending restrictions do not apply to non-resident financial institutions and there is currently a large offshore market in SGD abroad.

The prevailing corporate tax rate in Singapore is 17% (from 2010 onwards) and there is no capital gains tax. Certain payments made to non-residents are subject to Singapore withholding tax. For more information, please refer to the Inland Revenue Authority of Singapore web site, www.iras.gov.sg.


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Market Watch

Singapore Budget 2010: • As part of the Singapore Budget 2010, the Government of Singapore will commit SGD450m over five years to start a programme for government agencies to work with companies to co-develop innovative solutions for medium to long term needs. • The Government of Singapore will also set up a National Productivity Fund with SGD2bn for initiatives customised to specific industries, clusters and enterprises, with a focus on sectors with the potential for large gains in productivity. SGD1bn was injected in 2010. • To build stronger partnerships between local enterprises and MNCs, SGD250m will be set aside over five years to help local enterprises develop competencies to meet MNCs’ stringent manufacturing quality and certification requirements. • A new scheme will be introduced to allow approved GST-registered businesses to defer import GST that is payable on their goods at the point of entry into Singapore. The import GST is deferred for at least one month and declared as a payable amount in the corresponding GST return.

Recommendations by the Economic Strategies Committee The Government of Singapore established an Economic Strategies Committee (ESC) in May 2009 to develop strategies for Singapore to maximise the opportunities in a new world environment with the aim of achieving sustained and inclusive growth. The key recommendations of the ESC are as follows: • First, Singapore needs to boost skills in every sector by developing an outstanding nation-wide system of continuing education and training to give everyone the opportunity to acquire greater proficiency, knowledge, and expertise. • Second, Singapore will have to deepen capabilities among Singapore companies to seize opportunities in Asia. While the MNC strategy remains key, there is considerable opportunity in the next five to 10 years to attract global mid-sized companies and to facilitate local companies to grow into industry leaders in Asia. The ESC recommends measures to develop the market for cross-border financing to help companies expand abroad with specific focus on reaping the commercial potential of Singapore’s science and technology base. • Third, Singapore must become a distinctive global city. The ESC is of the view that Singapore’s future rests on growing a deep pool of highly capable and entrepreneurial people and it must continue to attract top quality people from around the world, while investing further to provide the best opportunities for Singaporean talents to grow and develop to the highest levels of expertise in a range of fields. The ESC also recommends support for the growing creative and arts clusters, which will add to the character of the city, and nurture new talents.



Overview



Capital Columbo

Major Language(s) Sinhala, Tamil, and English

Time Zone GMT + 5.5 hours

Currency Sri Lankan rupee (LKR)

Central Bank The Central Bank of Sri LankaGDP 96.4bn (2009 est.); 3.0% real growth rate (2009 est.); 4,763 per


Trade


accessories; coffee, tea, mate and spices; rubber and rubber articles; jewels, jewellery and precious metals; and other commodities (2008)

Major Imports Mineral fuels, mineral oils, and products; energy equipment and energy-related machinery; electrical machinery and equipment; vehicles, parts and accessories; fertilisers; and other commodities (2008)


US - 20.6%, UK - 12.9%, Italy - 5.5%, Germany - 5.3%, India - 4.1%, Belgium - 4.4% (2009)


India - 17.6%, China - 16.0%, Singapore - 7.7%, Iran - 7.1%, Korea - 1.8% (2009)



The Central Bank of Sri Lanka (CBSL) is the primary authority for the regulation of all banks and financial institutions in Sri Lanka. As the central bank, CBSL is responsible for formulating monetary policy, maintaining the stability of the country’s financial system and currency management.

The Sri Lankan banking sector accounts for 56.7% of the local financial sector in terms of assets. There are 22 commercial banks, 11 of which are foreign and 11 local.

Under CBSL regulations, banks are authorised to operate offshore foreign currency banking units (FCBU), which are free from exchange control regulations that are applicable to domestic companies operating in domestic banking units (DBU). The FCBU scheme allows for foreign currency dealings

Market Analysis: Sri Lanka


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a by non-residents and companies approved by the Board of Investment (BOI) – see the “Legal, Company and Regulatory” section.

Documentation required for opening corporate bank accounts include identification documents such as Business registration, Memorandum and Articles of Association, etc. to satisfy ‘Know Your Customer (KYC)’ requirements and a Board Resolution/Secretary Certificate.

The following types of bank accounts are currently available1:

Account type Local current Local savings foreign current foreign savingsLocal registered Yes Yes/Interest bearing

(IB)No No

Local registered with BOI approval

Yes Yes/IB Yes (FCBU)2 Yes (FCBU)/IB

Local registered with Export Development Board

Yes Yes/IB Yes (DBU) Yes (DBU)/IB

Local registered – professional service providers (FCAPS)

Yes Yes/IB Yes (DBU) Yes (DBU)/IB

Local registered – hoteliers

Yes Yes/IB No (but if opened under FCAPS, yes)

Yes (DBU)/IB

Local registered – suppliers of material input

Yes Yes Yes (DBU) Yes (DBU)

Local registered – shippers/airline on behalf of parent company

Yes No Yes (DBU) No

Overseas registered

Yes – non-resident rupee account; share investment external rupee account; treasury bond investment external rupee accounts

Yes under special foreign direct investment account (SFIDA)

Yes (FCBU)

Yes (FCBU or DBU under SFIDA)/IB

1. Please note that these are basic account types that are guided by exchange control circulars.2. FCBU accounts can be opened by companies incorporated outside Sri Lanka or by companies with BOI approval. In

the FCBU, accounts are not subjected to exchange control restrictions but must be maintained in approved foreign currencies, which are Australian dollar, Canadian dollar, Danish krone, euro, Hong Kong dollar, Norwegian krone, Singapore dollar, sterling, Swedish krona, Swiss franc, US dollar and yen. FCBU savings accounts would be in the form of call deposits or time deposits only.


The Sri Lanka Automated Cheque Clearing House (SLACH) was established in 1988 and is responsible for providing automated cheque clearing facilities. It has considerably reduced the time required to clear local cheques and is at T+1, increasing the efficiency of the banking system. The central bank manages and sets the rules for the country’s clearing system. Since February 2002,


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aSLACH has been operated by the private company LankaClear Pvt Ltd. Interbank payments, such as money market, foreign exchange settlements and other bank transfers,

are handled electronically through the real-time gross settlement (RTGS) system. High-volume, low-value payments are routed through the Sri Lanka Interbank Payment System (SLIPS) and is T+0 and at most T+1.

The Cheque Imaging and Truncation System (CITS) is the interbank cheque clearing system which has been used by all commercial banks in Sri Lanka since April 2006. Inward clearance cheque images and details are received from LankaClear (Pvt) Ltd (a company whose major shareholders are the CBSL and two state banks) and loaded onto the CITS. The images and details are verified, and respective customer accounts are debited. Outward clearance cheque images and details are loaded onto the CITS and burnt onto a CD, which is sent to LankaClear at the end of the day. LankaClear then performs the reconciliation based on the clearing rules set by the central bank.

Clearing system CommentsSri Lanka automated cheque clearing house

The Sri Lanka automated cheque clearing house is responsible for providing automated cheque-clearing facilities, which include cheque imaging and truncation. It is managed by LankaClear. There is also a system to clear locally issued US dollar cheques.

Sri Lanka Interbank Payment System (SLIPS)

SLIPS is used for high-volume, low-value payments, although the system can also handle larger-value interbank transfers as well. The present threshold is LKR 5.0M

Real-time gross settlement (RTGS) system

An automated clearing house operated by the TCH that is used to settle low-value/hintral bank for settlement. The clearing time is two days for debit transfers and one day for credit transfers, with funds available on the next banking day.


Apart from the CBSL, another significant regulator is the BOI. Any foreign incorporated company investing in Sri Lanka (or a Sri Lankan company making a large capital investment) can apply to the BOI for Board of Investment status. This essentially grants these companies a host of tax incentives.


On the domestic currency (DBU) side, banks are obliged to levy a debit tax charge of 0.1% whenever funds are transferred between two companies. However, this will be abolished on 01 April 2011 as per the new budget directives. Cash pooling is offered in the FCBU and DBU as well.

In terms of restrictions on liquidity management, automatic sweeping of funds between accounts is not permitted, while cross-currency and cross-border cash concentration is not feasible due to regulatory constraints on foreign exchange conversion, and tax and accounting considerations.

Cash concentration facilities are available in Sri Lanka and debit tax is payable at present, but this will no longer apply from 01 April 2011.

There are exchange control restrictions and the conversion of LKR to foreign currency for remittances is permitted under specifically stated conditions and with supporting documents. Companies registered with the BOI or foreign companies opening accounts in Sri Lanka are not subject to these conditions when debiting foreign currency accounts in the FCBU. However, under the new budget directives Exchange Controls have been relaxed in a number of areas, such as the ability of foreign investors to invest in rupee denominated debentures issued by local companies, Sri Lankan companies borrowing from foreign sources, foreign tourists and businesses opening foreign currency accounts, Sri lankan residents investing in equities of foreign companies, etc.


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a Non-financial companies will pay corporation tax at 28% from 01 April 2011 (presently it is at 35%). This excludes alcohol and tobacco companies who will pay 40% corporation tax from 01 April 2011.

Withholding tax is levied at 10% on all interest earned on deposits held in LKRs in a DBU account. However if interest is being paid on USD balances, then withholding tax does not apply.

Market Watch

With the ending of the civil war the Government has undertaken a series of initiatives to double the per capita income in Sri Lanka to USD4,000 by 2016 and develop the country into a regional hub for Ports & Aviation, Knowledge & Education, BPO’s etc. The budget in November has set the stage for a three year accelerated development plan which includes setting the right environment to encourage foreign direct investment.

Sri Lanka has already relaxed some of its existing capital restrictions; for example, foreign investors can now invest in LKR accounts with the ability to repatriate the funds. The authorities are currently considering further relaxation of the remaining capital restrictions. There are restrictions in the remittance of funds overseas that are permitted under pre-defined categories with specific documentary requirements.



Overview

Population 23.1 million (August 2010)


Capital Taipei

Major Language(s)Putonghua (Mandarin), Taiwanese ( a Fujianese-based dialect), and English


Currency New Taiwan dollar (TWD)

Central Bank The Central Bank of TaiwanGDP 693.3bn (2009 est.); -4.1% real growth rate (2009 est.); 29,829 per


Trade

Exports f.o.b USD203.7bn (2009) Imports c.i.f USD174.4bn (2009)Major Exports Electronic products; iron,

steel and iron/steel items; optical, photographic, measuring and medical instruments; machinery; and chemicals (2009)

Major Imports Electronic products; machinery; crude oil; metal products; organic chemicals; and iron, steel and iron/steel items (2009)


China - 26.6%, Hong Kong - 14.5%, US - 11.6%, Japan - 7.1%, Singapore - 4.2% (2009)


Japan - 5.0%, China - 14.0%, US - 10.4%, Korea - 6.0%, Saudi Arabia - 5.0% (2009)



The Central Bank of the Republic of China (CBC) is responsible for monetary policy and foreign exchange (FX) regulations, ensuring the sound operation of banks in Taiwan and exchange rate stability.

The banking industry in Taiwan is currently undergoing considerable merger and acquisition; specifically foreign banks have been active in acquiring local banks.

Documentation required for opening bank accounts in Taiwan is not particularly onerous and includes standard items such as the company’s business licence and certificate of registration.


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Resident Yes Yes No Yes

Non-resident No Yes No No1

Credit interest No Yes No Yes1

1. Restrictions on non-residents opening foreign currency savings accounts in domestic banking units apply.


There are three major local currency clearing systems in Taiwan: the cheque clearing infrastructure for paper-based payments (TCCH), Financial Information Service Co. Ltd (FISC) and the automated clearing house (ACH) for electronic payments:

Clearing system CommentsTCCH Local currency paper-based cheque clearing system, which is

operated by the Taiwan Clearing House (TCH) with three major cheque clearing centres and 12 clearing branches throughout Taiwan. For cheque clearing, the TCH uses magnetic ink character recognition (MICR) technology in the clearing process. The process is automated in Taipei, Taichung and Kaohsiung. Local cheques are usually printed in Chinese. It normally takes two working days to clear a cheque drawn in the same city, and five to seven working days to clear a cheque drawn in another city. Post-dated cheques (PDCs) are commonly used for payments as well as credit instruments, since most local banks provide PDC discounting services.

FISC A multi-purpose interbank electronic fund transfer system, developed and operated by the FISC to allow banks to share common resources, exchange financial information and implement the overall automation of financial services. The system is Chinese character-based and provides TWD same-day value interbank transfers. Included in the FISC system are several other sub-systems, such as the shared cash dispenser/automated teller machine system, Interbank Remittance System, and the Financial Electronic Data Interchange System. The most widely used system is the Interbank Remittance System, with a total of 107 financial institution participants. FISC allows real-time transfer of funds between client accounts maintained with banks. It is used to settle all kinds of wire transfers, both low and high value.

ACH An automated clearing house operated by the TCH that is used to settle low-value/high-volume electronic payments in batches. ACH allows for the direct electronic debiting and crediting of individual and/or corporations’ banking accounts. Because of this feature, ACH is normally used for payment/collection of utility bills, payment of salaries, insurance premiums and cash dividends. Bank customers send a list of account entry transactions to the originating bank for processing. The originating bank then transfers the transaction data to the TCH, which clears the debits and credits by the receiving bank, then transmits the balancing statements to the central bank for settlement. The clearing time is two days for debit transfers and one day for credit transfers, with funds available on the next banking day.


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an Under CBC regulations, withdrawals from current accounts can only be made by issuing a cheque. Legal, Company and regulatory

Apart from the CBC, the other major regulatory authority is the Financial Supervisory Commission (FSC), established in 2004 with a view to consolidating the supervisory responsibilities of banking, securities and insurance sectors in Taiwan. The four bureaus under the FSC are the Banking Bureau, the Securities and Futures Bureau, the Insurance Bureau and the Examination Bureau.

The main laws governing financial institutions include the Banking Act, the Securities and Exchange Act, the Futures Trading Act and the Insurance Act.


TWD cash concentration services with savings accounts and current accounts with overdraft facilities under the same entity or group entities are allowed, subject to regulatory approvals and relevant restrictions. Only notional pooling in TWD is allowed by law.

In terms of restrictions on liquidity management, automatic sweeping of funds between accounts is not permitted, while cross-currency and cross-border cash concentration is not feasible due to regulatory constraints on foreign exchange conversion, and tax and accounting considerations.

TWD and foreign currency fixed-term deposits are the most popular investment instruments for surplus liquidity. The tenor of these can range from one month to up to three years, or even longer for TWD. For foreign currencies, tenors range from overnight up to usually a maximum of one year. Simple interest is paid at maturity. A 10% tax is withheld from interest paid to residents while 20% is withheld from non-residents.

Overnight deposits in TWD are not available (although they are available in other currencies) and the alternative of bond funds is not popular due to credit risk considerations. Commercial paper under a repurchase agreement (repos) is a popular instrument due to the flexibility in tenor.

A variety of regulations apply to FX: • Under the CBC current FX regulations, settlement of foreign exchange against the TWD and vice versa are categorised as follows: – FX receipts from the export of goods or provision of services; – FX disbursements for import of goods or services provided by non-residents; and – FX receipts/disbursements from other sources, such as investments, capital repatriation and dividends. • Trade-related FX (categories 1 and 2 above): – There is no limit to the amount of FX settlement against trade-related transactions, as long as the supporting documents are provided to the FX bank at the point of settlement. Eligible supporting documents include letters of credit, documents against acceptance/payment invoices and sales/purchase contracts. • Non-trade-related FX settlements (category 3 above): – The limits for settlement of non-trade related foreign exchange are as follows:

Entity Settlement of fx receivables Settlement of fx payablesTaiwan registered business USD50m USD50mTaiwan individual residents USD5m USD5m

Foreign nationals without an alien resident certificate and overseas entities not registered as businesses in Taiwan are allowed to convert between TWD and foreign currencies but are subject to a limit of USD100,000 or equivalent per transaction.


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All conversions of foreign currencies into TWD or vice versa are subject to CBC reporting and declaration requirements. FX conversions of TWD500,000 or more must be reported to the CBC by completion of a standard CBC declaration form. In the case of companies, the declaration form must be completed with the company’s official seal(s). For corporates, supporting documents such as invoices or the agreement or approval letter issued by the government are required when the deal amount is in excess of USD1m.

The following is a summary of the rules governing corporates/institutions:

Amount fx declaration form Supporting documentsLess than TWD500,000 Not required Not requiredLess than USD1m Required Not requiredEqual to or larger than USD1m Required Required

The detailed implementation of the basic FX/conversion-related regulations outlined above may still be subject to CBC’s interpretations.

Corporate income tax in Taiwan is levied at 25%. There is a withholding on dividend payments of 20%. Interest paid on foreign currency deposit accounts opened by non-residents with an offshore banking unit (OBU) – see www.banking.gov.tw/public/Attachment/4121316115771.doc – is not subject to income tax. However, TWD accounts are not available from OBUs.

Market Watch

The government is keen to make Taiwan an attractive regional centre for multinational companies and to that effect is reviewing the current tax regime.



Overview



Capital Bangkok

Major Language(s) Thai


Currency Baht (THB)

Central Bank The Bank of Thailand (BOT)GDP 536.4bn (2009 est.); -3.5% real growth rate (2009 est.); 7,998 per


Trade

Exports f.o.b USD152.0bn (2009) Imports c.i.f USD134.9BN (2009)Major Exports Energy equipment and

energy-related machinery; electrical machinery and equipment; vehicles, parts and accessories; jewels, jewellery and precious metals; rubber and rubber articles; and other commodities (2009)

Major Imports Electrical machinery and equipment; mineral fuels, mineral oils, and products; energy equipment and energy-related machinery; iron and steel; jewels, jewellery and precious metals; and other commodities (2009)


US - 11.0%, China - 10.6%, Japan - 10.3%, Hong Kong - 6.2%, Australia - 5.6%, Malaysia - 5.0%, Singapore - 5.0% (2009)


Japan - 18.7%, China - 12.7%, Malaysia - 6.4%, US - 6.3%, UAE - 5.0%, Singapore - 4.2%, Korea - 4.1% (2009)



The Bank of Thailand (BOT) plays the role of the central bank in Thailand and is the key policymaker governing the banking industry.

The regulated nature of Thailand’s banking industry allows the largest five local commercial banks to dominate the banking and related securities, leasing and insurance businesses. There are a total of 58 banks operating in the country, comprising: • 14 Thai commercial banks;

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• Three retail banks; • One subsidiary bank; • 15 foreign bank branches; and • 25 foreign bank representatives.

In 2004, BOT introduced the Financial Sector Master Plan, which included a “one presence policy”, disallowing banks from owning more than one deposit-taking institution. This led to the closure of international banking units, mergers of foreign banks into local banks, and upgrades of foreign banks to subsidiaries. In July 2007, BOT announced that the second phase of the plan might include allowing foreign banks to open more branches in five years’ time.

For companies registered outside Thailand, the documents required for opening a bank account include the following: • Board of directors’ resolution or letter of intention to open corporate account; • Certified true copy of the company’s registration certificate; • Certified true copy of the official document detailing particulars of directors and secretary; • Certified true copy of the company’s articles of association; • Certified true copy of the list of shareholders; • Bearer share declaration form; and • Certified true copy of passports of directors and all authorised signatories.


Account type Local current Local savings2 foreign current foreign savings2

Resident4 Yes1 Yes1 No2 Yes2

Non-resident4 Yes3 Yes3 Yes3 Yes3

Credit interest No Yes No Yes1. No restrictions are applied to residents opening THB accounts; Thai residents are discouraged from holding overseas

accounts. Approval from BOT is accordingly required, especially if deposits into those overseas accounts are made with funds of domestic origin. It is rare for BOT to permit this unless it is proved necessary and allowed under the governing act of the applicant.

2. For resident foreign currency accounts where the foreign currency originates from abroad, there is no deposit limit and no need for documentation showing future foreign currency obligations. If the source of foreign currency originates from within Thailand, deposit of such foreign currency can be classified into two types: with and without an obligation:

• For foreign currency deposits with an obligation, the deposit limit is USD100m. If residents deposit more than USD100m, the obligation within a 12-month period must be presented. The deposit shall not exceed the obligated amount.

• For foreign currency deposits without an obligation, the deposit limit is USD0.5m. Any transfer and withdrawal shall be accompanied by supporting documents and reported.

3. No restrictions are applied to non-residents opening foreign currency or local currency accounts; however, funds for non-resident foreign currency accounts must originate from abroad, otherwise approval with supporting documents is required on a case-by-case basis. Cheque facilities are not available for non-resident THB accounts held in Thailand because of the difficulty of BOT reporting requirements.

4. Funds deposited from resident to non-resident accounts must be accompanied by payment obligation documents (evidence of obligation for service).


BOT operates five clearing systems in Thailand:

Clearing system CommentsElectronic cheque clearing (ECS) system

The ECS is used for processing and clearing cheques from commercial banks in Bangkok and five adjacent provinces. It has been in operation since July 1996.


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BOT automated high-value transfer network (BAHTNET, RTGS)

BAHTNET is an electronic network linking users to BOT’s current account system. BAHTNET participants are commercial banks, specialised banks, non-bank financial institutions, and certain departments of BOT. Settlement via BAHTNET is done on a real-time gross settlement (RTGS) basis. Usage is still limited due to high commission charges.

SMART (ACH credits and ACH debits)

SMART (System for Managing Automated Retail Funds Transfer) is a retail funds transfer (credits and debits) system for transactions occurring on a recurring basis. BOT is the centre for executing funds transfers to any branch of all banks throughout Thailand. The system provides interbank clearing for small-value transfers, including payroll and dividend transfers on the credit side and payments of household utility bills on the debit side. In late 2006, BOT changed its policy by having its role as the “operator” (central switching centre) assumed by a private company called National Interbank-Transaction Management and Exchange (NITMX). NITMX will become the central switching centre for SMART systems in Thailand, in order to allow BOT to concentrate on its role overseeing the system as the regulator. In October 2007, the SMART operator migration was completed for credits. In July 2008, SMART credit same day went live allowing customers to instruct same-day automated clearing house (ACH) transactions. The live date for debits is yet to be confirmed.

Provincial cheque clearing For provinces outside Bangkok, cheque clearing within the same province takes one day at local clearing houses (managed by commercial banks or BOT representatives) located in provincial centres and some large districts. Provincial clearing house regulations are based on agreement among members but do not differ from the standard format. Clearing house operations have changed gradually from a manual to a computerised system to increase efficiency. Clearing of cheques deposited in the same province but paid in different districts takes two to five business days, depending on transportation and distance.

Cross Zone Upcountry Cheque Clearing (BC-3D)

Cheques will be sent to the head office of the drawee bank, and the head office of the issuing bank will process cheque clearing with its branch within three business days upon exchanging the physical cheque with the collecting bank.


In addition to BOT, another significant regulatory body is the Anti Money Laundering Office, which serves as the financial intelligence unit for law enforcement agencies in Thailand.

In order to establish a limited company in Thailand, the following steps are required: • Corporate name reservation; • Three persons or more to act as promoters; • Filing of a memorandum of association; • Convening a statutory meeting; • Registration; and • Tax registration.

There are no minimum capitalisation requirements for companies incorporated in Thailand, but


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capitalisation should be adequate for the intended business operation and in practice, at least THB50,000 in registered capital is required.


Non–residents can open and maintain foreign currency accounts with authorised banks in Thailand; however, as noted above, funds must originate from abroad.

Notional Pooling (both Domestic and Cross-Border) is permitted, but only Domestic Cash Concentration is allowed. Cross–border cash concentration shall be allowed only if the company concerned has obtained a treasury centre licence from BOT.

For Cash Concentration, Inter-company interest earnings will be subjected to special business tax (SBT) of 3.3%, if lender and borrower have cross holdings of less than 25%, such stakes must be held for at least 6 months before lending activities. All inter-company interest earning are subjected to withholding tax (WHT) of 1%.

Popular local investment instruments for surplus liquidity include: • Time deposits; • Bills of exchange; • Structured bills of exchange; • Treasury bills; and • Government bonds (e.g. bonds issued by BOT).

There are no explicit currency restrictions. However, some restrictions on currency hedging do apply. For further information please consult the foreign exchange regulations on BOT’s web site.

Corporate income tax is levied at 30% of net profit and is due twice each fiscal year. A mid-year profit forecast is used as the basis for advance payment of corporate taxes.

A value-added tax (VAT) of 7% is levied on the value-added at each stage of the production process, and is applicable to most firms. It must be paid on a monthly basis.

A specific business tax, based on gross receipts, is levied on firms engaged in certain categories of business not subject to VAT at a variable rate ranging from 0.1% to 3.0%.

Market Watch

In August 2008, BOT released guidelines governing banks’ use of electronic banking services. All banks offering these services in Thailand must now comply with the guidelines, which cover electronic funds transfer, security/internal controls and prevention of fraud.

BOT has issued the schedule for the release of the Image Cheque Clearing and Archive System (ICAS). The roll-out will start in the Bangkok area in February 2010, with plans for the system to be used nationwide in the future.

In Q3 2010, local banks agreed to the Bank of Thailand’s proposed revamp of electronic banking fees, effective in the first quarter of 2011. Fees will fall across the board, with the exception of ATM fees. The regulators wanted local banks to scrap all fees for inter-provincial transactions, with the whole country considered a single area.



Overview


Total Area 331, 212 sq km

Capital Hanoi

Major Language(s)Vietnamese, with English, French, Chinese spoken widely in the business community


Currency Dong (VND)

Central Bank The State Bank of Vietnam (SBV)GDP 255.8bn (2009 est.); 4.6% real growth rate (2009 est.); 2,933 per

capita (2009 est.)Inflation rate (consumer prices) 7%

Trade

Exports f.o.b USD57.0bn (2009) Imports c.i.f USD70.0bn (2009)Major Exports Mineral fuels, mineral oils,

and products; footwear and related articles; apparel and clothing accessories; fish and other aquatic invertebrates; and other commodities (2008)

Major Imports Mineral oils, and products; energy equipment and energy-related machinery; iron and steel; electrical machinery and equipment; plastics and plastic articles; and other commodities (2008)


US - 19.9%, Japan - 11.0%, China - 8.6%, Australia - 4.0%, Germany - 3.3% (2009)


China - 23.5%, Singapore - 6.1%, Japan - 10.7%, Korea - 10.0%, Thailand - 6.5%, US - 4.3%, Taiwan - 1.3%, Hong Kong - 1.2% (2009)



State Bank of Vietnam (SBV) is the sole regulatory and supervisory entity of the banking sector. SBV operates throughout the country in 64 branches located in each city and province of Vietnam.

There are 5 state-owned commercial banks, 37 joint-stock commercial banks, 5 joint-venture banks, 48 branches of foreign banks and a social policy credit system. Foreign banks can enter Vietnam’s banking sector by setting up a representative office, foreign bank branch, establishing a joint-venture bank with a domestic commercial bank or taking ownership of up to 30% of shareholding in a

Market Analysis: Vietnam


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domestic bank. Under CBSL regulations, banks are authorised to operate offshore foreign currency banking units

(FCBU), which are free from exchange control regulations that are applicable to domestic companies operating in domestic banking units (DBU). The FCBU scheme allows for foreign currency dealings by non-residents and companies approved by the Board of Investment (BOI) – see the “Legal, Company and Regulatory” section.

Documentation required for opening corporate bank accounts include identification documents such as Business registration, Memorandum and Articles of Association, etc. to satisfy ‘Know Your Customer (KYC)’ requirements and a Board Resolution/Secretary Certificate.

The following types of bank accounts are currently available1:


Resident Yes Yes Yes Yes1

Non-resident Yes1 No Yes Yes

Credit interest Yes2 Yes Yes Yes1. While non-resident organisations operating in Vietnam can open Vietnamese Dong (VND) accounts, non-resident

organisations operating offshore can open Vietnamese Dong (VND) accounts but transactions are restricted and supporting documents required.

2. Subject to approval of local managers.


CITAD is the country’s payment clearing system and is run by SBV. Since 5th April 2008, CITAD has been operating with two value categories. Low-value clearing is classified as any transaction with a value below VND0.5bn, with anything at or above that threshold being classified as high value. The cut-off time for low-value payments is 3:00pm and high-value payments at 3:45pm.

Low-value clearing charges on a fixed-fee basis, while high-value charges are levied ad valorem. Both value categories operate on a same-day value. Cheques are not generally used in Vietnam, so the country has effectively moved directly from using

physical cash to same-day transfers for local currency clearing. As a result, the clearing environment is particularly efficient from a cash management perspective, with fast collections/payments, less paperwork and fewer manual processes.

Under Vietnamese regulations, payments made by organisations using state-owned funds of a value equal or greater than VND30m should be made by bank transfer.


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Cash Management Solutions at a glance:

investment Product1

Transaction Management Liquidity Management1Payments Collections

Local currency/ foreign currency statement savings Time deposits Treasury products: • Swap • Forward

Demand draft (FCY) Cheque (LCY) (not popular) Payment order Bulk payment Telegraphic Transfer (TT) Electronic payment Payroll service Standing Instruction Cash withdrawalAutoPay-out (applied where both payor and beneficiary have accounts at HSBC) Payments Advising XCS (Xpress Collection Services) (payment dox)

Fast cash collection via local partner banks Cheque collection (overseas cheque collection is offered on a case by case basis) USD Cash Letter On-site cash collection Cash deposit Inward telegraphic transfer Direct Debit (via alliance banks) Bulk collections Inward foreign currency remittances Bills Payment Facility (ATMs, Internet Banking)

Notional Pooling and Cash Concentration are offered on a selective basis Working capital financing/ credit lines

1. Cash management services are delivered via HSBCnet, HSBC’s electronic banking systems.

Payment Capabilities and Cut-off times

Electronic Payments

RTGS GIRO/ACH Payroll International Funds transfer

Yes Yes Yes Yes

14:00 14:00 14:00 14:00

Paper PaymentsLocal Currency Cheque

Foreign Currency Domestic cheque

Bank Demand Draft

Cheque Outsourcing (via HSBCnet)

Petty Cash Payment Advising

Yes Yes Yes No Yes Yes14:00 14:00 14:00 N/A Available during

branch hoursN/A


In addition to State Bank of Vietnam (SBV) and the Ministry of Finance, the Ministry of Planning and Investment plays an important regulatory role in matters such as the issuing of investment licences, etc.

Thin capitalisation rules apply. Wholly owned subsidiaries of foreign companies can only borrow up to the investment capital approved in their investment licence (issued by the Ministry of Planning and Investment) with a medium to long term tenor.


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Different company licenses will allow different scopes of business activities. A representative office license has the highest restrictions vis-à-vis wholly owned subsidiaries of foreign companies, which have more latitude. Joint stock companies with a local partner that holds majority shareholding provides the widest degree of flexibility for foreign entities as they are able to operate almost at the same level as a local company.

In some cases, foreign companies may be required to establish a company bank account in Vietnam first as the details of the bank account are required to be submitted as part of the information in the business registration process.

In general, the regulatory environment in Vietnam can be complex and is constantly evolving, so taking professional advice in advance of any action is advisable.


Overdrafts are permitted in Vietnam, so there is some leeway for notional pooling and /or cash concentration services. However, this is only permitted in local currency (VND).

All US dollar (USD) activities are monitored by the regulators and transfers require supporting documentation. Therefore, US Dollar transfers between accounts is not straightforward.

Term deposits are commonly used as instruments for investment of surplus liquidity. Tiered credit interest rates on current accounts are also popular.

All foreign loans and overseas borrowings over 12 months tenor must be registered with SBV. More enterprises are now using other major currencies e.g Euro, Sterling, Yen, etc. as it is perceived

that dollar (USD) currency trade is being restricted.

Market Watch

The Vietnamese government has become far more particular about supporting documentation for foreign currency outward remittances. In the past it was relatively easy for corporations to buy USD to pay dividends or to make payments to suppliers offshore. Supporting documentation showing the underlying commercial transaction must be provided to the remitting bank prior to remittance.

For a client buying foreign currency to settle an invoice, banks can only sell the client the foreign currency mentioned in the invoice; unless there is a clause in the client’s commercial contract stating that both buyer and seller agree that payment can be made in a different currency.

This requirement for supporting documents is currently creating bottlenecks for banks as it takes more administrative time than was anticipated.

In a statement found on the Central bank’s web site, SBV sets limits allowing banks a maximum of 30% of short-term funds for offering medium- to long-term loans. The restriction is aimed at ensuring stability of the banking system.

On 24 March 2009, the government increased the USD/VND trading band from +/–3% (set on 7 November 2008) to +/–5%.

HSBC Global Payments and Cash Management Tel: [84] (8) 829 2288 E-mail: [email protected] Trade and Supply Chain Tel: [84] (8) 520 3342 E-mail: [email protected],vn

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