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Supporting growth whilst addressing the opportunities andchallenges of globalisation, digitisation and regulation, arecore to treasury strategy for multinationals around the

world, but the ways in which companies are achieving these

objectives can be different. In this feature, Michael Guralnickand Swati Mitra explore the relative experiences and priorities oftreasurers of corporations headquartered in developed marketscompared with those in emerging markets.

Helen Sanders, Editor, in conversation with Michael Guralnick, Global Head,Corporate and Public Sector Sales, and Global Marketing, Treasury and TradeSolutions and Swati Mitra, Global Sales Leader, Emerging Market Corporate Clients,Treasury and Trade Solutions, Citi

Fit for Growth: Enhancing Treasury Success inDeveloped and Emerging Markets

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Are the issues being facedby treasurers in developedmarkets vs emergingmarkets two sides of thesame coin?

Guralnick: Three key themes emerge fromour discussions with treasurers ofcompanies in developed markets:generating returns, improving supplychain and risk management, andmanaging the impact of regulations. Companies are focused on returns, and

treasurers are helping CEOs and businessheads create the ‘financial optionality’ tosupport growth and returns. This isconnected to the second issue ofmanaging risk. Treasurers are managingmultiple streams of volatility as globalmarkets adjust to divergent economicgrowth prospects, the US Fed timing oninterest rate increases remains uncertainand quantative easing spreads in Europeand China. With geopolitical andeconomic uncertainty in many regions,treasurers are taking a holistic approachto managing investment, counterpartyand supply chain risk to reduce theimpact of market volatility. Furthermore,the pace of technological change isintroducing a new element of risk:cybersecurity. Thirdly, treasurers need toassess and act upon the implication ofchanges in the regulatory and taxlandscape. For example, as banks adjust tofinancial regulations such as Basel III,corporate treasury practices from short-term funding to cash management arebeing refined. Treasurers are workingthrough these changes and buildingdeeper links with strategic partners. Ultimately, these objectives are linked to

an overriding ambition to grow theirbusinesses. Treasurers recognise that cashunduly tied up in the supply chain is cashthat cannot be used to fund growth, socreating a transparent and more efficientend-to-end supply chain has become apriority for companies.

Mitra: Whilst similar objectives,challenges and opportunities are sharedby treasurers in both developed andemerging markets, the approach,readiness and ability to deal with some ofthe complexity varies due to differencesin pace of growth, treasury resourceallocation or perceived relevance. Foremerging market treasurers, the pace of

growth is often faster, and facilitatinggrowth may take precedence over otherpriorities. While some of the regulatoryresponses that treasurers in developedmarkets need to prioritise may initiallyappear to be less significant in emergingmarkets, particularly as there has beenlimited impact on bank relationships andfinancing as a result of these changes sofar, an understanding of regulations isbecoming more significant as thesecompanies expand their geographicfootprint and global regulations increase.

Which markets are the mostchallenging for treasurers,and how are your clientsstructuring their treasury toaddress complexity in thesemarkets whilst supportinggroup-wide objectives?

Mitra: Typically, countries with capitaland FX controls are the most complex inwhich to do business, such as Russia andsome countries in Latin America, Africaand Asia . As a result of these controls, itcan be difficult to fund entities, repatriatecash and set up regional or global liquiditystructures. Market complexity can alsobe viewed from a clearing systemperspective, level of cash, paper vselectronic transactions and statutoryreporting, tax and other requirements. Ascorporates expand into emerging markets,these factors have to be considered whendesigning the treasury operating model,policies and procedures, and in makingdecisions to centralise activities such asaccounts payable, accounts receivablesetc.

Guralnick: Companies in developedmarkets that have an established treasuryfunction generally aim to extend the sametechniques into emerging markets;however, they often experience obstaclesin achieving the same degree ofcentralisation and efficiency. In manycases, they address this by establishingregional centres to gain closer proximityto the business that they support, whichmakes it easier to understand and managethe complexity. Our clients find that toolssuch as Citi’s Treasury Diagnostics enablethem to benchmark performance andidentify opportunities for enhancingefficiency and control at a regional andglobal level.

Are there differences intreasury operating modelsor structures betweencorporations headquarteredin developed or emergingmarkets?

Guralnick: There are a variety of businessdrivers that contribute to a company’sdesign of its treasury operating model,including the need for visibility andcontrol over transactions, informationflows and managing risks. Treasurers aremoving towards what we call ‘smartcentralisation’ (i.e., globalised treasuryorganisations and reengineered processesto centralise more functions). The best-in-class models vary but the concept of a‘functionally centralised, globallydistributed’ treasury organisation iscommon. This includes developing centresof excellence, and integrating differentfunctional areas to ensure the appropriateflow of information irrespective ofbusiness function location. Further drivers leading to accelerated

centralisation are macro trends such as theinternationalisation of the RMB, thecreation of the ASEAN EconomicCommunity (AEC) and the increasingcross-regional flows from Middle East toAfrica and China to Latin America. Theseare creating opportunities to establish newhubs in China, ASEAN, Middle East orNorth Africa.

Mitra: Companies headquartered inemerging markets tend to managetreasury from their home countryheadquarters initially, but once they reacha certain size and scale with their offshoreoperations, they start to emulate theirpeers from developed markets by adoptingregional treasury and shared service centremodels. Cost reduction and greatercontrol are primary drivers whenestablishing shared service centres, orshifting manufacturing and procurementhubs to lower cost locations. For thesecompanies, it is essential to get advice sothey understand the opportunities thatfinance companies, in-house banks or re-invoicing centres can offer.Generally, while cost is a major priority,

establishing efficient operational processesand sophisticated end-to-end riskmanagement frameworks has not becomeas significant a priority for emerging marketcorporations yet. This is partly due to the

Treasurers

are

managing

multiple

streams of

volatility as

global

markets

adjust to

divergent

economic

growth

prospects.

relative early stage of development of thesecorporations’ international operationscompared with their developed marketpeers. Yet this is changing rapidly. As these

corporations lack the legacy technology,processes and organisational structures oftheir developed market peers, they are oftenable to ‘leapfrog’ stages of treasury andtechnology evolution that many long-standing treasuries have experienced, andcan bring in external treasury expertise anddevelop state-of-the-art treasurytechnology relatively quickly. By doing so,they can extract the maximum value fromtheir technology rather than trying toovercome limitations in legacyinfrastructure.It is not only in technology that emerging

market corporations are able to take a moreinnovative approach. Typically, westerncompanies have developed theirinternational footprint through regionalexpansion models. In contrast, emergingmarket corporations tend to focus onspecific trading corridors when identifyingorganisational structures, processes andrisks, which can lead to a more preciseapproach.

Guralnick: Swati raises an interesting pointon corporate growth patterns. Manycompanies today are ‘global’ to a degreeand we have even seen the rise of ‘micromultinationals’ that may initially be small insales turnover but buy and sellinternationally and leverage innovativeecommerce models and a global supplychain. Evolving business models bring newrisks, and cost and supply chainmanagement considerations become moreimportant, consequently there is focus onprocess standardisation, centralisation andimproved controls.

Has the focus on BRIC (Brazil,Russia, India and China)diminished and if so, whatnew growth markets areemerging?

Mitra: The BRIC countries remain highlyrelevant as they are large economies thatcontinue to have enormous potential andimpact globally, despite growth slowdownin some cases. However, given that trade ingoods between emerging economies is nownearly 25% of overall world trade, the realshift is in the new corridors of activity, east

to west and south to south, that isimpacting the selection of priority markets.For example, Brazilian companies arelooking for growth in markets beyondSouth and Central America, while someChinese firms that previously focusedinternationalisation efforts on neighbouringcountries in South-east Asia are nowlooking to Middle East, North Africa, andLatin America.

Guralnick: When looking at mergers andacquisitions, we are seeing many Asiancorporations investing in, or acquiringwestern businesses as they seek to gainmarket share and position their businessesfor growth. In the United States, forexample, there has been enormous inboundinvestment over the past two years fromJapanese, Chinese, Taiwanese and Indiancorporations seeking to capitalise on theresurgence of the US economy. Theexpectation that the United States will re-emerge as an engine for growth, as well aseconomic improvements in parts of Europe,will influence corporations’ growth strategy.Many African governments are

continuing to offer incentives to foreigninvestment through regulatory liberalisationand many US consumer product companiesare setting up new manufacturingoperations in Africa to service the needs ofits growing, increasingly affluentpopulation.

How is RMBinternationalisationreshaping treasurers’priorities?

Guralnick: Deregulation in Chinacontinues as the People’s Bank of China(PBoC) and the State Administrator ofForeign Exchange (SAFE) promote theinternationalisation of China by focusingon liberalising the RMB, now the 5thmost traded international currency, andforeign currency reforms domestically,most notably by developing the ShanghaiFree Trade Zone. This brings opportunitiesfor corporations to establish moreadvanced treasury techniques, and aligncash and treasury management in Chinawith other regions. Recentdevelopments, such as the ability toinclude onshore RMB balances in cross-border cash pools, mean that China is nolonger viewed as a ‘trapped cash’location, which has enormous

implications for regional and globalliquidity management and corporatestrategy in China. For example, we nowhave clients centralising RMB into multi-currency cash pools in London, and manyclients keen to learn about theseopportunities. Corporates areincreasingly creating RMB hubs, inlocations like Hong Kong or Singapore, toserve as a conduit for onshore andoffshore counterparties, for trade andfinancial management activities.

Mitra: Now that treasurers have moreflexibility in managing cash, foreignexchange and working capital, the use ofRMB is opening up new businessopportunities, largely because it reducesFX risk, and allows access to a widerrange of buyers and sellers. FX activity inChina can now be managed centrally by atreasury centre, lowering costs andimproving visibility and control.

Is digitisation helpingcompanies with theirtreasury strategy or is itcreating new challenges?

Guralnick: In both developed andemerging markets, digital technology useis undoubtedly an enabler of moreefficient, streamlined and standardisedprocesses. However, as Swati said, fordeveloped market companies, it is oftendifficult to migrate from legacytechnology, particularly when replacingmultiple systems, across multiplegeographies and business lines with asingle, standardised solution. We seemany corporations taking a phasedapproach and focusing initially on thedigitisation of paper processes, in orderto achieve, to the degree possible,straight through processing andreconciliation. There are new digital toolsavailable to clients to support theseprocesses which provide improved dataanalytics, reporting and control and costbenefits. Furthermore, the rapid pace of growth

in software, mobile technology,ecommerce, data analytics, security andcloud technology is introducing newopportunities for sales and distributionchannels, marketing as well as workflowefficiency.As companies invest in new digital

processes, cybersecurity is becoming a

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We now

have clients

centralising

RMB into

multi-

currency

cash pools in

London.

priority across developed and emergingmarkets. Consequently, there is increasedfocus on host-to-host connectivity, fileencryption, and payment alerts. Manycompanies are reviewing and auditingtheir technology infrastructure, financialprocesses and employee knowledge ofcontrol procedures as a means to combatfraud and manage risk and control moreclosely.

Mitra: While digital technology is agame changer in many respects,corporations in emerging markets oftenlag behind their western peers in usingtreasury management systems (TMS) andenterprise resource planning (ERP) tools.This often leads to gaps in thesetreasuries’ ability to performsophisticated, automated processes suchas cash flow forecasting and bankaccount reconciliation.

How do you help clientsdevelop a practical roadmapto evolve their treasurymanagement?

Mitra: Clients in emerging markets areoften at an early stage in their journey

towards becoming an efficient treasuryorganisation, so they value Citi’s Treasuryand Trade Solutions Sales and Advisoryteams who can share insights on bestpractices and support peer evaluation.Many participate in our TreasuryDiagnostics benchmarking survey to helpprioritise the next stage in their treasuryroadmap. Typically, efficient accountstructures, cash visibility, liquidity andworking capital management are amongthe initial priorities. Treasurers can thenlook at technology and connectivity tocreate standardisation and automation.

Guralnick: When we work with treasurersto evaluate their treasury framework, welook at where the company is on itsgrowth curve. This informs ourdiscussions and helps us collaborativelycreate a blueprint to design the righttreasury architecture for each client. There will, naturally, be regional

variations. In the US, for example, manycompanies are looking to digitise theirpaper payments and collections processesto move away from cheques, so we workwith our clients to analyse their paymentand collection flows to design theoptimum processes that support their

treasury transformation agendas. There isno one size fits all approach, so we listento our clients’ needs and work with themto ensure the solution we design togetheris flexible enough to evolve with theirever-changing treasury and commercialbusiness requirements.

Mitra: In any discussions about thefuture treasury management journey, it isimportant to take an enterprise-wideapproach by connecting stakeholderssuch as IT, procurement, finance etc. toensure that the roadmap deliversefficiency and supports goals across thefinancial supply chain.

Guralnick: Increasingly we are seeingtreasurers and finance teams take ahorizontal approach to goal-setting. Thisoffers major advantages in achievingfinancial supply chain efficiency andoptimising working capital across theenterprise. Treasury is often a changeagent in co-ordinating differentstakeholders across the business todevelop common goals and facilitateintegration across the supply chain forboth operational efficiency andcompetitive corporate advantage. �

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Michael GuralnickGlobal Head, Corporate and PublicSector Sales, and Global Marketing,Treasury and Trade Solutions, Citi

Michael Guralnick has global sales responsibility forCiti’s Treasury and Trade Solutions (TTS) Corporate andPublic Sector clients, and Global Marketing. Hisprincipal activity is to lead and direct TTS’ global salesstrategies for the bank’s Corporate & Public Sectorclients including: new sales origination, cross-sell, andensuring client satisfaction.

The team’s mission is to develop long-term treasury and working capitalmanagement relationships with its clients across their financial and commercialecosystems, leading to a deeper and broader strategic banking partnership. Inaddition, he is responsible for leading the development of marketing strategy for TTSacross all regions, products, and segments. Prior to his current role, Michael heldsenior management positions with Citi in Asia Pacific, EMEA and North America.

Swati MitraGlobal Sales Leader,Emerging MarketCorporate Clients, Treasury and TradeSolutions, Citi

Swati Mitra is the TTS GlobalSales Leader for EmergingMarket Corporate Clients, basedin Singapore. The primary focus of her role is to connectclient and Citi teams across the globe to success transfer bestpractices, drive thought leadership, and focus on salestraining and segment specific initiatives for Citi’s globalisingclients. Swati has worked for Citi for 22 years in senior salesleadership roles in Australia, Singapore, Hong Kong and theUnited Kingdom.