Look East: A Western Treasurer’s Experience in China

Part of the reason for the small number of western treasurers in China, and other markets such as Japan and Korea, Blair said, is that just a few firms have embraced having treasurers from the west involved in managing their cash. But this number is rising. Some types of business expertise are not available in the domestic market, he said, although companies need it to continue their international expansion. While the need is there, he said, it can be hard to find good people in cash management and even harder in treasury. And along with the difficulty of finding people with the right experience, cash is very sensitive so finding the right person with the right fit is essential.

Transforming to a Modern Treasury

Blair said he was brought in to Huawei to bring in modern best practices and to develop strategies for restructuring treasury processes. While Huawei has over US$30bn in annual sales, it only relatively recently entered international markets and realised it needed to leverage international expertise to operate more effectively.

Some companies used to bring in consultants, Blair said, as they wanted to transfer in expertise from international experts. In some cases, however, the consultants didn’t have the expertise required. Even when the consultants did have the right skills, the companies couldn’t hold on to that expertise and translate the ideas into actual practices once the PowerPoint presentations had finished. Companies therefore found that they needed to hire internationally experienced treasurers in order to develop the organisation, rather than just getting ideas from consultants.

While companies did want to improve treasury and senior management at the firms recognised that things can be done better, Blair still found the working environment vastly different from the days when he set up Nokia treasury Asia in Singapore and then moved to become the Nokia group treasurer in Finland. He found three core challenges when he joined Huawei:

  1. He didn’t speak the language.
  2. He didn’t know the culture well.
  3. Communicating with his colleagues was harder because they “didn’t have a familiarity with many of the things I took for granted.”

While staff at Nokia quickly understood treasury concepts he was talking about, Blair said this was not the case at Huawei. It’s not that people aren’t smart. Indeed, Huawei is a highly successful multinational company with good staff. Rather, the issue was that staff had little exposure to international treasury practices so “the business vocabulary and concepts of international business were not well understood.” For example, he said, weighted average cost of capital (WACC) was an entirely new concept for many staff. Once they understood it, though, they ran with the concept and actually started using economic profit (similar to economic value added (EVA)) as a key management metric in the company.” A big part of Blair’s job, then, was training staff and hand-holding as staff learned international treasury concepts.

Another significant challenge was that he was not allowed free rein to implement change and senior management wanted to review many of his decisions before he put them in place. What makes this practice more difficult is that companies have experienced many of the problems arising from China’s paper-based financial systems, so trusting a new person with cash is harder than trusting them in some other functions. Once a decision was made and he was given the green light to proceed, he said, things moved fast because everyone follows a decision.

Blair explained that any treasurer who plans to join a Chinese company should understand that Chinese multinationals have a different way of doing things and won’t simply become similar to western companies. “They will pick the best of western business culture and mix it with Chinese business practices to create their own unique processes,” he said.

Moreover, those processes are likely to be very different from practices in the west. While control is important, for example, companies don’t necessarily want technologically sophisticated systems and straight-through processing (STP) is not the ‘must-have’ that it is in the west.

Even a company like Huawei, which grew up in the internet era and therefore doesn’t have legacy practices, is quite different from a company in the west. It is very much centrally controlled and, despite using electronic payments (e-payments), many processes are still manual. Companies often use ‘eight-eyes review’, for example, compared to four-eyes in other countries. That said, some practices are quite sophisticated even though they are not automated.

Bottom Line Benefits of Process Improvements

Blair said he feels a sense of accomplishment for the significant changes and improvements he implemented at Huawei. A key part of his responsibilities, for example, was organisational design. Blair enhanced the capital structure for the company and set in motion the development of an international treasury centre. Changes he led introduced multi-currency notional pooling, which saved several hundred million dollars in liquidity and reduced costs as well as foreign exchange (FX) and operational risks.

Another improvement was in how Huawei works with its international bankers. Managing international bank relationships can be quite difficult for Chinese companies, because Chinese banks work very differently from western banks. Since he had experience in treasury and telecommunications and knew what to ask, Blair said, he could be more effective and add greater value to the relationships. These relationships increased bank commitments to Huawei both on and off the balance sheet, and in both corporate and customer financing.

Blair also put a global liquidity management strategy in place, shifting the company from a weekly manual process to sweeping cash back if it was not needed and then moving to daily sweeps. While the manual processes were already “pretty efficient”, the shift still resulted in several hundred million dollars of extra cash being available.

Technology Implementation

Implementing new technology was also a key part of his responsibilities, and making changes has involved a long journey. When he joined Huawei, the company had a stand alone in-house system for treasury with a multitude of single-purpose databases and workflows that were not integrated. The company went through an extensive evaluation process and just recently signed an agreement to install a new SunGard system. While full implementation is expected to take about 15 months, the new system should increase efficiency and improve management of the treasury function. In addition to the SunGard system, Blair led the implementation of SWIFT connectivity and complemented Reuters with Bloomberg.

One area that especially surprised Blair was the supply chain practices at Huawei. Companies are good at supply chain management and “pretty sophisticated,” even though they’re not necessarily high-tech. There’s also a culture of using supply chain management as a source of funding, he said, and using bank or corporate acceptance bills.

A key reason for this sophistication is that Chinese companies had become accustomed to operating in much more austere conditions than companies in the west. Although the Chinese government has unleashed a flood of liquidity through the Chinese banks since 2008, bank loans had been restricted by quarterly central bank quotas for much of the past 30 years. Since these quotas generally ran out within the first two weeks of the quarter, Chinese companies had to maximise efficiency in their financial supply chains. They continue to be very sophisticated in this area.

Moving East

What brings people to China, according to Blair, is that it’s a “booming, exciting and fast-moving place”. For him, joining Huawei was a “unique opportunity to use treasury and telecommunications skills to make a huge difference.”

While he has since left Huawei, it’s clear that Blair learned a tremendous amount and gained great experience in China. Huawei also benefited from his presence. And his insights on his time at the company could help pave the way for the increasing number of western treasurers who are heading to Asia to do their jobs even better.

42 views

Related reading