The bankers and analysts that cover the technology, media and telecommunications (TMT) sector maintain that the velocity of change in the industry today far surpasses that witnessed in the dotcom era. The move from analogue to digital generated tremendous preoccupation with market capitalisation, but now, in the era of physical to virtual content distribution, set alongside heightened geopolitical risk and macroeconomic malaise, the focus is overwhelmingly on net income.
The competitive pressures and business model upheavals are profound, triggering continuous revalidation of roles and sales models (channel partnerships) for ecosystem participants. At a simplified level, we have intellectual property, software and services in the ‘West’ with hardware manufacturing in the ‘East’, with all parties targeting increased emerging market exposure and differentiated developed market value propositions. Furthermore, strong risk insulation and operating efficiency in order to redress operating leverage concerns have equal weight in corporate considerations.
There are a number of examples of companies who are advancing the next generation of professional and consumer service models, particularly where the treasury team and their banks have come together to further the cloud computing and software-as-a-service (SaaS) agenda. In what amounts to something of a role-reversal, in such cases the leading transaction banks are providing technical advisory services with system, connectivity and process standardisation recommendations, set alongside ongoing transaction management.
In real terms, while major technology companies focus more on business-to-business (B2B) services, third-party outsourcing and enshrining repeatable processes in code, the very same companies are leveraging the strength of their banking partners in Europe, Middle East and Africa (EMEA). Rigorous shared service centre electronic banking reviews are being undertaken, and e-workflow re-engineering, for example with letters of credit (L/Cs), to provide IT bank connectivity simplification alongside outsourced documentary collections.
Computer giant Dell, for example, has achieved significant improvements in its international trade cycle by ‘electronifying’ L/C submissions to increase the speed, accuracy and efficiency of preparing export documentation. By decreasing the frequency of discrepancies in its export documents, increasing the confirming bank’s pace of turning around transactions and consequent realisation of export receivables, Dell has achieved an overall working capital enhancement through reduced days sales outstanding (DSO).
This example is particularly noteworthy at a time when we are seeing increased market risk perceptions and a back-to-basics shift as companies seek more protection while consumption falls and supply chain pressures increase. The result is that companies are increasing L/C usage to confirm that their trade proceeds will be realised.
Content Owners: Driving the Case for Standardisation and XML
Many TMT companies are leading the move to harmonised platforms, SWIFT corporate access and file transmission, both connectivity and security. Citi recognises that many clients will wish to maintain a multi-bank environment and, as such, is working hard with the wider banking industry to facilitate workshops (at a client level) to agree on ISO XML rules between banks so as to ease implementation costs and complexity. With representation on the Common Global Implementation (CGI) group and 75 global clients now live with XML connectivity across 90 plus countries, Citi has helped drive adoption of this new industry messaging set.
As executives in media position their business to benefit from changing revenue streams and content consumption habits by adding online streaming and cloud-based rentals to cinematic release, DVD home ownership and cable distribution, many far-sighted treasuries are future-proofing their connections to financial institutions and clearing houses by embracing SWIFT.
Universal Music Group (UMG), part of the Vivendi group, and a marquee recorded music and publishing house, is a good example of another leading company pulling together its bank group to drive homogeneity of inbound file code protocols. “Citi’s contribution to the Universal Music SWIFTNET XML project has been instrumental,” says Olivier Chasseau, treasurer, UMG, Vivendi. “Citi’s involvement was key in the success of the harmonisation process we have initiated. Through one working session largely driven by Citi’s expert, we have been able to harmonise the XML message with our nine core banks across 52 territories,” he explains. “The agreed template represents around 99% alignment.
“In this respect, our objective has been achieved. There is no doubt in our mind that it was the right way to improve efficiency, control and speed up the SWIFTNET roll out across our organisation and countries in scope,” adds Chasseau.
The Cloud: Risks and Rewards
Whether it is film or music, content owners are seeing tremendous value in the cloud. In a digital world where the end consumer expects low disc space utilisation, back-up in the event of loss and multi-device usability/inter-connectedness, copyright owners are harnessing the power of the cloud. Apple, whose iPod MP3 celebrated its 10th anniversary in late 2011, has made its intentions clear in this space with successive device launches that are geared up for transportable media. In addition, the 2011 launch of the iCloud, which will enable the sharing of music and programmes across devices, wirelessly and automatically, was significant.
Ultimately, however, the digitisation agenda is just one of three megatrends that Citi and many of our key clients are focused on, the other two being urbanisation and globalisation. To take full advantage of these three forces shaping our times, Citi – like its customers – is placing great emphasis on building a durable and scalable foundation in the fast growing emerging market mega cities. To this end, demand from clients has grown markedly this year for local market solutions across Asia, the Middle East, the Commonwealth of Independent States (CIS) region, central/eastern Europe and Africa.
Cisco, a good example of a company which designs, manufactures and sells internet protocol-based networking services, is focused on achieving market share in the rapidly growing developing markets. As the company has grown, through a US dollar invoice model, to operate in excess of 100 markets, select clients in the emerging markets are requesting invoicing in local currencies. The company, like many in the industry, is carefully considering channel partner and end customer requests for local currency invoicing, and, as such, is strategically reviewing the merits of onshore account structures, calling on Citi’s subsidiary expertise to support local operations.
The Market: Key Risk and Efficiency Considerations
In any fast changing environment a key requirement is strength in controls and strong risk management discipline. As regulators and policy-makers in Europe work to bring about the necessary fiscal rigour, and changes to fortify sovereign and bank capital and liquidity positions, many clients are looking for safe harbours. Now that counterparty risk is a consideration and the credit markets are challenged, focus has turned again to working capital management and efficient pooling/concentration of cash.
More specifically to the TMT sector, with its large US dollar export book and heavily integrated/extended supply chains, we have seen a strong demand for financing solutions this year on both the order-to-cash (O2C) and procure-to-pay (P2P) side. For sales, we have seen a growth in demand for both trade receivable solutions – bilateral discounting, dollar-denominated trade loans to emerging market buyers and L/Cs – and cash management tools to improve straight-through reconciliation (STR), with virtual accounts and algorithmic tools/enterprise resource planning (ERP) modules to enrich clearing house data.
On the purchase side, there is universal recognition of the importance of efficient payment processes (prompting the growth of shared services, prepaid and procurement-cards) and the need for financing of vendors. On the last point, TMT has seen the fastest growth in supplier finance solutions as companies look to ensure supply continuity, preferred buyer status and cash flow benefit by putting in place these increasingly popular structures.
This article has attempted to draw connections and parallels between the commercial drivers in the TMT sector and the innovative/intelligent actions of its key treasury and finance practitioners. As outlined, the key themes going into 2012 are a drive to embrace technology standardisation in bank connectivity, a real focus on counterparty exposure and risk mitigation in trade, a drive to support developing market sales strategies, and increased supply chain focus.
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