The Asian tiger is still roaring. Despite an economic slowdown in the China and elsewhere in the region Asia is still posting impressive growth numbers in comparison to other parts of the world and its importance as a site for regional treasury centres (RTCs) is continuing to grow as multinational corporations (MNCs) look to finance their operations and trade in the locality and integrate Asia into global operations. Pfizer provided a fascinating case study about how to go about doing precisely this during a session at 8.30-9.30am on day two of the Association for Financial Professionals (AFP) Conference 2012 entitled ‘Managing Disparate Regional Treasury Operations in Asia’ (see day one blog here).
Ping Chen, director, international treasury, Pfizer Inc, explained how the pharmaceutical giant is implementing and managing a seven year project, started in 2010, to rollout a centralised treasury operation across 15 countries in Asia, including ultimately to Japan in 2014 and then on to 10 other Asian countries. Four nations have already been integrated into Pfizer’s treasury operations, principally China where a new shared service centre (SSC) and RTC has been set up in Dalian. This acts as a regional hub for Asia, providing foreign exchange (FX) and liquidity to all Pfizer’s Asian units. As more nations are integrated into Pfizer’s new Asian treasury infrastructure over the seven year project, then all accounts payable (A/P) and receivable (A/R) will be added into the Dalian RTC and SSC.
“We have established one regional bank, one regional enterprise resource planning (ERP) system and one global treasury management system (TMS) thanks to lots of integration work,” explained Chen. “It’s a very automated and efficient operation we’ve established … it gives us real-time cash visibility and has improved our cash forecasting.”
The Dalian SSC in China operates an in-country zero balance account (ZBA) cash pool, which feeds into a regional multi-currency cash pool. The whole operation has been set up with the assistance of JP Morgan, which is the banking partner for the project architecture, explained co-speaker Mark Sims, executive director, JP Morgan Treasury Services.
The new Asian treasury structure at Pfizer fits into the SSC in Pfizer’s treasury headquarters in New York, US, and its SSC and in-house bank (IHB) in Dublin, Ireland. More responsibility is being devolved to the Dalian centre as it comes on-stream and more countries are added to the architecture. “The RTC model must be continually evolving,” said Pfizer’s Chen, before setting out the ‘key learnings’ required for any RTC rollout:
- Remember to over-communicate and get each country involved as you centralise operations.
- Don’t compromise the regional standard solution for customised country-specific models.
- Review the RTC model regularly so you are aware of any regulatory changes or opportunities/challenges as you progress.
McDonald’s Case Study
The next presentation in the treasury and finance track at the AFP Conference was again Asian focused. Entitled ‘New Treasury Solutions for Reminbi (RMB) – Analysis on RMB Cross-border Services’ the case study presentation from Marc Monyek, senior director, global funding, APMEA, McDonald’s was so popular that people were being turned away at the entrance door due to over-crowding. The presentation examined the work McDonald’s has done with its banking partner ICBI to access RMB funding domestically and internationally, remembering that the burger giant was the first MNC to issue an RMB-dominated bond in Hong Kong in August 2010 to help fund its Chinese expansion – a path many other MNCs have since followed. “It received just a little attention at the time,” joked Monyek, referencing the more than 800 news stories written about the first ever RMB bond issuance and 500 million website hits it got. “The bond was five and half times oversubscribed.”
McDonald’s replicates the same treasury structure in China, as it uses in the US and elsewhere, explained Monyek, with treasury employees and departments dedicated to specific responsibilities, covering:
- Cash management.
- Franchisee financing.
- Cross-border services.
The RBM bond was necessary as McDonald’s wants to have 2,000 restaurants in China by 2013, up from 1,500 currently. RMB is needed for funding and to make its treasury more efficient. Doing this with the restrictions in place around the Chinese currency is not easy, however, even with the increasing pace of liberalisation. “We couldn’t have done the bond in 2008/9,” explained Monyek, before going on to add that McDonald’s has an RMB-denominated inter-company lending structure that means it can eventually take funds out of China, avoiding a trapped cash scenario. “This can only happen, of course, with State Administration of Foreign Exchange [SAFE] approval.”
Co-speaker Xi Luo, executive vice president of ICBC’s head office in China, talking via a live translator in some sections of the session, explained how ICBC is helping McDonald’s to access the RMB cross-border services it needs, as well as handling its cash pooling, payroll and other internal cash management needs. He also provided a fascinating overview of the trade trends between China and the US, explaining why RMB currency swaps, accounts and settlement services, among other offerings, are so popular at the moment by pointing to the latest figures, such as US$1.7 trillion in swaps.
“In 2011 the US and China trade figure was US$415bn,” added Luo, before going on to state that the total amount of assets owned by US banks in China hit RMB180bn in 2010 with the reverse figure for Chinese banks owning US assets standing at RMB140bn. With the US presidential election imminent, and much controversy among the candidates over alleged Chinese currency manipulation and ascendancy, this timely reminder of the interdependence of the two economies – and of the need for cross-border RMB services – was welcome.
“Our destination is to finally have one currency,” added Luo. “RMB is not fully convertible yet of course, but some baby steps have been taken.” While overseas companies cannot directly invest in the Chinese capital markets, however, then there is always going to be special circumstances surrounding RMB.
Executive Institute: Dealing with the Board
For treasurers at the AFP Conference looking for something outside of the treasury and finance track, one of the final sessions of day two of the conference was the session at 4-5pm in the Executive Institute gathering, which is restricted to senior level attendees, entitled ‘What is the Board and your CFO Looking to Treasury to Deliver?’.
In a fascinating discussion moderated by the AFP’s Craig Martin, executive director of the organiser’s Corporate Treasurers’ Council (CTC), the treasurer and CFO at the Carnival cruise line, discussed with General James Conway, 34th commandant of the US Marine Corps and a board member at Textron Systems, how best to report to the board. As he pointed out: “We rely on the treasurer and the CFO to do the homework and advise us what to do. The board doesn’t want detail – we want to know what is the cost, what is the risk and so forth. You have to have good people that you can rely on for the detail.”
David Bernstein, senior vice president (SVP) and CFO at Carnival, advised the CTC members at the interactive Executive Institute session to, “take a one and half hour-long presentation and boil it down to 10 minutes with executive highlights and bullet points. The board don’t want the detail. They want to know that you’ve done your job. They’ll probably question you on it but if you’ve got the answers then that isn’t a problem.”
The ex-treasurer then deferred to his replacement Josh Weinstein, who is the vice president and treasurer at Carnival, joining just as the financial crisis of 2008 was brewing. He candidly admitted that good boardroom reporting mechanisms from treasuries are helped by having an ex-treasurer boss in his CFO and fostering good communication. “If David has a question for me he will pop into my office next door and vice versa. Only then, once we have discussed any pertinent issues and just how important or otherwise it is, will we cross the aisle to see a senior level board member.”
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