Finance professionals from across the region discuss an array of considerations that are shaping day-to-day treasury operations
With multiple regulatory environments and currencies, treasury management across APAC is a complex undertaking that is fraught with challenges. These can impair the operability and profitability of companies. In addition, supply chains are becoming increasingly complex and businesses are continuously having to adapt to market volatility. Careful consideration of these matters, among many others, is leading to new and innovative treasury models.
To centralize or localize? The preferred treasury management model
A centralized treasury management model is preferred over a localized approach. However, due to the regulatory, currency and tax environments of some countries across APAC, this is not always possible. Hybrid models, which incorporate efficiencies gained through a central treasury hub, combined with local centers that meet country-specific requirements, are viable solutions. Location and the need to localize in these places is therefore a foremost consideration when deciding upon which model to deploy.
Approaches to procurement
A centralized approach to procurement, however, is more likely subject to a firm’s industry. For instance, businesses in the commodities space are unable to implement a centralized model, as these are bought locally in local currency. A business that relies on large capital equipment, like airlines, can adopt a centralized approach and take advantage of cost efficiencies and other gains that result from this. A hybrid model for procurement is less of a practical solution, as in most industries purchasing is done either at the local or centralized level.
Supply chain financing ― opportunities and challenges
Supply chain financing is a highly effective working capital tool, but it remains a significant undertaking for most companies. It can be deployed across borders and can vary greatly in terms of the number and profile of suppliers. Due to its complex nature, however, accounting and other systems must be adjusted, and buy-in from all business areas that interact with suppliers is key for the realization of a successful program. Additionally, buy-in from suppliers is equally as key, which will also require buyers to help on-board suppliers.
Mitigating currency mismatches
Currency mismatches, largely as a result of a strong US dollar, is an area of concern for treasurers in APAC. Unless a firm’s revenues and its outgoings are matched in the same currency, there will likely be a currency mismatch between a local currency and other currencies ordinarily used to finance global trade and investment, like the dollar, euro and yen. Hedging through swaps and/or options are viable solutions to this challenge. However, the derivatives markets in many of Asia’s emerging economies are underdeveloped and/or one-sided. Ensuring revenues and expenses are in the same currency will provide a natural hedge.
New technologies driving greater efficiencies in treasury
Cloud-based treasury management systems are growing in popularity, as are niche payments applications. Yet while the introduction of these new technologies ― many of which are internet based ― are becoming increasingly widespread, treasurers are concerned that cloud-adoption and the use of third-party applications are increasing their exposure to cyber risks. Nonetheless, cloud adoption presents greater flexibility in terms of access, and is contributing to the emergence of new business and operating models.
To learn more, please contact your J.P. Morgan representative