Cash Management: What the Emerging Asian MNC Wants

In his 15 years with global bank Citi, Sandip Patil has worked in multiple markets across Asia, including India and Thailand. As the bank’s Managing Director and Region Head, Asia Pacific, Payables and Receivables, he has been assigned to Citi’s regional headquarters in Hong Kong for the past seven years.

 
“There is a lot that’s happening in the market, practically every year, and even more so in Asia,” he says. This includes the rise of the Asian multinationals, which have unique needs and requirements. Their biggest challenge is not necessarily having “the best-in-class technology and efficient back office,” says Patil. “Their biggest challenge is out there in the market place.”
 
In Part 1 of a three-part interview session with CFO Innovation’s Cesar Bacani, Patil discussed cash and treasury management among Asian MNCs, how Citi and other global banks are responding to the evolution of businesses of all sizes in the region, and other issues. Excerpts:
 
Citi works with both Western and Asian multinationals in cash and treasury management. Are Asian MNCs asking for different things compared with their Western counterparts?
If you look at the CFO of a typical Asian multinational, they have a completely different set of challenges. The biggest challenge, for a CFO of an Asian multinational, is not necessarily having the best-in-class technology and an efficient back office. It is having payment and collection structures supportive of the expansion plans in new markets. Their biggest challenge is out there in the market place.
 
Faced with these issues companies need to ask: How do I distribute my product? How do I grow my distribution? How do I keep my customers happy? What kind of credit appetite can I have?
 
All of these have a significant impact on the cash cycle, and companies need to understand the kind of payment solutions and collection structures that need to be in place. This is where the bigger challenges lie.
 
Companies come to banks like us and ask how we can help them manage their growth [in the new markets], manage their customer base and help release credit as early as possible.
 
Do you find yourself going beyond cash management, then, because those things they’re asking you impinge on other operational aspects of the company?
Depending on the customers that you’re talking to, the challenges vary. For example Asian MNCs, as they start expanding, need a sophisticated collections solution. Imagine you get an outstation cheque, but you don’t see the trail for 10 days or 15 days. Sometimes you get money, but you don’t know which invoices are being paid.
 
The behaviour and practices of partners in a new market can be punitive. If I’m a distributor and I’m buying from a company which has just entered the market, I’d want to extract value out of it. As a distributor, I’ll be selling new brands and new products that I have never sold, so I want more credit or delayed payments. When I pay, I may want to adjust for returns. Or I may want a discount.
 
Managing this ecosystem takes a lot of resources for a company and that’s where they look for sophistication and ask: “Can you as a cash management bank help me manage this? Can you collect for me? Can you collect all the information and send all the information to my back office system? Can you automate some of these things? Can you help me release my credit line?”
 
Credit is a very scarce commodity for a growing company in a new market. Suppose you’re going to pay on Monday, but your credit does not get released till Friday – you lose five days of credit, you lose five days of sales that you could have had. The companies look at the cash management bank and ask: “Can you not do something different?”
 
What are some of the solutions Citi and other cash management banks can offer?
It really depends on the type of customer that you deal with. There are sophisticated customers whose intent is to standardise a solution. They don’t want an extreme amount of customisation, simply because if they end up customising too much, then they are creating variants or change for themselves.
 
At the same time, these customers want a solution which is locally relevant. What works in India doesn’t mean it will work in Thailand. To that extent when everything is completely localised, it’s okay to have a local customised solution, but by and large, the fabric will be standardised, the integration protocols will be standardised.
 
We have an extremely good footprint in practically every segment: the big sophisticated customers, shared services centres, the multinational companies, the local corporates, the medium sized corporates, banks and insurance companies.
 
Even small companies?
We definitely want to tell them where the market is going and where we can add efficiency in their own domain. And they want to know that. They are extremely hungry to know what other people are doing.
 
Suppose I am a small pharmaceutical company. I want to know what other big pharmaceutical companies are doing - How are they making efficiencies in collections, payments and technology? It could so happen that this may not work for me right now but  I would like to get started on this in the next two or three years.
 
So Citi would redesign the framework they have now?
Absolutely, we will be a part of their journey. There is no point in saying I’ll discuss the solution with you after three years, when you are ready. That’s not the approach we take.
 
Ours is an approach of partnership. It’s an approach where we have a relationship manager and a service manager dedicated to each and every customer, and their goal is to make the customer more efficient and add continuous value to the client. Those are the people who are with the customer on their journey and take the customer to a higher level of efficiency, year after year. We have seen that transformation, that journey happening very successfully, practically in every market.
 
Who are these satisfied customers?
We have a footprint of almost 50,000 clients. There are large international companies that operate sophisticated shared service centers and then there are some Asian companies which are now going global. We also have mid-sized companies that cross multiple markets and companies from the public sector.
 
To take one example, let’s look at Tradelink in Hong Kong. Their job is to link the trading community with the government. When they started talking to us, we said, they themselves could be a payment centre of excellence for the companies that they were working with. We worked with that objective and today, with Citi’s solution, the client is in a position to offer payment capabilities to a number of buyers and sellers that they are already connecting.
 
Let me ask you about China. As I understand it, some corporates carve out a separate cash management structure in China because their global cash management bank is not allowed to set up an extensive branch network in China.  
It’s not unique to China. If you go to any market in Asia Pacific, say Indonesia, Thailand, Vietnam or India, opening a branch requires a license. And that’s for the right reason, because central banks want to ensure that the industry gradually opens up and not overnight. That’s well-respected.
 
I don’t think the branch banking model is the only model that will add efficiency to cash management. In fact, it’s a high cost model. The model that works for most of the foreign banks and for Citi, in particular, is basically collaborating with the local banks.
 
It is mutually beneficial. The local banks have the physical bank infrastructure. We can bring customers to them and whatever income we make we will share. So, I am bringing business to you [local bank]. Look at me as your business partner rather than as your competition. There will certainly be few do’s and don’ts. We will abide by those rules. By and large, I think collaboration is the best way to bring value to our customers in these markets.
 
Do virtually all local banks in Asia have this collaboration partnership with foreign banks?
It’s not an uncommon model. We were the first one to start using this method in 1986. But I think by and large, niche players and foreign bank players use that model, because we don’t have branches and we want branches and we are willing to pay for it.
 
Does that then imply that you would be doing something about the back office and reconciliation and everything that arises from collaboration with multiple banks?
Whenever you are using multiple banks, challenges will come from dealing with a number of data formats and bank statements. In cash management we have an established model where we will not let our customers suffer. In most of the cases and most of the countries, whether it’s Thailand or Indonesia or India, we will undertake a lot of this load, we will aggregate everything for them and we will give them a single-window service, so that they don’t have to deal with these banks.
 
I imagine there’s a bit of delay because the systems are different?
Not really. Even if the [local banks’] systems are different, that’s Citi’s problem and not the customer’s problem. As a customer, you come to me and I give you a single-window service. If I have five different banks to provide that service, and if five different banks have five different standards, that’s my problem. I, as Citi, will handle that problem, get the information back for you, and I will give you a single-window experience.
 
Is this something that’s done by other banks as well?
I would say yes, many foreign banks would, nowadays at least, be working in that manner. Some of them will not have five, some of them will only have two, some of them will only have one . . . Those factors will vary, but by and large, the model will be similar.
 
How much does Citi charge its customers for cash management services?
The pricing will vary, depending on the value the bank is bringing to the table. More often than not, the pricing is determined by the market because you are not in a monopoly market. It depends on the service you provide, if it is provided by many more banks, then you take the market price. Or if you have services that are unique to you, you can command your price. It’s always a combination of that, as well as the volume and the scale that the customer brings. 
 

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