Changes in international trade practices coupled with the recent economic turbulence are making companies demand for collaborative treasury services to enhance working capital management, says a study sponsored by BNY Mellon in conjunction with Celent, an independent research company and Moorgate, a specialist communications agency.
The “Integrating Treasury Solutions in Asia and Europe: A Roadmap for Success” study surveyed select senior treasury managers at major exporting companies in six key representative countries from Asia and Europe: The People’s Republic of China (China), India, The Republic of Korea, Spain, Italy, and Germany. Respondents were interviewed in June and July 2009.
According to the study, corporate treasury departments are increasingly expected to improve the bottom line – as well as to identify solutions to daily cash management challenges, improve internal data control, meet increased compliance expectations, and reduce expenses. This expansion of roles and responsibilities is a key driver behind the corporate call for integrated treasury services.
The study showed that the evolution of trade flows and changes in the role played by corporate treasury departments mean that maximum efficiency of liquidity and risk management cannot be achieved if cash management and trade are not fully integrated. Patterns of world trade are shifting and by 2030, 45% of world trade is expected to be in countries not in the Organisation of Economic Co-operation and Development (OECD), which are the least integrated in their treasury programmes, while OECD countries will see a 13% drop, to a 55% share. Non-OECD and South-South transactions are expected to make up the majority of the growth in trade.
The study also found that integration of treasury services within corporations, in all but one of the six countries surveyed, was dependent on the level of trade services sophistication from the local banks. Korea represented the exception, where integration has advanced within the major corporations through their mandating of non-Korean banks as treasury services providers: a fate potentially awaiting local banks in the other surveyed countries. Most smaller non-OECD suppliers may, therefore, have restricted access to these services, as they are dependent on their local banks, many of which have not –because of limited available resources- invested in
fully integrated systems.
Local banks, therefore, need to offer integrated treasury services to their corporate clients. To do so, the choice for those banks is between outsourcing to a global commercial bank that may be a competitor, or collaborating with a non-competing treasury services bank. The development of SWIFTNet’s1 Trade Services Utility (TSU) fundamentally shifts the balance of power towards the collaboration/partnership model and away from the outsourcing model.
The evolution of Open Account terms for trade, which make up 70% of all transactions, compared to just 15% for issued Letters of Credit and 7% for documentary collections has, alongside developments in information technology, also driven the need for integrated solutions, says the study.