Treasury Today Country Profiles in association with Citi

Treasury in emerging markets: focus on Asia

Sailboat in Hong Kong harbor

From the BRICs to the CIVETs, companies are looking at the growth opportunities offered by emerging markets. Many Western multinationals are focusing their attention on Asia – but the disparate regulatory climates, currencies and languages within the region must be navigated. Meanwhile, Asian companies are also focused on international growth and many are setting their sights on Europe.

In the context of low interest rates and sluggish economic growth, multinational corporations in Europe and the US have increasingly been focusing on expanding their businesses in the faster-growing emerging markets. Offering attractive growth opportunities, Asia continues to be the target for many companies.

Gourang Shah, Head of Citi’s Treasury Advisory Group in Singapore, likens the mood in Asia to that of Silicon Valley in the 1990s: “The environment is very positive and exciting. We’ve seen a tremendous growth cycle in Asia; the region has been driving global growth and continues to do so. At the same time, regulators are slowly unshackling the region. People are feeling positive about the future.”

But while the region’s economic growth looks attractive, companies operating in Asia must contend with a number of different challenges. The region is composed of many diverse markets at different stages of development and from a treasury point of view a one-size-fits-all strategy is unlikely to be appropriate.

How problematic are these obstacles for corporate treasurers? The Singapore-based treasurer of an Asian multinational company shared his thoughts: “All you have to do is to comply with a series of regulations which are not clear, and which change frequently.”

The regulations are usually designed to make it very difficult and expensive to do any cross-border transactions, and, in most countries, staff with experience of corporate treasury activities are rare. You also have a culture in which the perception of risk is very different to the western view, so a lot of the measures taken to control it are deemed as being unnecessary, at best.

“This might be a problem if it was not such a vibrant region, with so many fascinating cultures which each bring their own specific angles – not to mention booming economic activity. So, all in all, a challenge it is definitely worth taking on.”

This article looks in more detail at the differences between running a treasury in Asia and the West and explores the biggest opportunities and challenges faced by treasurers in the region.

Thinking big

International expansion is a two way street in Asia. On the one hand, companies in the West are continuing to explore expansion opportunities in Asia. On the other hand, Asian companies are becoming a force to be reckoned with in the global arena. Last year’s Fortune Global 500 list included 68 companies from Japan, 61 from China (up from 16 in 2005), 14 from South Korea, eight each from India and Taiwan, two from Singapore and one each from Malaysia and Thailand. In comparison, the 2011 list included 133 countries from the US – down from 176 in 2005.

Asia’s fast-growing companies are becoming increasingly ambitious when it comes to expansion both within and outside of the region. In many cases these companies are setting their sights on European targets.

Research published by FTI Consulting in January indicated that 45% of companies in Asia are planning strategic acquisitions in Europe in the coming year, while 50% are focusing on organic growth. Meanwhile research by Deloitte found that the Chinese acquisitions of European companies outnumbered European acquisitions of Chinese companies in 2011.

“Historically, Japanese players have been among the largest multinationals in the world,” comments Shah. “In the meantime, Korean companies have come up strongly – and even in some emerging markets, like China and India, large domestic players have been building up a huge presence globally.”

For the newly globalising Asian corporations, treasury is becoming a higher priority than before and companies are increasingly building dedicated treasury operations. The structure of corporate treasuries in Asia is also changing: Asian companies are trying to control their global treasury operations centrally while the Western companies are managing their Asian treasury activities centrally within the region, driven by the increasing importance of Asia, says Shah.

“Multinationals have seen their revenues from Asia go up significantly in the past ten years and they are looking for centralisation,” he adds. “They want better control over their business and the cash flows resulting from that business.”

Harnessing economic growth

While some of the largest Western economies limp along in the wake of the financial crisis – GDP growth in 2011 was a mere 0.8% in the UK, 1.4% in the Eurozone and 1.7% in the US – business still seems to be booming in Asia, although growth levels have fallen somewhat in the last year. While the world economy expanded 3.8% last year, China, the region’s largest economy, reported 9.2% growth in 2011, down from 10.2% in 2010. In 2012, it is aiming to achieve the lower growth level of 7.5% in a bid for “higher-level, higher-quality development over a longer period of time,” according to a speech by Premier Wen Jiabao in March.

Meanwhile, India’s GDP is currently expected to grow by 6.9% in 2011-2012, although this figure has also been revised down from earlier projections. The Centre for Economics and Business Research (CEBR) recently predicted that India will become one of the world’s five biggest economies by 2020. Japan is a different story, its economic recovery set back by the earthquake, tsunami and nuclear disaster in 2011, although the country’s economy returned to growth later in the year.

Overall growth levels in some Asian countries may be lower than they were pre-crisis – China reported GDP growth of 13% in 2007 – but for companies in the more sluggish Western economies they nevertheless look attractive and many have focused their attention on expanding their operations in the region. Within Asia, many corporations are also focusing on growth.

“From an economic point of view, Asia’s growth is both fast and dynamic,” says Victor Penna, Head of Solutions and Advisory Sales, Asia Pacific, J.P. Morgan Treasury Services. “Businesses are expanding quickly – they are growing both within key countries like China and India, and also across the region. That poses certain challenges to treasurers here as they seek to cover more ground. They tend to have fairly limited resources, but the scope of what they are doing is increasing.”

World Economic League Table

2011 2020
1 United States United States
2 China China
3 Japan Japan
4 Germany Russia
5 France India

Source: CEBR


A word often used in relation to Asia is ‘diversity’. Housing around 4.1 billion people – 60% of the global population – Asia is a vast region covering almost a third of the world’s land surface. However, opinions vary about which countries constitute Asia, and to a certain extent the region is an artificial construct made up of a number of often disparate countries and territories, each at different levels of development and with a vast range of regulatory climates, currencies, alphabets, languages and local practices.

For the corporate treasurer, these factors can make it difficult to manage operations across the region in a consistent and centralised way. “I used to work in the US for Tyco International before coming to Singapore in 2003 to set up their treasury centre for Asia Pacific,” says Shah. “One of the things that first struck me when I came here was the diversity, in the sense that I was covering 18 different markets, each with different rules, different time zones and different languages.

That’s very similar to Europe to a certain extent, but for a treasurer coming to Asia from the West, the different currencies and interest rate environments are even more significant in terms of how you manage your corporate treasury.”

Penna agrees that diversity is a key differentiator. “Europe used to be a lot like Asia – 15-20 years ago, there were a lot of different currencies and regulations,” he says. “There’s been a process of standardisation taking place in Europe for quite some time – obviously including the single currency, but also a convergence in banking rules and payment systems. Asia is at the other end of the scale – there are some markets which are quite advanced, with long-established practices and systems. Other markets are really just in the early days of development, while a few are leapfrogging into up-to-date banking systems and technology.”


Any discussion of treasury practices in Asia is unlikely to get very far before mentioning regulation; indeed, 38% of respondents to Treasury Today’s 2011 Asia Pacific Corporate Treasury Benchmarking Study cited regulation as a major barrier for their treasury department. Again, many of the challenges in this area arise from the diverse regulatory regimes across the region.

“Where regulation is concerned, there isn’t a consistent approach across the region,” explains Penna. “Some markets are relatively open, such as Japan, Australia, Singapore and Hong Kong. At the other end of the spectrum, China and India have controls on the movement of capital, FX controls and so forth. Other countries fall somewhere in the middle.”

From the treasurer’s point of view, the challenge is not just understanding the different regulatory regimes across the region – keeping up with the often rapid rate of change is also key. “These regulations are very dynamic in nature,” says Shah. “Treasurers need to continually ensure access to information from banking partners so that they can leverage any regulatory changes that are happening. Access to regulators is also important: for example, in China treasurers need access to the Ministry of Commerce, the State Administration of Foreign Exchange (SAFE) and the People’s Bank of China (PBoC) in order to be more effective in their job.”

So what are the biggest implications of the various regulatory regimes? Whereas the more open markets allow the free movement of capital, allowing cash management structures to be set up without particular difficulties, the more restricted markets pose greater problems. As a result, cash can become trapped in these markets.

“China and India are probably the most regulated in the region,” says Penna. “Other countries tend to allow some flexibility up to a certain level. For example, it may be easier to move cash cross-border subject to certain limits or approvals.”

It is the sheer variety of approaches that poses the biggest challenge for corporate treasurers. “You have to look at each country on a case by case basis,” adds Penna. “That’s the challenge for the treasurer looking to operate a regional treasury in Asia. As a treasurer you are trying to aggregate FX exposures and excess liquidity – if there are varying restrictions in different markets, you can only do this to a certain level.”

Cash management

Treasurers in Asia tend to have access to cash management products as sophisticated as those available in Europe and North America, although regulatory obstacles can make some structures more difficult to implement. The results of the 2011 Benchmarking Study suggest that once again, diversity is a major obstacle for treasurers in Asia. While cash concentration structures can be used in many countries in the region, 47% of treasurers said that they do not have any cash concentration structures in place in Asia. When asked about the barriers to cash pooling, 64% cited the inability to include all countries in a cash concentration structure while 56% cited the inability to include all currencies.

What are the main barriers you face today with regard to the establishment of efficient cash pooling structures across Asia Pacific? Please tick all that apply.
Diagram 1: What are the main barriers you face today with regard to the establishment of efficient cash pooling structures across Asia Pacific?

Source: Treasury Today’s 2011 Asia Pacific Corporate Treasury Benchmarking Study

Where short-term investments are concerned, the products available tend to be a little less developed than the US or Europe. Bank account deposits and term deposits are the products of choice for most treasurers, although Penna comments that money market funds are popular in some markets, such as Australia and India. According to the Corporate Treasury Benchmarking Study, over 90% of respondents are using bank deposits, while 40% are using AAA rated money market funds. This conservative stance is nothing new: 80% of respondents said they had not changed the instruments they invest in since the financial crisis.

“The area of investments is one where a lot more activity is needed,” says Sridhar Kanthadai, Asia Pacific Region Head, Treasury and Trade Solutions at Citi. “Historically bank deposits have been a good source of returns for many multinationals, so the money market infrastructure hasn’t really developed other than in India and Australia, and increasingly China. From a local currency investor standpoint, the opportunities are very restricted and most corporate treasuries will swap local currency to dollar or euro and invest surplus funds on those currencies.”

Moving forward

As Asian companies expand they are adopting more sophisticated treasury management practices. “These companies are seeking treasury management solutions similar to those used by companies in Europe and they are looking at their treasury operations from a global, rather than a regional, point of view,” says Shah.

“As they develop, companies in Asia are looking to implement global liquidity structures, adopt standardised banking practices and establish regional treasury centres and shared service centres,” adds Penna. “Some are beginning to invest in treasury management systems, and many are upgrading their treasury governance processes and procedures.”

Risk management is becoming a higher priority and treasurers are tending to look more carefully at their FX exposures while taking a more sophisticated approach to counterparty risk. SWIFT is another area of focus for a growing minority: although the 2011 Benchmarking Study found that 66% do not use SWIFT and have no plans to in the coming 12 months, 16% of respondents are connecting to SWIFT via SCORE, and another 16% are using a MA-CUG connection.

“Some organisations are looking at SWIFT and the benefits of bank agnostic connectivity – it’s not a majority, but we are seeing more interest in this topic,” says Penna. “While many companies are still happy to use a bank’s proprietary systems, there is a lot of interest in standard file formats and a lot of companies are asking about ISO 20022 XML file formats in RFPs.”

Supply chain finance is another hot topic in Asia, according to a report published by Celent in August 2011. The report estimates that supply chain finance programmes within the region will grow by 18% within the next three years, compared to 5% in Europe and 10% in North America.

As China and India become more mature, attention is likely to be focused on the next wave of emerging economies. Indonesia and Vietnam have been flagged as countries to watch and as such have been included in the latest emerging markets acronym, CIVETS (together with Columbia, Egypt, Turkey and South Africa). Companies looking to move into Asia may focus on a wider range of countries in the future.

Given the multitude of challenges associated with operating in Asia, what should treasurers bear in mind when a corporation is moving into the region for the first time? “While companies expanding into Asia are usually well-prepared, the diversity in the region is always an important consideration,” concludes Kanthadai. “Being nimble and connected through market participants is an essential ingredient of doing business here.”