The momentum driving the digital agenda across Asia has, as its source, the increasing power of the consumer.
Asia Pacific Sales Head, Treasury and Trade Solutions, Citi
As Asian demographics change and consumer wealth rises, the interest in ‘frictionless’ relationships with vendors gains ground. Failing to meet consumer wants and needs can and will lead to loss of business on a grand scale.
Innovation and the adoption of disruptive technologies has become a key marker of the commercial will to thrive, not just to survive. With pressure mounting on the supply-side to deliver, the impact is being felt across multiple sectors. This is enabling some clear winners to emerge in ‘Digital Asia’.
Major online retailers understand that a strong and sustainable digital relationship with consumers is critical. They know that granting consumers easy access to goods and services is essential; from channels to payments, to transportation and logistics, all must flow in the most frictionless manner possible. Online retailers understand that there is fierce competition and that standing still is not an option.
With digitisation deeply impacting the corporate space, we see global consumer brands switching marketing strategies. Where they were building relationships with their retailers, supporting brand recognition with consumer advertising, they are now showing a far greater understanding and use of digital platforms that are capable of reaching and allowing interaction with consumers directly. This is informing product and service offerings, with knock-on effects across many different sectors, from media and telecoms, to utilities to manufacturing. It seems that many corporates are having to relearn how to run their business.
This dynamic can potentially generate challenges for treasurers. The flow of payments and collections across new platforms may be less than optimal in terms of the value and availability of data harvested. However, the move towards immediate payments, request-to-pay and real-time 24/7 clearing technologies provides new opportunities, for example, the reduction of friction facilitating significant working capital improvements.
We, at Citi, are well positioned to support our clients as they digitise. Our Treasury and Trade Solutions business is organised around truly ‘global, simple and digital’ lines, enabling access to a broader solution set, deeper analytics and wider connectivity. In China, for example, we were the first foreign bank to connect to the People’s Bank’s IBPS, in support of a client’s B2C relationships, providing 24/7 immediate payment updates that allowed quicker release of inventory to the buyer.
The drive towards digital enablement and eCommerce will continue apace. All businesses must be prepared to innovate and to transform. However, this is a fast-changing environment that requires an agile way of uncovering and responding to trends.
Although this is largely a consumer-driven transformation, the dynamics in many different industries will change. In fact, it is difficult to think of an industry that will not be impacted. Of course, the banking industry is revolutionising its own approach and Citi is at the forefront of that change.
In this article, we look at sector specifics, revealing the key trends and innovative digital responses that are enabling treasurers to move with confidence towards frictionless digital trade.
Omni-channel and digitisation: shaping consumer and healthcare strategies in Asia
Asia Pacific Consumer and Healthcare, Sector Sales Head, Treasury and Trade Solutions, Citi
The consumer and healthcare companies in Asia are at an inflection point of growth. By 2025 the world will look different due to a continued shift from West to East. Asia will be driving the growth due to urbanisation and burgeoning middle class. This potentially will disrupt the West-centric model that many companies have followed in the past. A challenge will be to drive innovation in a global marketplace that’s heavily weighted to Asia Pacific. Rohit Jamwal, Asia Pacific Consumer and Healthcare Sector Sales Head, Treasury and Trade Solutions at Citi, explores the options and opportunities.
Across Asia Pacific there has been a continued shift toward online retailers as consumers increasingly skip traditional brick-and-mortar stores and the growth of mobile commerce and contextual commerce becomes ubiquitous. At the same time, mass production and messaging has less appeal today than ever, says Jamwal, so companies are focusing on the localisation of products and crafting personalised advertising strategies to appeal to an increasingly sophisticated consumer base.
Opportunities and challenges
With sales growth on everyone’s agenda, the race for “the next one billion consumers” is all about opening up new markets, demographically and geographically. Reaching these markets is necessarily pushing digital strategy to the fore. Improving data accessibility is creating opportunities for companies to exploit direct-to-consumer models, allowing the introduction of new channels whilst maintaining traditional customer touchpoints. New banking technology (eg APIs) is facilitating bundling of products and a readiness for product extension (eg consumer finance) to accelerate point of sale conversion.
Rapid expansion of eCommerce brings a fulfilment challenge, while traditional multi-layer distribution models may no longer be efficient, especially in terms of inventory management, logistics (notably so for perishables) and data fidelity. To thrive, companies need to re-assess distribution and procurement value chain. Social networks may disrupt online businesses in some categories since on-demand retail is feeding instant gratification for consumers.
The liberalisation of government policies is also helping to grow consumption of consumer and healthcare products by the burgeoning middle class across Asia. For example, on December 1st 2017, China implemented new tariff rates on a selection of 187 consumer goods, reducing import duties from 17.3% to 7.7%. The goods covered in the import-duty reduction including food, healthcare products, medicine, clothing and other daily-use products.
Digital channels are the new normal
Digitisation holds many answers and is seen as a disruptive force for many reasons. It removes many entry-barriers for challengers, but also provides speed-to-market for all participants, ultimately creating a “battle for the customer”, notes Jamwal. In the consumer ecosystem, for example, the corporate adoption of the Internet of Things (IoT) can help drive internal efficiencies by fortifying supply chain management. Companies are also using store beacons – which communicate with a shopper’s smartphone in the hopes of improving the in-store shopping experience – store beacons are immersing retailers with data that they never previously had access to.
But the most obvious use is in how the company interacts with its customers. For example, consumer-focused companies are beginning to use chatbots as service and marketing channels, while artificial intelligence, augmented reality and virtual reality are driving customer experience and expectations. This is something to which all serious contenders must respond.
Technology advancements are also priming major changes in the life sciences sector, offering greater access to information and a rapidly improving ability to respond to it, notes Jamwal. Biosimilars, genomics, point-of-care diagnostics, electronic medical records and wearable health care devices, for example, are reshaping the way in which the sector interacts with the market.
The non-traditional players seeking to monetise Big Data are enabling digitisation of healthcare administration ecosystems. As government healthcare spending reduces, and consumer ‘out-of-pocket’ costs for popular treatments increase, the sector can only keep up by investing in new technologies, creating new, more efficient models.
At the same time, notes Jamwal, the shift towards holistic patient management and the customer experience has seen companies revisit their marketing models, heralding the arrival in Asian healthcare of packaged financing and subscription modelling.
As new models such as these surface, treasurers are emerging as the go-to advisors on key matters such as implementing new payment methods, credit management and working capital management where extended cash conversion cycles and stretched supply chains threaten continuity.
Due to digitisation and innovation, the positive effects are reaching the corporate back offices and shared service centres, notes Jamwal. But market fragmentation in payment methods means treasury’s selection of the right banking partner becomes integral to achieving end-to-end efficiency and delivering enhanced customer experiences.
A banking match
For consumer players offering the omni-channel experience, and for healthcare firms seeking cost and technology synergies from account structures such as on-behalf-of, arguably it is their banking partner that holds the key to success.
With Citi hosting “the largest ecosystem of consumer and healthcare sector corporate clients, individual consumers and B2B suppliers”, and providing access to an expansive network of networks, on-ground support to business, Jamwal believes clients have a major opportunity to “plug into Citi’s infrastructure and drive business growth”. What’s more, with “best-in-class in technology and regulatory compliance” on tap, that growth is both scalable and sustainable across the region and the world.
Energy, power and chemicals: opportunities and challenges in 2018
Asia Pacific Energy, Power and Chemicals Sector Sales Head, Treasury and Trade Solutions, Citi
As 2018 dawns, a number of themes will continue to provide opportunities and challenges to companies across the Energy, Power, Chemicals (EPC) sector. These include the recovery in the price of crude oil, a greater focus on driving financial returns, nascent investment in upstream and alternative assets, M&A within the Chemical subsector and the impact of China’s hugely significant Belt and Road Initiative (BRI). Tim Waggett, Asia Pacific EPC Sector Sales Head, Treasury and Trade Solutions at Citi, explores the key themes.
Following the precipitous fall in the price of crude in 2014/5, OPEC and non-OPEC countries have extended their production quotas to mid-2018, providing producers with much needed relief, as prices will likely remain range-bound. Despite disruption from US shale producers contributing to oversupply, many shale producers are now focused on debt reduction to strengthen balance sheets after years of profligate borrowing. This will likely help to underpin more robust and higher prices.
Some industry estimates suggest ~US$1trn of capex investment has been removed since 2014/5 which has had a profound effect across the industry, none more so than Oilfield Service (OFS) companies as major participants in the energy supply chain. In an effort to drive down costs, OFS have made significant headcount cuts and been involved in M&A transactions.
For an industry that had become used to high prices, the impact of significantly reduced revenues has “unquestionably” forced energy companies to rethink their strategy and focus on returns, for which the industry has a mixed track record, says Waggett.
Time to move
With environmental and political pressure to deliver on climate emission reductions, clean energy, the potential disruption within the automotive sector, renewables and the rise of Liquified Natural Gas (LNG), energy companies continue to strive for improved financial returns at a time when ‘peak oil’ is the cause of some concern for the industry, given the duration required for new projects to generate acceptable ROI.
That said, Chinese and other State-Owned Enterprises have combined with the supermajors to participate in the bidding rounds organised by the Brazilian and Mexican governments for offshore exploration blocks. Citi’s global network has supported a number of successful JVs and will continue to do so as explorations progress.
Further significant activity has stemmed from China’s Belt and Road Initiative. As a key part of the country’s expansion of its commercial influence across the region and into Europe, ~25% of investment is attributed to power and energy companies, according to Citi research. Chinese SOEs are at the vanguard of this initiative, with Western expertise increasingly assessing the business opportunities.
And further restructuring is evident in the chemicals sector, as companies seek to scale up as firms aim to take advantage of anticipated significant population and economic growth, notes Waggett. The US$156bn Dow Chemical and DuPont merger has created the world’s largest chemical company but other M&A transactions have enabled Asian firms to go global. North American and EMEA headquartered companies are also participating in the industry consolidation.
From an operational perspective, EPC clients are adopting commercial cards as a more efficient payments mechanism, notes Waggett. By supplementing low-value, high-volume traditional T&E cards with a variety of higher-value procurement card formats (including virtual cards), treasuries have been channelling spend through a single provider, both regionally and globally.
Using aggregated card data and Big Data analytics, efficiencies can be derived across the organisation, driving working capital benefits, he explains.
This renewed focus on working capital has encouraged many to investigate supply chain finance (SCF) to drive further efficiencies. “This is where digitisation and Citi’s use of Big Data analytics has significantly moved the needle in terms of being able to dissect client flows and change the angle of engagement with clients,” says Waggett.
As an example, Citi’s partnership with Visa and Mastercard provides insights on how many clients’ suppliers are card-enabled as a merchant. This information is analysed to better understand client flows and metrics around these, potentially revealing more efficient payments structures which may be replicated in other treasury centres.
And as the sector is predicated on trade flows, the need to digitise and automate has taken on a new urgency. Removing paper to enhance workflow is a key area of focus, says Waggett.
Where manual intervention has been eliminated, the focus of productivity can shift to advanced technologies such as machine-learning and AI. These, says Waggett, offer “further practical improvements to workflow and operational efficiency”. Some EPC players are, he notes, already engaging with these cutting-edge ideas.
The rise of mobile payments, and the move to faster payments in various jurisdictions, is also assessed by forward-thinking companies with downstream businesses. Such disruptive digital solutions are creating new efficiencies and ultimately enhancing working capital, notes Waggett.
“But there is also recognition by treasurers that more disruption is coming,” he adds. “The sooner they get on board, the better equipped they will become as meaningful contributors in the discussion.”
The understanding of what disruptive technology means for the business, and where the opportunities exist, should be the focus of the debate for all now, he believes. “This is where trusted advisors such as Citi can bring a globalised and cross-sectoral view to the discussion.”
The industrials evolution: harnessing the power of disruption
Asia Pacific Industrials Sector Sales Head, Treasury and Trade Solutions, Citi
At first glance, industrials might seem a stable sector. However, in reality, it is in the midst of a fundamental transformation, impacting businesses across all sub-sectors. Vincent Couche, Asia Pacific Industrials Sector Sales Head, Treasury and Trade Solutions at Citi, highlights the latest trends.
The industrials sector is currently undergoing a period of transformation. This is driven by significant M&A activity across the various subsectors – including aviation, automotive, heavy machinery, shipping, power and construction – as companies seek to expand into new geographies and take advantage of technological innovation.
This activity is hugely exciting for a sector that creates the backbone of the global economy, says Couche. “Technology is creating the opportunity for many of these companies to redefine themselves and differentiate their products as they pivot towards future growth,” he comments.
Evolving sales opportunities
At the heart of this transformation is the proliferation of eCommerce and the technological disruption brought by the Internet of Things, cloud-based solutions, additive printing, robotics and artificial intelligence across Asia Pacific. These disruptive forces have already had a significant impact on the automobile and logistics industries. For some time, companies in both industries have recognised the opportunities that arise from embedding technological innovations in their products and their manufacturing techniques and from selling directly to consumers. “Other industries are not quite as advanced,” says Couche. “But all companies recognise that digitalisation is an enabler for growth.”
Simply creating a digitisation strategy does not guarantee success, however. Couche explains that for industrials companies to be successful they must offer a first-class user experience to customers. “Key to this is the payment experience,” he says. “If paying for the goods and services is inefficient, then consumers will simply take their business elsewhere.”
Because of this, treasury teams have become a crucial part of the eCommerce strategy, working to understand the payment trends that exist in the markets that the business is selling in. This is especially pertinent in Asia, where alternative payment methods such as Alipay and WeChat Pay dominate in key markets such as China. “We work with clients to ensure they can receive payments through these different methods in the most efficient manner,” says Couche.
Paradoxically, the increase in volume of low-value digital payments can create reconciliation issues for treasury teams in industrials companies. If managed incorrectly, this may increase costs and complexity internally.
Citi has developed a host of tools to help treasury teams solve this issue. For example, the growth of eCommerce is leading to a surge in popularity of Citi’s sophisticated Virtual Account and PayerID solution set. “These allow our clients to easily identify who has paid and what they have paid for,” says Couche.
Working capital focus
Disruption is also occurring on the supplier side. Couche explains that a combination of the increasing cost of labour in traditional manufacturing hubs such as China, tied with the adoption of digital solutions in manufacturing processes and into end-products, is allowing industrials companies to re-evaluate their supply chains. As a result, many are working with a greater number and a different set of suppliers to get new technology and to reduce both costs and counterparty risks.
Treasury is very much at the forefront of these projects, notes Couche, who is also seeing a growing alignment between treasury and procurement. “These two departments, which have traditionally worked in relative isolation, are working in tandem so that new suppliers can quickly be onboarded,” he says. “Treasury is also driving a greater working capital focus throughout the organisation, and that is leading companies to think more strategically about the payment terms they offer.” Couche notes that treasurers are also thinking about how supply chain finance (SCF) solutions might enable them to achieve their working capital objectives.
The widening of the supply chain and the increase in the number of crucial suppliers is seeing corporates think beyond traditional SCF solutions, many of which only cater for the strategic portion of the supplier base. “We have seen a growing adoption of purchase cards and virtual card solutions for single and recurring low-value payments,” says Couche.
Citi has also seen an increased interest in dynamic discounting solutions, whereby a supplier can request an early payment in return for a buyer discount. These solutions have the dual benefit of supporting suppliers across the supply chain while also offering the buyer returns on spare capital that are more attractive than most short-term investment solutions. “Citi has recently partnered with fintech firm C2FO to offer these solutions to our clients,” Couche says.
The most exciting thing for Couche is that there is so much more technological disruption to come. He cites the growth of connected technology and the rise of 3D printing as just two forces that may redefine how companies in the industrials sector operate. “Technology is providing businesses with the opportunity to refine themselves and achieve further growth,” he says. “We advise that treasury stays close to the business to understand the direction that it is heading and to be the catalyst for change where possible.”
When these industry-specific changes are considered alongside the emergence of faster payments and hyper-connectivity – where data flows in real time – with banks through APIs, the future will look very different, says Couche. “In my view, it is the perfect time to be a treasurer in the industrials sector,” he comments. “These changes will create ample opportunity for treasury teams to build on their strategic mandate and find new and exciting ways to add value to their organisations.”
Technology, media and telecoms: true globalisation is here
Aman Singh Chadha
Asia Pacific Technology, Media and Telecoms Sector Sales Head, Treasury and Trade Solutions, Citi
To be successful in Asia Pacific’s highly competitive technology, media and telecoms sectors, the local needs of customers must be met. Aman Singh Chadha, Asia Pacific Technology, Media and Telecoms Sector Sales Head, Treasury and Trade Solutions at Citi examines the options available for clients operating in the sector.
Companies in the Technology, Media and Telecoms sector (TMT) are known to be trailblazers. Recent history is filled with examples of companies from this sector running on the cutting-edge of innovation, developing products and services that change the shape of the lives that we live today at an astonishingly fast pace.
This is especially true over the past decade, where the rise of the internet and the increasing accessibility of data has created a wealth of opportunity for businesses to innovate. As a result, established businesses have rapidly evolved their offerings, with a host of innovative ‘internet-first’ companies emerging in this period. It is no exaggeration to state that combined, technology, media and telecom companies have been facilitators of much of the global growth story in recent years.
Success in the internet age for TMT companies is not a given, however, notes Chadha. Indeed, to be successful in Asia Pacific, these companies must diversify their business models and build nuanced sales strategies to appeal to consumers in markets as varied and diverse as India and Singapore. At the same time, they must ensure they maintain a global outlook in order to ensure operational and financial efficiency and the cohesion and direction of their offering.
Local offerings for local people
Companies that want to be successful in the TMT sector must offer a smooth checkout process to make accessing their products and services as simple as possible, says Chadha. This means giving consumers access to their preferred payment method.
This can be a challenge for businesses in Asia Pacific, given the explosion in payment options that has occurred over recent years. Today, businesses must not only accept cash or card payments, says Chadha, they must also accept payments from a variety of mobile wallet-based payment solutions if they are to appeal to the rapidly expanding tech-aware consumer-base they desire.
The number of individuals using these solutions is staggering, and highlights why businesses are having to enable collections through them. For example, in China, the country’s most popular messaging platform, which also doubles as a mobile wallet, has over a billion active users and processes billions of dollars’ worth of transactions a year.
“Given the sheer size of the consumer base that can be reached by opening up these collection channels, TMT companies are very interested in understanding the payment trends in the markets they operate in,” says Chadha. “They then look to work with a bank such as Citi that has a deep presence in these markets to open these payment channels in the most efficient way possible.”
To facilitate these local sales strategies, TMT businesses are evolving the structure of the organisation to not only appear local, but to become local, says Chadha. For example, previously many of the big internet companies had Irish or Dutch entities that were responsible for much of the invoicing and collections activity. “We are now seeing these companies shift this onshore into the markets that they are doing business in,” he says. “The shift to local buy/sell models is not just because of local tax or regulatory concerns. It also helps these companies to grow sales faster, by being closer to the actual consumer and opening up additional avenues to sell and collect.”
Pushing the boundaries
By becoming local, businesses in the TMT sector are better placed to innovate for growth. This accounts for the products and services they offer as much as the way they operate.
“Companies in this sector are not interested in the status quo,” states Chadha. “They want to push the boundaries of what is possible and shape the future by working with the regulators to develop new structures and ways of doing things that are more efficient and facilitate what they are trying to achieve strategically.” Citi is playing a crucial role in helping its TMT clients achieve this by helping them formulate the ideas, discussing them with the regulators and, ultimately, bringing these ideas to fruition.
Treasury at the forefront
No matter whether the business is expanding its geographical footprint, shifting its operating model or opening up new revenue streams, one thing is for sure: the treasury department will be busy. It is necessary, therefore, to ensure that treasury is operating efficiently so time can be spent thinking strategically rather than managing manual processes.
This is where TMT companies see real value in their relationship with a knowledgeable banking partner in the region that can help them to quickly roll out new services and solutions to enable the company to meet its objectives.
A bank with a wide footprint across the region can also help TMT companies plug into the various in-country networks and offer payment aggregation services that allow them to use local payment service providers in an efficient manner. This helps TMT companies drive standardisation at a central level, without forsaking the company’s ability to offer a bespoke experience to its customers in the different markets across the region.