The challenge
Valentino Korea, the Seoul-based retail arm of Italian luxury fashion house Valentino S.p.A., is responsible for the sale of Valentino products throughout Korea. While the company already has a significant market presence in Asia Pacific, Valentino is looking to further establish itself as one of the leading luxury fashion houses in the region. To help support this growth, Valentino wanted to improve the efficiency of its treasury processes and the wire transfer and FX conversion between its local subsidiary in Korea and its headquarters in Italy.
At the start of the retail process, Valentino Korea acquires goods from the Valentino headquarters in Italy invoiced in Korean won (KRW) and then sells them onshore in Korea. Naturally, Valentino Korea sells in KRW and, in turn, due to monetary restriction on the KRW, to pay back to Valentino’s headquarters in Italy the company must manually convert local currency amounts into euros.
Until recently, the underlying FX process used to facilitate international payments was inefficient and time-consuming. When Valentino Korea needed to pay invoices to its headquarters in Italy, it first had to manually exchange the Korean won for euros, such that it could send a wire transfer to Italy. This cumbersome process involved contacting the bank, sending over the relevant documentation and negotiating an exchange rate. All of this had to be completed before Valentino Korea could even start preparing the transfer.
The solution
With the help of Deutsche Bank, Valentino managed to transform its FX operations in Korea by implementing a bespoke ‘account less’ FX workflow solution. Specifically, Deutsche Bank set up a virtual account in Korea for its headquarters, Valentino S.p.A., eradicating the need for a manual transfer between Korea and Italy.
Under the new workflow, Valentino Korea now pays the virtual account in Korean won which, thanks to Deutsche Bank’s FX4Cash platform, is then automatically converted into euros before being settled directly into Valentino’s master account in Italy.
This means that whenever Valentino Korea needs to send money to its headquarters in Italy, it is now classified as a domestic wire transfer, with the payment moving from Valentino Korea’s onshore account to Valentino’s virtual onshore account.
Best practice and innovation
One of the main aims for treasurers today is to try and keep the number of current accounts as low as possible. Opening an account requires a lot of effort both in terms of costs and maintenance, with ongoing due diligence, monitoring, auditing and statements, just a few of the many factors to consider. In line with best market practice, Deutsche Bank was able to implement an account less solution based on a virtual account, meaning that Valentino does not have to spend time worrying about the additional effort involved in setting up an onshore account.
“Now the solution is in place, Valentino has significantly reduced the time taken to make these regular payments, and we now have much greater visibility over the associated FX pricing,” explains Antonio Deluca, Treasury Manager.
Key benefits
Looking to the future, the solution is also scalable:
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The FX4Cash platform can be used as a model for other restricted currencies in Asia going forward, eg Thailand or Malaysia.
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If Valentino decides to hedge its projected cash flows in Korea, hedges may automatically be adjusted if local receipt date and hedge date do not match. This process can simply be enabled on top of the solution that is in place already to achieve an operationally efficient end-to-end workflow for a challenging market from a time-zone and currency perspective.
