Photo of Mark Foo, J.P. Morgan, Cheang Shin-Yi and Joseph Ong, Harley-Davidson Asia Pacific Pte Ltd.
Asia Pacific is a key growth area for Harley-Davidson and it needed a solution to address the complexities of dealing in non-functional currencies such as New Zealand dollars and Indonesia rupiah. The company worked with its regional banking partner to develop and implement a best in class solution for both currencies which uses onshore local currency accounts and the bank’s cross-currency sweeps solution.
Cheang Shin-Yi
Regional Treasury Manager, Asia Pacific
Singapore
Founded in Milwaukee, Wisconsin, USA, in 1903, Harley Davidson, Inc. (“Harley”) is the world’s largest manufacturer of heavyweight motorcycles. The company started exporting motorcycles to the Asia Pacific region in 1912 with its entrance into the Japanese market. Today, there are 274 dealerships in 19 countries across the region.
in partnership with
Modular FX risk management solution helps Harley grow across Asia Pacific
The challenge
With Asia Pacific a key growth area, Harley-Davidson’s treasury team is continuously focused on incorporating industry best practices to streamline and improve processes, as well as manage currency exchange risks.
New Zealand (NZ) offered an opportunity for Harley-Davidson to apply FX best practices. As the company did not have a local sales office, dealers in NZ were being invoiced in Australian dollars (AUD), with payments settled out of Harley-Davidson’s sales office in Australia. As the market expanded and sales grew, there were increased requests from the country’s dealers to be invoiced in New Zealand dollars (NZD) and payments to be settled locally, so they did not incur the fees associated with cross-border transactions. To support the request, Harley-Davidson’s treasury team needed to determine how it could manage complexities around receiving and holding NZD payments (which is a non-functional currency for the company), as its functional currency is AUD.
A similar challenge emerged in Indonesia for local dealers who wanted to purchase and pay in their local currency of Indonesia rupiah (IDR), also a non-functional currency for Harley-Davidson. IDR collections received by its Indonesian subsidiary were being converted into Singapore dollars (SGD) to be managed by its regional headquarters in Singapore.
The solution
Harley-Davidson’s treasury team worked with regional banking partner, J.P. Morgan, to develop and implement a best in class solution for both NZ and Indonesia. The solution involved establishing onshore local currency accounts and using J.P. Morgan’s cross-currency sweeps (CCS).
For NZ, a NZD account was set up onshore where local dealers could easily make payments in the local currency without incurring cross-border fees associated with making payments to a bank account held by the Australia subsidiary office in Sydney.
The CCS solution was implemented such that when the NZD account balance reached a pre-determined threshold, the funds are automatically swept to the Sydney office and converted into AUD at a pre-agreed rate. Not only is this a fully automated and innovative cross-border, cross-currency solution, it also provides transparency into FX rates, which means the treasury team no longer need to manually monitor its accounts or call banks for payment updates and FX rates.
A similar solution is being implemented in Indonesia where local dealers can now make payments to Harley-Davidson’s subsidiary in Indonesia in IDR. By establishing an onshore non-resident account in Jakarta, the Indonesia subsidiary can make payments for intercompany sales to Harley-Davidson’s Singapore regional office in IDR. The IDR funds in the Singapore subsidiary non-resident account are swept to a SGD account in Singapore using the CCS solution once the balance reaches a pre-determined threshold.
Best practice and innovation
The solution allows Harley-Davidson’s treasury to adopt best practices while enabling local dealers to make payments in local currency, alleviating concerns around the impact of currency exchange fluctuations on profit margins. Dealers are now able to settle payments locally without incurring cross-border fees.
Key benefits
- Increased operational efficiency.
- Improved FX risk management.
- Idle cash balances unlocked – estimated to be NZ$25m.
- Liquidity optimised.
The solution not only allowed Harley-Davidson to operate more efficiently, it also supports local dealers by enabling them to settle purchases in local currencies, eliminating expensive cross-border fees. The solution automatically sweeps funds at pre-determined thresholds and exchange rates to functional currencies (SGD for Indonesia flows and AUD for NZD flows) to minimise the FX risk of holding idle currencies and putting the funds to better use.
“Winning an Adam Smith Award is extremely prestigious. For the team at Harley-Davidson to have been selected from such a large pool of applicants validates the dedication and the great team work. It is as well a motivation to work towards operating a world-class treasury organisation.”
