Best Risk Management Solution Highly Commended: Xiaomi

Published: Jan 2024
Person using digital interface

Peter Zuo

Group Treasurer

Founded in 2010, Xiaomi is a consumer electronics and smart manufacturing company with smartphones and smart hardware connected by an Internet of Things (IoT) platform at its core. The company generated revenue of over RMB280bn in 2022.

Xiaomi’s focused risk management approach results in zero bad debts

The challenge

Today, Xiaomi has a presence in more than 100 markets and operates through its local subsidiaries in nearly 30 countries, which brings many challenges.

Xiaomi’s treasury has been playing a critical role in supporting the corporation’s global expansion projects over the years by leading, participating, coordinating and implementing in each market development. Risk management is the core of each project and is carefully considered and assessed throughout every process end-to-end.

Xiaomi’s treasury has a comprehensive risk control framework which includes identification, assessment, evaluation, response, report and feedback. As in credit risk management, there is a rating system, and in FX risk management, there is a currency (regional) risk rating system.

The solution

In terms of credit risk management, the team has developed a solid procedure at the pre-approval stage. By analysing historical financial information and transaction details, and comparing with industry peers according to internal and external benchmarks, Xiaomi is able to determine the credit limit, and risk appetite for a certain customer. The team also conducts periodic reviews and pays close attention to the global macroeconomic environment and policies, to ensure risk is closely monitored and within control. On the post-approval side, with the assistance of internal systems raising automated alerts and generating reports of any possible overdue amount to relevant departments and senior management, the treasury team can take action in advance to work out any possible solutions to mitigate, transfer, and/or sell down the risks or even to prepare for insurance claims to cover them. As a result, the corporation has achieved zero bad debts in the past years.

Best practice and innovation

The entire group is confronting risk mitigation as one team. For those FX risks managed out of internal control, the team works closely with the FX and financing teams. They study the FX derivative and financing costs in each market and select the proper hedging solution. For the foreseeable risk in collections, the customer credit team works together with colleagues in charge of financing to identify factoring and supply chain finance solutions.

In the markets where high tariffs on import goods results in local sales losing the competitive advantage in pricing, Xiaomi treasury team works side-by-side with production and procurement departments, finding local OEMs and local financing support to the OEMs working capital needs.

The company cooperates with business partners to overcome difficulties in foreign exchange shortage and mark-to-mark risk mitigation, such as working with OEMs on applying international settlement in usance LCs. Meanwhile, the FX team will also get involved in helping OEMs to hedge the FX risk OEMs are exposed to given OEMs sales are in local currency whereas final settlement with Xiaomi Hong Kong is in USD.

Key benefits

  • Cost savings.

  • Headcount savings.

  • Process efficiencies.

  • Risk mitigated.

  • Improved visibility.

  • Number of banking partners/bank accounts reduced.

  • Increased system connectivity.

  • Quality accreditation achieved.

  • Improved key performance indicator (KPI) metrics.

“Overall, in order to mitigate the credit and associated FX risks in collections in various overseas markets, we apply different tools and financing methods, including insurance, standby LC, usance LC, supply chain financing and factoring, which helps us avoid or mitigate the identified risks.”

Peter Zuo, Group Treasurer

The Adam Smith Awards Asia is the industry benchmark for best practice and innovation in corporate treasury. The 2023 awards attracted 450 nominations. To find out more please visit treasurytoday.com/adam-smith-awards-asia

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