Corporate View: Edward Zhou, Kodak

Published: Nov 2008

Kodak was founded in Rochester, New York in 1884 and opened its far east liaison office in Shanghai in 1927. The company is committed to a digitally orientated growth strategy and now has over 1,700 employees across China. We talk to Edward Zhou, Kodak’s Treasurer for the Greater Asia Region, about liquidity management, how the company is managing its foreign exchange exposure and recent regulatory developments.

Edward Zhou

Treasurer, Greater Asia Region

Edward Zhou has served for various treasury positions in Kodak over the past eight years and has accumulated rich experience in cash management, corporate finance, e-banking and financial risk management. He is responsible for all treasury activities of Kodak subsidiaries in the region. Before joining Kodak in 2000, Mr Zhou worked in the corporate banking department of an international bank. He is a CFA charter holder.

Can we begin with an overview of Kodak’s operations in China?

Kodak has invested over $1.4 billion into China, and has established manufacturing bases, a product and development centre and a regional head-office in China.

All of Kodak’s business units, Consumer Digital Imaging Group, Graphic Communications Group, and Film, Photofinishing and Entertainment Group, have a substantial presence in China. Kodak in China is an investor, a manufacturer, a developer, a retail partner, a brand and market leader, an exporter and a model citizen.

What can you tell us about your role and the structure of the treasury?

I am Treasurer of the Greater Asia Region and deal with all aspects of treasury from cash management and corporate finance to risk management for all Kodak subsidiaries in this region.

The treasury organisation at Kodak in the region is quite lean. We have a centralised treasury team in Shanghai and have limited other teams in select locations throughout the region.

Could we talk about your approach to managing liquidity?

Cash management is very different in China because the regulations and finance structures available do not really resemble those of developed markets. Solutions are limited.

Over the past two or three years, companies have become particularly interested in providing inter-company liquidity management by sourcing surplus cash from one entity and moving it to an entity in deficit. In China this must be routed through a bank as intercompany direct loans are prohibited. This means that one group entity cannot lend directly to another group entity but funds can be advanced through an entrusted loan structure.

Kodak has been using these entrust loan based structures since 2001 to manage inter-company liquidity and we still find them very helpful and valuable tools, especially as we can then utilise the extra cash to finance new investments in China.

Are there any regulatory developments that treasurers in China are particularly hoping for?

The wish list is quite long, ranging from onshore cash management to joining global cash liquidity management. Fortunately, we have experienced releases in regulations over the past years and are looking forward to more to come in the future.

Is Kodak involved in lobbying the authorities at all with this wish list?

We have maintained quite a good relationship with the authorities. Actually, Kodak was invited to provide input during the preparation period of the Pudong Nine Measures, a pilot programme introduced in 2004 to relax foreign currency restrictions.

How have exchange rate concerns impacted on Kodak?

We have a big operation in China, serving both domestic and overseas markets, which are exposed to FX risk. It is one of treasury’s major responsibilities to keep the FX risk of the company within a reasonable range, for which we work with both foreign and domestic banks.

What sort of products can the foreign banks provide that the local banks can’t?

A good example would be e-banking. Although some local bank networks are very extensive in certain areas, offshore it is not really strong enough for our requirements, so we utilise foreign banks’ e-banking systems to integrate country level systems with regional and global platforms.

Turning to a broader theme, what impact are treasurers in China feeling from the credit crunch?

I would say that the credit crunch has been having a substantial impact on treasury, or treasurers, in China. The big companies can still get liquidity support from banks. The cost of funding has increased quite substantially though, whether for local currency or foreign currencies, but more so for foreign currencies.

Foreign currency liquidity is extremely tight onshore in China recently. This has impacted company finance, direct financing, and the whole supply chain – upstream and downstream. This is an important area of focus for treasurers, including myself, as we work with upstream suppliers and key dealers by looking into channel financing solutions.

Do you have any such solutions in place at the moment?

We are studying various options, one of which is leasing. We sell various products in China, including a wide range of equipment from commercial graphics equipment to retail equipment. The target is to provide financial support to customers by leasing the equipment out to them on demand, to help their cash flow and balance sheet.

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