In this interview we talk to Unilever’s Regional Treasurer, Toshio Maei, and Unilever’s China Treasurer, Wei Chin about this project. But first we talk to Hans van den Bosch, Head of Treasury Operations at Unilever’s group treasury in Rotterdam, to get the global treasury perspective.

Hans van den Bosch, Head of Treasury Operations, Rotterdam

Hans, please could you tell us something about the background to the Asia project?

In 2004 Unilever benchmarked its finance processes with those of other large multinational companies and following this exercise several improvement projects were undertaken. Within treasury, I took the responsibility to look at the cash management processes within the overall financial supply chain. We decided to put forward a vision, or a strategy, with some very simple elements to it to say how we might improve.

There were two major thrusts to this cash management vision. First of all simplify. One of the conclusions we had was that Unilever’s cash management structure, due to its history and origin, was too complex. We deal with too many banks and have too many local solutions. The second major thrust of the cash management vision is to ‘move the centre of gravity’.

How did you communicate this to the rest of the organisation and particularly your treasury colleagues?

The two major thrusts I have just mentioned resulted in seven objectives which we call the pillars of our global treasury strategy. First of all we have to simplify the banking environment. So that we deal with fewer banks, what we call the primary banks. The Asia project is one good example of this.

The same goes for the way that we interface with the banks. We want to streamline the way that we work with the banks and do away with the multiple systems. This goes hand-in-hand with going to a primary bank solution.

Then we have the third pillar and that is to simplify and rationalise the way that we pay – the instruments that we use to pay and receive. Obviously on the collection side you have less control, but when it comes to paying our suppliers we have too many payment methods – cheques, letters of credit, credit transfers. The aim is to move away from manual, paper-based payment methods and to use electronic payments as much as possible. The fourth is to simplify the payment process itself, not just the instrument that we use. We are dealing with a lot of local operating companies and a lot of payment processes. Let’s agree the payment processes and harmonise them using best practices.

The idea is to set a direction, some key messages, from corporate treasury. Then within each region we identify which of these factors we’re going to pick up and that we consider to be more important than others. We cannot decide how local suppliers must be paid, but we can set an ideal framework. The implementation and translations into practical projects and practical solutions is discussed with each region.

What are the three remaining pillars?

Number five is a bit further down the line. It is about looking at payment factories. We have not really started on this yet. It will not be stand-alone but part of a move to shared service centres for other financial functions.

Number six is cash pooling. Our aim is to get all cash movements involved in a global liquidity structure – 100% cash pooling. We recognise that there are still some jurisdictions in some countries where this is not possible and that there are still a few countries, such as Australia, that need to be included in the global cash pool.

Number seven is foreign exchange. We have an in-house bank offering FX services to our operating companies that this has not been implemented globally at this stage. It works in North America and Europe but now we want to extend it to all the units.

How does the Asia cash management project fit with these pillars?

The Asia project picks up a number of these elements. We are now implementing a primary bank for our payables, HSBC. We have streamlined the interface and we are going to cash pool all the countries in the region, where possible from a regulatory point of view. I am very comfortable with the direction the project has taken.

Toshio Maei, Regional Treasurer, Singapore

Toshio, please tell us about your recent RFP (Request For Proposal).

We have been wanting to review our operational banking arrangements in the region for a while. I took over the job of Regional Treasurer in July 2003 and my first task was to review the group’s funding arrangements. This gave me a chance to get to know the banks in Asia.

The next task was the cash management project, which we started last year. This involved a review and tender for our operational banking arrangements. We never realised quite how difficult a project like this would be. We operate in 17 countries in the region, all with very different cultures. Asia is not like Europe. There is no common currency and each country has a different way of doing things. Each of our units and each country tends to be rather autonomous.

We had a number of objectives but had to be realistic regarding what we could achieve. Our main aim was to streamline our payment processes and then build host to host connectivity between our ERP and the regional primary bank and set up a regional cash pool link to our global cash pool. We were also expecting to achieve a certain amount of FX netting which is another of the objectives in line with Unilever’s World Class Cash Management Vision.

Which banks did you go to?

No one bank could do everything and we knew that. This was going to be a big project. We held discussions with nine of our lead banks (which Unilever call ‘International Golden Circle Banks’) and then short-listed five. We ended up with proposals from four (Citibank, HSBC, Deutsche and Standard Chartered).

How did the tender process work?

Buy-in from our operating units in Asia was critical. So they were involved in the process from the very beginning. Corporate and Regional Treasury, Regional IT and Tax were also actively involved in the entire process.

We sent out the Request for Proposal (RFP) and had to respond to many questions from the banks. Then, in January, we had presentations from the banks. It was a transparent process with everyone having a vote and all the stake holders being part of the process and involved in making the decision. We used a comprehensive bank scoring template with every country and stakeholder having a say in the primary bank selection. This helped us to be both neutral as well as ensuring all stakeholder support for the project.

At the end of the day, it was a mix of subjective and measurable factors that we looked at. The cultural issues were very important as were how many branches the banks had, the solutions they were offering, their levels of customer service and how robust their systems were.

Before the presentations we summarised how the voting had gone and which bank was in the lead. Then after the presentations each participant was asked to summarise what they thought. From these discussions two banks emerged and eventually HSBC was chosen. Most of the countries voted for HSBC and this was particularly important since the successful implementation of the new arrangements is crucial.

How was China involved in the process?

China was a big supporter of the project and will be part of the first phase of implementation. China is one of three in this high priority phase; the others being Singapore and India.

India and China are two of the more difficult countries in which we operate and we know we cannot do everything immediately. Every day we face challenges and we are tracking the project by having regular update meetings. I like to think of this as the start of a long journey. We are not being too aggressive and we have not included all 17 countries in the first couple of months of the implementation. I am also managing expectations. Some countries are more positive and want to get involved and make changes. Other countries are less convinced of how much we can save and the qualitative improvements we can achieve, but in the end the initiative will benefit Unilever Asia as a region on a whole and this ensured total participation.

China is strategically important because we want to try and set up a payment factory in China (to support all our China entities treasury activities) and also look at collections – something that was not included in the RFP we sent to the banks.

There is no doubt that we will make major float savings and reduce our banking fees substantially. So whilst we will not force the operating units to move I am sure we can demonstrate the savings that there are to be made.

Wei Chin, Treasurer, China

Wei, how is Unilever structured in China?

Unilever has been in China for a while. We have three business divisions: home and personal care, foods and ice cream. We operate across China in many areas such as Hefei, Beijing, Guangzhou and Shanghai. Several branches were also set up throughout the country for the operations. These units all have local bank accounts. Treasury has been restructuring these arrangements, centralizing whenever we can. We operate through different legal structures and branches which added complexities to this restructuring.

Historically, finance teams for the businesses were separated. Wherever possible we have merged or consolidated these units to reduce the legal and audit complications and reduce the number of legal entities. The aim is to have a simplified model and make it more transparent.

So you have a lot of separate banking arrangements in China?

Yes. Previously each company would not only have local banking arrangements but it might use different banks in different areas. Or it might have branch offices that all use different banks. Now, our end-goal is to have one primary foreign bank and a primary local bank to support all our business in China, supported by local banking arrangements. This coincides with the regional RFP which HSBC won. HSBC cover a lot of the areas we need to have covered in China. They have the most branches and RMB (Renminbi) licenses than any other international bank currently operating here.

Do you pool your cash balances?

Our aim is to have cash pooling and to manage the funds between legal entities. Adopting Group Liquidity Solutions enable us to fully concentrate our cash in one place.

It is important to have a master agreement signed by all participating entities. The bank will help us do this but those not in the HSBC network will not be included. This will enable us to minimise costs and transaction fees. Most of our business is in RMB but the export companies use USD (US dollar) accounts. Foreign currency pooling is subject to approval from SAFE.

You have a local SSC (Shared Service Centre) in Hefei. What does this do?

Accounts payments are being centralised in the SSC in Hefei. Payments were previously in the regions and branch offices and are now in the midst of centralisation. Approved invoices are sent to the SSC where the transaction is processed and there is a direct link to HSBC with a fax or email payment confirmation going direct to the supplier. This is much more efficient than the old system where we used to wait for the physical bank advice with a stamp from bank.

What obstacles have you needed to overcome in China and how did you do this?

The biggest problem, historically, has been the dealing with numerous bank accounts and banks. The requirement to set up basic accounts and general accounts plus specific accounts for tax payments for the entities, all adds to the number. It is important to ensure all supporting documentation for foreign currency payments are in place. Experience in payment delay is likely if there is insufficient supporting documentation. Finally, we are now running the SSCs in Shanghai and Hefei – having a simple and efficient process is important. Then we can make full use of the technology available internally and from the banks, which brings advantages. The majority of our financial resources are now concentrated in these locations.

After our recent regional RFP, we are now restructuring our payment process and use HSBC whenever we can. Then we will be setting up cross-border cash pooling when and where we can. Although each country is independent and allowed to deal with local banks, maximising the use of HSBC will maximise our savings.

How do you use technology within the treasury and how does this differ from Asia to China specifically?

A simple to use process and transparent tools must be the goal. At the same time, we must get the information we require as a business. The aim is to send transaction instructions ‘host to host’ to the bank’s back office from our ERP system. The BPCS payment module can deliver payment instructions direct to the bank.

We will minimise the use of spreadsheets and ensure we generate as much cash management information directly from the system. In this case, we expect HSBC to be our partner. This prevents human intervention, plus it is real-time. Finally, we want to outsource cheque payment to HSBC. Although, with the intention to reduce this, there will be a situation where this is necessary. This is aligned with our principle to simplify our payment process.

What are the future developments for Unilever’s treasury management in China?

In the next few quarters, cash pooling, improved cash flow management and automating payroll with HSBC-Net are all projects we will be looking at. There are big gains to be made. This will complement the activity we have going through the SSCs and help us to further simplify processes.

Accounts receivable could be the next priority. Currently, our local banking partner (ICBC) is dealing with this through its wide local branch network. Then we want to look at supplier chain financing. By negotiating better borrowing rates and linking our banks to our suppliers we can get better supplier discounts. I am less sure how big the gains will be here.

What general advice would you give an international company coming to China?

The Chinese banking industry has evolved a lot and has become much more customer oriented. Both local and international banks have a lot of good ideas and knowledge. They can provide useful instructions as to how to do things.

You should be checking with them for their views. You must set a clear vision of where you want to be and then see what you can do. Use a mix of local and international banks to get the best advice. Local banks are changing and improving because of more competition. They are moving towards international standards. Meanwhile international banks are getting local banking licenses and can do more.

You can talk to some of the authorities directly and they are generally very approachable. They will explain what standards have been set. For example, SAFE (the State Administration of Foreign Exchange) is very receptive and will listen to what we are trying to do. At times standards are interpreted differently.

The regulations are evolving every day and you have to keep yourself well informed.