The world’s largest technology company, US-based HP first established a presence in China in 1981. Today, HP does business in over 680 cities throughout China and is the country’s leading foreign PC vendor. This issue we talk to Randy Ou, Treasurer – China, HP about the challenges facing corporate treasurers in China today.

Could you please give me a brief overview of the company’s activities in China?

HP, as I’m sure you know, is a global company and we have had a presence in China for over 20 years. In fact, we were one of the few international companies that started early on in China. Today, we have more than 10,000 employees in China, which illustrates our major dedication in the country.

The company has three major businesses in China. One is the IT service, another is business and home computing, and then we have imaging and printing. Aside from those, we also have other activities such as supply chain, lab, software development centre, credit and collection centre, etc. To strengthen HP’s ability to serve the fast-growing Chinese market and help accelerate economic development in West China, HP and China’s Chongqing Municipality also announced plans in October 2008 to set up an advanced manufacturing complex. This further shows our strong commitment in this country.

What is your role and how is the treasury structured?

Treasury at HP is structured as a globalised function and each region has its own treasury centre. In the Asia Pacific and Japan region, our treasury centre is based in Singapore and I belong to part of this treasury centre. I am however based in Shanghai giving specific attention to China due to the country’s complexity and importance.

In each treasury centre, we then divide ourselves into two parts: one is consulting and the other is operations. The consulting side is more like the front-end of the function, so each consultant will lead and drive the initiatives and then work closely with businesses and other functions. On the operations side, we have the so-called cash managers who are more at the back-end taking care of the daily cash management operations. We believe that this front-back end structure helps address our business’ needs proactively while still being able to drive operating efficiency constantly.

What are the main challenges facing corporate treasurers in China at the moment?

This is a very interesting time to ask this question. The global economic situation has changed rapidly over the last few months and I think that as such we have four main challenges at this moment in time, and for the coming year.

The first one is the need to support our business growth going forward in the current economic situation. These days, everyone is a bit frightened and pretty much risk averse in this environment, but at the same time, we need to continue to expand the business. Treasury has an important role here in terms of looking for any solutions, such as in the working capital management area, where we can help the business to grow.

I think the second challenge is managing risk in this fluctuating financial environment, particularly with the threat of counterparty risk. Our main counterparties in treasury are the banks and some banks are getting into trouble these days – so the question is, how do we manage this risk? Certainly we have spent a great deal of effort in the past months to look at different metrics, formulate action plans, and monitor the implementation very closely.

The third challenge will be the lower yield investment environment. Globally, more or less every government is reducing interest rates so if there is any extra cash, we have to be wary as we are not earning a high yield as in the past anymore. The Chinese government has also cut rates to boost the economy, so we need to look for any other risk-justified investment opportunities, which is certainly a challenge for each treasurer to think about.

Finally, on a more China-specific level, the challenge is managing and adapting to the frequent regulatory changes. It is expected for the China government to continue the regulatory changes under the direction of reform and openness. However, the current economic situation complicates both the direction and pace of the changes. As such, each treasurer in China needs to understand these regulatory issues, identify the implications of the changes, and be able to act upon them quickly.

Are there any new regulations that will impact on treasury in the next 12 months?

Actually, this is a good question extended from the challenge we just talked about. There are quite a few new regulations that we are facing right now. A recent example would be that in July 2008, SAFE (State Administration of Foreign Exchange) issued the new regulations called ’Foreign Currency Inward Remittance Online Verification’ and ‘Foreign Debt Registration under Trade Item’. While they have been implemented for a few months, the impacts will begin to appear clearer now.

For example, the result of the online verification may affect how much inward remittance quota corporates may get from the government in the future. So we in treasury have been working with other functions and our banking partners to ensure alignment with government’s requirements.

Another new regulation also issued at the end of 2008 was the requirement to obtain a new format of tax certificate before doing foreign exchange outward remittance for non-trade items. Previously, the threshold for requiring a certificate was RMB 50,000 but now it is RMB 30,000, so as you can imagine, the limit is reached much more easily and thus we need to have more procedures in place to ensure full compliance while still completing the transactions on time.

Another point is worthwhile to note: the China government revised the fundamental foreign exchange regulations in August 2008. This is the highest level of policy change in the foreign exchange management area. While there are no implementation procedures issued yet, this revision may bring more implications for the future policy toward continued reform and openness. However, the current market environment is certainly a big factor on the regulatory side at the moment, as we have seen major changes in the economy.

The question is whether, in the face of regulatory failures elsewhere in the world, the China government can continue in the short term with its opening up and reforms. We need to be cautious and monitor the situation closely in 2009, though I believe that the opening up will continue in the long term. Again, the challenge for treasurers here is being able to adjust and adapt to any possible regulatory change and its impact as soon as possible.

How do you maintain your relationships with the regulatory bodies, such as SAFE?

I would say that our approach can be called ‘active engagement’. We provide feedback regularly and we have it in mind that we want all the stakeholders to get the benefit of these reforms, not only ourselves. We want to be a sounding board for new policies and new regulations so that we help ensure that they suit both the needs of the government and those of corporates operating in China. As such, when we are invited to provide feedback in any way, such as via questionnaires, we take it seriously and work hard on providing concrete and reliable data. Thus we have earned a few recognitions due to our contributions too. We are very pleased to have the opportunity to take an active role in shaping the industry for the future.

What challenges do you face in recruiting and retaining treasury staff?

I think that in the treasury area, there are two main recruitment challenges. The first is that treasury is a bit of a specialised function in the finance community. Sometimes it can be difficult for people in the company to know what we are doing and how we add value, because we are so specialised. As such, we need to continue to raise awareness and understanding of the treasury function, both internally and externally, and to encourage people to join this function as a career.

The other main challenge is that treasury is normally a relatively small function within the corporate environment. So the challenge is to offer career progression when the function has a fairly limited headcount and size.

I think in general in China, we have quite a good pool of finance and accounting professionals. However, because treasury is a relatively new function in China, we do not necessarily have a large pool of treasury professionals. But increasingly, as people have a better idea of how treasury operates within a business context, I believe there will be more people who choose to join the treasury function.

What opportunities are there for career progression at HP?

HP has been quite active in recent years in the career development area, and we in treasury have been particularly focusing on that too. For example, we are trying to encourage the career movement between treasury and other finance functions in HP. We believe that bringing other finance professionals into the treasury function can be extremely beneficial as you get a different view on things, and of course we let some of our professionals move out into the wider finance function.

This helps integrate treasury knowledge into the overall finance professionals’ skill sets, and at the same time it also raises the profile and awareness of the treasury function. Specifically in China, we do have a recruitment drive underway right now and we welcome capable professionals to join the HP family and develop their career in treasury.

What other projects are you currently working on?

In terms of projects in the treasury area, we are certainly looking into how we respond to the four major challenges which I identified earlier. I think it will be an exciting experience as we overcome those challenges step by step.

Under the overall finance function in the company wide level, we have a major global initiative called ‘Finance Vision’. It aims to make HP Finance the best finance organisation among corporates in the world. Again, career development is one of the key areas. In addition, expanding further our existing concept of ‘Centre of Excellence’ will further streamline our global processes and drive cost reduction. We in treasury certainly participate actively in this vision and are working on all different streams of work related to this. I am in fact one of the ambassadors within HP finance community in this transformation journey, and I hope to add my direct contributions to this project too. With passion and hard work, I believe HP treasury will transform into an even better finance organisation soon.