Gerard Gallagher, Advisory Services Markets Leader, Ernst & Young:

The very first thing is prioritisation of resources. Clients across all sectors are really challenging themselves about where they are spending their money. The level of rigour around investment and return on investment has been at the highest that I have ever seen.

We saw so many business cases in the past, particularly in commodities sectors such as oil and gas, and metals, where commodity prices used to be the saviour. In the last 20 years prices have only gone in one direction, but in the past two years they have begun to move in the other direction. Now, all of a sudden, the operational effectiveness of many of these companies has been drawn out, in a way that is challenging them. So they are now starting to worry about business cases and investments. I would say therefore that the very first thing that people looking to invest in emerging markets, or indeed in new offerings, should do, is to start to rationalise and prioritise their existing resources.

The second point concerns operational efficiency. Organisations are saving money by centralising resources and bringing processes together to fund these new areas.

A third key trend, particularly around the faster growing markets, is that people are increasingly looking to form partnerships. Many organisations are entering into joint ventures where they can add value and get access to that market other than just cash – so they can bring intellectual property, bring skills and resource innovation. In emerging markets it’s not just a case of how much money you’ve got, but what other resources you have available as an organisation to deliver in those markets. You need more than just money to be successful.

And finally, from a treasury perspective, one of the biggest challenges I hear of when I speak to treasurers of companies operating in emerging markets is working capital and cash management. Do not go into an emerging market or a fast-growth market expecting the same working capital management processes and timescales that you may be used to in the more mature and established markets. That is not going to be the case.

My key message is, challenge where you are spending your money at the moment and get on with those good things that you need to be doing around operational efficiency. An average organisation can save up to 10%-12% just by doing that and recycle that money into emerging markets. Think about other resources that you have in your organisation that you can use to fund that expansion – IT and other non-cash resources. And finally, watch out for your working capital and your cash flow.

Dr Murat Ulgen, Chief Economist for Central and Eastern Europe and Sub-Saharan Africa, HSBC:

Emerging markets, led by Asia, in particular China, have become the driving force of global growth as the economic prospects of the developed world are still marred by structural problems. As such, the notion of the ‘emerging market’ has itself been questioned. While this might be an endless debate, one thing is clear, emerging markets still need a significant amount of investment in infrastructure, both in human and physical capital. It is important to note that the growth potential of a country can be boosted by investments into productivity-enhancing areas, in addition to bringing more people into active economic life. These investments, by definition, should be long term in nature. Hence, the best way to fund growth in emerging markets is to fund such long-term investments that would deliver a highly-skilled labour force in the future.

The source of such funding is also crucial. These investments could be financed by domestic savings and/or external capital. More importantly than the origin, such investments require a stable source of funding. Emerging markets span a very wide range of countries. Some rely heavily on domestic savings, such as those in Asia, others predominantly on foreign funding, like those in Central and Eastern Europe. The latter presents a risk in today’s highly-integrated global markets when a sharp decline in investor confidence might lead to a pull-back of external financing, thereby hampering investments in those countries that rely too much on foreign funding. On the other hand, depending excessively on domestic savings poses other problems such as imbalanced growth that relies too much on investments, a decline in the return on capital, excessive reserve build-up and domestic asset bubble, to name a few. Therefore, it is important for an emerging market country to strike a delicate balance between domestic and foreign savings to finance growth, provided that these are long term and stable sources of funding.

Emerging markets should draw a lesson from the past mistakes of the developed world. They should not engage in a swift build-up in debt, even though borrowing terms may look very favourable nowadays thanks to ample global liquidity. That said, access to cheap global capital should be welcome so long as it generates higher productivity, sustainable economic growth and income and wealth that expand at a faster pace than indebtedness.

Mahesh Kini, Regional Head of Cash Management for Corporates – Asia Pacific, Global Transaction Banking at Deutsche Bank:

When companies in Asia are looking to fund growth, they have – generally speaking – three options. These are:

1. Utilising cash to the best extent possible within their company;
2. Optimising cash across the wider organisation – including sister or parent companies, for example; or
3. Tapping into capital markets or bank financing to raise funds. However, when we look at the emerging markets more closely, it becomes clear that the methods of combining and optimising these three options differ from those in the developed markets. This is primarily due to the varying regulatory frameworks that are in place throughout the emerging markets. While most are making significant progress towards easing monetary constraints, issuing changes to transactional policies is not always in their immediate plans.

If choosing the first and second options – utilising cash within an entity and throughout the wider organisation – corporates with operations in emerging markets may face the added complexity of having considerable balances dispersed across various international/local banks and accounts. Companies that find themselves in this situation may wish to consider consolidating these balances, which could prove to be a substantial and relatively inexpensive source of capital. The many liquidity management options available today can be of great benefit to these organisations.

Given that traditional cash sweeping or pooling may not always be possible in emerging markets, banks like Deutsche Bank can help corporates achieve the same goals with alternative solutions, such as standard and advanced group entrustment loan options in China, or nostro collection solutions in Korea, that enable corporates to consolidate bank relationships and reduce the number of bank accounts they hold. In Thailand or Indonesia, corporates may wish to consider multi-bank cash sweeping, which allows them to benefit from a daily cash sweep from their local bank accounts to a single, consolidated master account. Solutions such as this can help corporate treasurers consolidate ‘trapped’ balances, which in turn can be easily deployed to fund future growth initiatives.

As for the third option, companies may choose to fund emerging market growth by accessing the capital markets either in developed economies, or the emerging markets themselves. However, as some degree of complexity – as well as higher fees and financing costs – is inherent to this choice, it usually comes as part of a company’s broader development strategy.

Clearly, one size does not fit all when it comes to funding growth in the emerging markets. The optimal solution will differ from company to company based on corporate profile and strategy. Banks with notable emerging market experience are best-placed to offer advice on the most appropriate cash optimisation solutions, the majority of which are likely to begin with methods of maximising cash internally before reaching out to the wider financial/capital markets as alternative sources of funding.