As Chinese companies expand overseas they are confronted with a series of questions concerning their treasury operations. Foremost among them is whether or not they should invest in shared services centre (SSC).
“On the SSC front, Chinese companies have been slower than their European and US counterparts,” said Sanjeev Chatrath, Citi’s Asia-Pacific managing director and regional head of client sales management for treasury and trade solutions. “But there are examples of Chinese companies with very progressive mindsets that do indeed have very strong and well-established SSCs.”
However, it seems that the majority of companies from Asia’s largest economy do not see SSCs as a priority as they expand overseas. Typically their preference is to set up a regional or even global treasury centre first to fund their often rapid growth. “Chinese companies are a lot more focused on establishing centralised treasury centres rather than SSCs initially,” said Chatrath.
Neil Daswani, Standard Chartered’s head of transaction banking for North Asia, has also noticed this trend, but reckons the advantages that the centralised treasury centre model brings to a Chinese company going abroad are questionable. “While there is interest in large centralised treasuries, there have been mixed results so far in how much value these treasuries bring to the corporate,” he said.
Successful or not, many Chinese companies seem to prefer treasury centres over SSCs. When companies expand, financing the setting up of the necessary legal entities and then funding the operations is first on their ‘to-do’ list. And it is precisely during these strategic periods that a treasury centre becomes more useful than an SSC.
In fact, as interest rates rise and liquidity tightens, self-financing has become a trend for Chinese companies. Under these circumstances, treasury centres enable them to identify where cash needs to be deployed -- to an underperforming subsidiary, for instance. In order to gain a strategic overview of their subsidiaries, Chinese companies are setting up internal finance companies within their groups.
“Many Chinese companies are setting up their own finance companies. The function of these finance companies is essentially the same as the in-house banks that European companies have adopted, to be the first port of call for any borrowing or surplus that legal entities have,” said Chatrath.
SSCs on the other hand, usually become beneficial for companies when their businesses at home and abroad are well developed, and when they are looking to reduce operational costs. The first cost reductions typically come from lower headcounts, centralising processes and homogeneity of technology and systems.
According to Chatrath, some Chinese companies are growing so fast that SSCs only become useful for them when there is a more mature business setup, and the priority becomes achieving economies of scale and driving down costs.
“The story [about Chinese companies] is really about growth and hyper-growth, and looking at how to fund that growth is a priority for treasurers and CFOs,” Chatrath explained. “As these treasury centres mature over time, they will start to look at improving operational efficiency and SSCs.”
