Business Digital Transformation: Are We At A Game-Changing Moment?

Business Digital Transformation: Are We At A Game-Changing Moment?

Faced with unprecedented challenges of adapting to operational and supply chain changes overnight, remote customer acquisition and economic uncertainty, going digital is right back at the top of the agenda for businesses and corporates in Asia Pacific.

Rewind a year and businesses were still in the early stages of their digital journey with less than one in four (24.8 percent) large businesses in the region having a clearly defined digital strategy, despite most recognising the importance of digital transformation to improve their ability to survive and thrive (http://eastandpartners.com/uploads/files/research-notes/2019/2019-07_Research_Note.html).

So where do we stand now with business digital transformation? The DBS/East & Partners second “Digital Treasurer” benchmarking research is out.

 

Businesses Are Making Strides in Their Digital Transformation Journey

As businesses reshape their overall business strategy in response to the Covid pandemic, taking into account the shift in customer behaviour, supply chain disruptions, business model opportunities and operational continuity, they are having to take a step back and reassess their roadmaps. Many businesses are reporting a shift in their priorities and resources for the digital roadmap itself.

Despite these challenges, a larger proportion of businesses in Asia Pacific now have a clearly defined digital strategy relative to a year ago, according to insights research conducted by East & Partners for the DBS Digital Treasurer Index II. This figure has grown by 7.7 percent to reach 26.2 percent. At the same time, there is a material drop in the proportion of businesses with no strategy, falling from 25.1 percent a year ago to 18.7 percent. Taken together, these highlight an accelerating growth in digital strategy development among businesses in the region.

Current State of Digital Roadmap Development

% of businesses

Insights Research: Current State of Digital Roadmap Development (Graph)

Source: East & Partners insights research for DBS’ Digital Treasurer Index II – H1 2020 (N count = 1,686)

Businesses Are Making Strides in Their Digital Transformation Journey

Reducing cost and improving efficiencies in the long run have always been the emphasis in many business cases for digitisation. But increasingly, enhancing customer experience is rising as a key driver and for good reason. Having a user friendly and seamless digital platform is now integral to ensuring business continuity, especially when direct interactions with customers are becoming increasingly remote.

In fact, improving customer experience has been highlighted as the greatest ROI from investing in technology solutions by treasuries in the region, alongside reducing cost. Perhaps unsurprisingly, our research suggests that middle-market enterprises stand to benefit more relative to the larger corporates when it comes to customer experience enhancement, levelling the playing field for market participants.

“Cost efficiencies were where we began developing business cases together for digitisation investments but we’ve actually found lots of other benefits that flow, in particular making our customers more sticky and spending more with us.”

- Treasurer, US$2.5Bn, Hong Kong Regional Hotel Group

Key Returns to Investment

Rating on a 1-5 scale, with 1= high return and 5=no return at all

Insights Research: Key Returns to Investment (Graph)

Source: East & Partners insights research for DBS’ Digital Treasurer Index II – H1 2020 (N count = 1,686)

Where Are Businesses Investing in Treasury Services?

There has also been a shift in treasury investment focus. Cash management digitisation has initially led treasury digitisation in the region, as evidenced by the higher level of automation reported in cash management for large Asian businesses relative to other functions such as trade and supply chain financing, cross-border payments & FX, and risk & compliance reporting.

But now, businesses seem to have already eked out efficiencies in their cash management operations and looking to digitise their physical and financial supply chains. This is particularly prominent in Malaysia, India, Japan, Hong Kong, China, Singapore and Indonesia where a majority of businesses are investing in new technology solutions related to trade and supply chain financing.

“We’ve currently got 3 supply chain funding and management development projects happening which will then drive a redevelopment of our cross-border payment operations.”

- Treasurer, US$1.4Bn, Malaysian Importer/Exporter

Top Investment Area for Each Market

% of businesses

Insights Research: Top Investment Area for Each Market (Graph)

Source: East & Partners insights research for DBS’ Digital Treasurer Index II – H1 2020 (N count = 1,686)

What is your experience implementing digitisation projects in your organisation? What is the most valuable learning point that helped you along your journey?

We'd like to hear your thoughts and opinions, get in touch with us below.

On behalf of DBS, we are delighted to provide you with access to an interactive benchmarking tool, where you can find out how your organisation measures up against your peers in digital readiness.

Upon completion of the tool, you will receive an assessment of your digital readiness via 4 core digital values. Kindly access the benchmarking tool here: https://treasuryprism.dbs.com/digitaltreasurer

Have a conversation with DBS today.

Start your digital transformation journey today by finding out more about the latest, available digital solutions that can help to solve your treasury challenges. See our most recent articles on Digital Pulse, or sign up/login to Treasury Prism today to discover a world of opportunities.

 

This article was first published by East & Partners on 20 August 2020. The Digital Treasurer Index Research 2020 was conducted by East & Partners, in partnership with DBS and The Corporate Treasurer.

The information herein is published by DBS Bank Ltd. (“DBS Bank”) and is for information only.

The information is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation

DBS Bank Ltd. All rights reserved. All services are subject to applicable laws and regulations and service terms. Not all products and services are available in all geographic areas. Eligibility for particular products and services is subject to final determination by DBS Bank Ltd and/or its affiliates/subsidiaries.

Digital Supply Chain Solutions: Asia at the forefront of digital growth

Digital Supply Chain Solutions: Asia at the forefront of digital growth

COVID-19 has made it clear that digitalisation is imperative for organisations to survive and thrive. As the pandemic accelerates global adoption of digital supply chain solutions, Asia is emerging as a catalyst for digital transformation and a beneficiary of economic growth, says Mark Troutman, Group Head of Sales, Global Transaction Services, at DBS Bank.

The COVID-19 crisis has created a need for contact-free interaction between customers, suppliers and employees, directly impacting business strategy, sales transactions, trade finance processes and treasury operations. As a result, many organisations have accelerated their digitalisation plans and treasury professionals are leveraging technology to overcome supply chain disruption – from API-led connectivity to enable remote engagement and eliminate manual workflows in the order-to-settlement journey.

 

Amid all these trends, Asia – spurred by its relatively quick recovery – is at the forefront of global digital transformation and poised to benefit economically from post-pandemic opportunities in Asia.

“There is a serious move to digitalisation and we are here to help,” confirms Troutman. “We are seeing a particularly notable swing amongst organisations operating in Asia.” And within this new normal landscape, he believes banks are playing a greater role in helping businesses adapt to the reality of a post-pandemic world.

A new global supply chain ecosystem

As organisations recover from the effects of the pandemic, there is a need to consider their broader supply chain needs. This is where banks can take a more proactive and far-reaching leadership role in driving digital transformation for their clients.

“Banks can leverage existing strengths of connectivity across the supply chain ecosystem, linking manufacturing lines to supplier lines with data, along with their ability to help finance and deliver on logistics needs in a contact-free manner,” explains Troutman.

APIs are also key in the digital transformation of supply chains; they allow organisations to upload trade applications digitally and directly from their own internal platforms, offering an alternative solution to replace wet signatures, with enhanced real-time status notification capabilities. Recently, DBS offered same-day financing to distributors of products made by Haier, the Chinese electronics manufacturer, via Haier’s own digital supply chain platform. Through a series of APIs, DBS enabled distributors to obtain financing digitally and Haier to sell more products.

The digital priority

Digitised supply chains offer greater efficiency and more robust processes, ensuring access to fast and fluid working capital for all parties and enhancing connectivity across a horizontal ecosystem. Each step in the client journey can be digital – from online account opening and digital onboarding of suppliers, to uploading or presenting transactional documents, online platforms, managing application and resubmission processes, as well as receiving financing.

Shorter processing time is another benefit. For example, DBS completed the first transaction through the CamelONE Trade Finance portal early in 2020, becoming the first Singapore bank to join Contour’s network, enabling shorter settlement times, less paperwork and simpler trade processes for customers.

Efficient liquidity management - crucial during times of crisis – is improved by instant settlement, automated reconciliation and greater visibility of the organisations’ cash. In the wake of COVID-19, banks enabled digital solutions for organisations to leverage surplus funds across entities, enabling treasurers to better manage borrowing costs, and to enjoy greater transparency over transactions and increased control over cash as the result of more instant payment transactions.

Asia at the centre of digital transformation

Troutman believes Asia, with its general resilience based on economic strength, robust domestic and regional demand and agility in digital adoption, is well-positioned to lead its Western counterparts in supply chain transformation and post-pandemic economic recovery.

“The overall recovery is slow, especially for major trading partners in Europe and the US,” explains Troutman. “There is also more economic interdependence between Asian countries as geopolitical and economic forces are impacting traditional relationships.”

As organisations look to minimise supply chain disruption and diversify production bases, this could mean a shift in procurement to countries such as Vietnam and India, where labour costs remain relatively low. In addition, organisations that built out their local and regional supply chains within Asia can benefit from shortened supply chains and expedited transactions as well as strong demand from a demographic that is highly receptive to digital services.

With attractive growth opportunities, Asia is expected to remain a nexus for trade, while propelling digital transformation across global supply chains in a post-pandemic world. This bodes well for organisations able to tap this potential first-hand and ready to embark on the next phase of their journey. “Organisations that prioritise digital transformation and look forward to the ‘new normal’ will position themselves to be more relevant, and improve their relevance in the post-pandemic world,” concludes Troutman.

Have a conversation with DBS today.

Start your digital transformation journey today by finding out more about the latest, available digital solutions that can help to solve your treasury challenges. See our most recent articles on Digital Pulse, or sign up/login to Treasury Prism today to discover a world of opportunities.

 

This article was first published in Global Finance in July 2020.

The information herein is published by DBS Bank Ltd. (“DBS Bank”) and is for information only.

The information is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation

DBS Bank Ltd. All rights reserved. All services are subject to applicable laws and regulations and service terms. Not all products and services are available in all geographic areas. Eligibility for particular products and services is subject to final determination by DBS Bank Ltd and/or its affiliates/subsidiaries.

Optimising cross-border liquidity

As companies expand internationally, the need to access, and make best use of cash held in different currencies and locations becomes increasingly important. There are a variety of ways to achieve this, but many treasurers believe that liquidity management techniques such as cross-border cash concentration (also referred to as cross-border sweeping or target/zero balancing) are accessible only to the largest and most sophisticated multinationals. While these corporations were often the early adopters of cross-border liquidity solutions (box 1), such techniques are accessible to companies of all sizes, enabling them to take more centralised control of cash positions across the business, and greatly enhance the management of funding and liquidity risks.

 

The cross-border dimension

Many treasurers are already familiar with liquidity management techniques in a domestic context, but there is substantial opportunity to extend these solutions further to reflect the needs of a multinational business, whilst taking into account the geographical dimension and the need to manage cash across different currencies. These two features: distance and denomination, create major administrative overheads for regional or global corporate treasury functions. For example, achieving 'just-in-time' availability of funding in each location requires accurate cash forecasting and the precise execution of cross-border fund transfers within the cut-off times in both the originating and receiving locations. Furthermore, treasurers often need to convert funds from one currency to another to meet these local funding requirements.

"Adopting cross-border liquidity management services is a valuable means of reducing this administration burden whilst also meeting funding requirements more efficiently. In particular, banks offering such services help treasurers to overcome obstacles such as time and distance that are associated with operating internationally. Banks are able to do so by leveraging their own internal balance sheets and technology infrastructure, as opposed to relying on external cross-border payment or clearing mechanisms, therefore offering corporate clients a fully integrated liquidity pool that is easier to manage."

Mario Tombazzi, Group Head of Liquidity and Liabilities Product Management, DBS

 

Exploring the value proposition

Working capital requirements and the associated liquidity can become increasingly fragmented as companies expand into new markets, operate in new currencies and deal with new suppliers and customers. In many cases, companies set up additional domestic banking solutions or relationships to meet these changing needs, which results in sub-optimal liquidity distribution, with idle cash in some locations and borrowing requirements in others. This problem is particularly acute when these domestic banking arrangements are managed locally without central treasury oversight or coordination. This situation is even more acute for companies that have grown through acquisition.

While liquidity may become fragmented for different reasons, however, the business case for centralising and taking better control over group cash is compelling for two key reasons:

Access to liquidity

Treasurers' ability to take hold of cash across the business has become even more important since the global financial crisis. Access to credit has become more limited, and both banks and corporations have become more selective in their choice of credit relationships. Consequently, the value of internal liquidity, i.e. liquidity held within the business, has increased substantially. By leveraging internal liquidity more efficiently, treasurers can minimise idle cash, and reduce the level of external borrowing. Furthermore, they can make more strategic decisions on how best to deploy excess liquidity or source financing. This allows treasurers to strengthen their balance sheet structure, as well as lowering borrowing costs and increasing yield on investments. They can also free up liquidity headroom to be used for more strategic purposes.

Improved governance

Decisions on how to manage cross-border liquidity, and the degree of centralised control, has a fundamental bearing on the role and responsibilities of treasury in relation to business unit finance teams, and how the performance of each should be measured. While these issues are often overlooked in comparison to other priorities for improving cash management or yield optimisation, improved governance should be a major factor in treasurers' decision-making.

Related to this, by consolidating liquidity across locations, and establishing centralised control, treasurers are in a better position to manage a broad set of risks that extend beyond, but are correlated to liquidity risk. As an example, cross-border liquidity management techniques operate in harmony with the corporation's foreign exchange (FX) risk policy. Whether FX exposures are identified and managed at an entity or cash flow level, or with a more coordinated approach, liquidity management techniques do not alter currency positions or change exposure determination and hedging. On the other hand, some liquidity management techniques, in particular multi-currency notional pooling, provide a convenient way of administering multiple currency positions at a portfolio level, while seamlessly integrating with the company's FX exposure hedging programme.

 

Defining liquidity priorities

Within these two broad areas, the specific benefits of centralising and taking greater control over liquidity for each company will depend on its working capital cycle, cash conversion cycle, cash flow patterns and overall liquidity dynamics. More specifically:

Short cash. For a company that has large working capital requirements, with a long cash conversion cycle or the need for material structural or project-based external financing, the highest priority will be to consolidate internal liquidity as far as possible to reduce dependency on, and the cost of servicing, external debt.

Long cash. A company with large surplus cash balances can bring financial and operational discipline by consolidating surpluses into a larger pool under the management control of an investment agency entity. By managing a bigger pool, treasurers can achieve greater diversification, access multiple investment and deposit products and distribute investment more efficiently across multiple investment tenors.

High cash flow volatility. A common challenge for many companies is to forecast future cash flow accurately across multiple business units and territories. While this remains an important objective, treasurers can leverage cross-border liquidity structures to create a larger and more stable liquidity position at a portfolio level.  With more stable cash balances, treasurers can make better liquidity decisions, including calculating the tenor and amount of external borrowings or investments more precisely, even in situations where the ability to forecast cash flow is limited. This approach offers considerable advantage when combining accounts domestically, but the benefits are even greater when extending the concept cross-border across multiple entities, business lines and currencies.

 

Summary: Cross-border liquidity solutions

Physical (i.e. cash concentration, sweeping, zero or target balancing)

This refers to the automatic, physical movement of cash from multiple accounts in different jurisdictions to a single master account domiciled in one location (the concentration location). In its most efficient form, the physical cross-border transfer takes place at the end of each business day, leaving either a zero balance or pre-determined balance on the accounts participating in this arrangement.

Many companies are accustomed to sweeping cash from accounts within a country, but this capability equally exists across countries (subject to regulations) for tradable/fungible currencies in Asia, including USD, SGD, HKD, AUD, NZD, JPY and offshore RMB (CNH). Given that the majority of cross-border trade in the region is denominated and settled in USD, the ability to pool USD accounts is particularly important, and complements the ability to concentrate other currencies across markets which permit cross-border financial flows.

Notional (i.e. multi-currency interest optimisation or notional pooling)

There are essentially two notional techniques. The first is a simple form of interest optimisation across a portfolio of bank accounts which reside in multiple countries and are denominated in several currencies. Interest optimisation is effectively a virtual portfolio pricing arrangement, where preferential pricing is applied to each account (subject to domestic regulations), but without, or with very limited, recognition of any offsets between long and short positions which are held in different locations.

The second technique involves bringing together balances denominated in different currencies into a multi-currency notional pooling arrangement. For this to operate as a cross-border structure, a combination of a multi-currency notional pool with cross-border physical cash concentration is required to transfer account positions to the concentration location, and then include them in the pool. In itself, multi-currency notional pooling cannot be considered a cross-border liquidity technique, but is a critical component of the hybrid solution that brings together physical cross-border techniques and domestic pooling.

"It is important to note that true cross-border, multi-currency notional pooling does not exist as such. A notional pool makes use of the bank's balance sheet in a single domicile, for both economic and regulatory reasons. In order to realise the full benefit of notional pooling, and recognise an appropriate offset between long and short positions, the underlying accounts need to reside in the same single domicile. The choice of such domicile is also limited to locations that have efficient regulatory, legal and accounting treatment of notional pooling, such as Singapore and Hong Kong."

Mario Tombazzi, Group Head of Liquidity and Liabilities Product Management, DBS

 

A four-step approach to cross-border liquidity

Optimising liquidity on a regional or global basis is best achieved by taking a structured approach, as implementing a cross-border liquidity solution in isolation is unlikely to deliver the liquidity and governance benefits that treasurers require:

Account structure. The first challenge for many treasurers in consolidating liquidity is that cash is distributed amongst a multitude of banking partners and accounts. Treasurers should therefore review the account structure and associated flows, and potentially rationalise these structures before considering a cross-border liquidity solution.

Cash visibility. Establishing visibility over cash, across locations, banks and accounts is an essential prerequisite to taking control over this cash. However, with sophisticated technology now readily available from many banks, SWIFT and treasury management system/ ERP vendors, the obstacles to achieving cash visibility are far lower than in the past.

Solution definition. It is important to work with the bank to identify the most efficient channels for managing payment and collection flows, and any regulatory restrictions on the mobility of funds. On the basis of such analysis, treasurers can assess potential solutions and the specific value proposition of each one in relation to the specific needs of the business. Other important considerations during this phase include the appropriate evaluation of the tax and accounting implications from the adoption of a physical or notional arrangement, and the alignment with internal company policies on the changes in the ownership of the liquidity as a result of the design of the solution.

Implementation roadmap. Finally, treasurers should work with the bank to build an implementation roadmap for the chosen solution(s), including outlining the relevant regulatory and tax issues in each country, and internal implementation requirements, such as considering the implications of intercompany guarantees and indemnities, or the preference for intercompany lending.

"Cross-border liquidity management solutions are well-established amongst the corporate community. The most successful cases demonstrate the importance of working with a bank that offers a comprehensive set of techniques across key locations, the ability to provide guidance on the issues to consider upfront and how to overcome challenges. By doing so, treasurers can accelerate the realisation of their liquidity and risk management objectives, and enhance the financial sustainability of their business."

Mario Tombazzi, Group Head of Liquidity and Liabilities Product Management, DBS

 

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The information herein is published by DBS Bank Ltd. (“DBS Bank”) and is for information only.

The information is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

DBS Bank Ltd. All rights reserved. All services are subject to applicable laws and regulations and service terms. Not all products and services are available in all geographic areas. Eligibility for particular products and services is subject to final determination by DBS Bank Ltd and/or its affiliates/subsidiaries.