Treasury goes International:

For companies, whether they are small or medium-sized enterprises (SMEs) or large corporations, internationalisation is a strategic decision that can significantly increase growth potential. Internationalisation usually takes place in various stages, each of which places different demands on resources and management. The first step is the export itself, in which products or services are sold abroad. Progressive internationalisation efforts can then lead to the establishment of a foreign branch or a production plant, for example. The highest level of internationalisation is the establishment of subsidiaries as separate legal entities abroad, which enable full integration into new markets.

While most treasury activities in the preliminary stages of internationalisation can generally be handled by the central treasury department, the establishment of a foreign company is the starting signal for the internationalisation of the treasury department. The treasury department must now demonstrate its expertise in an international context and, if necessary, even set up treasury structures abroad. The internationalisation of treasury should be seen as a strategic necessity. Treasury plays a central role in ensuring the financial stability and liquidity of the company as well as risk management in an often volatile international environment. By managing and securing international financial flows, treasury makes a significant contribution to the success of global expansion and ensures the company's long-term competitiveness.

Once the need for an international orientation of the treasury department has been recognised and the basic goal has been set, companies are faced with the next major challenge: operationalising the project. The tasks to be tackled as part of internationalisation are complex and usually have far-reaching organisational, financial and personnel implications. A strategic, structured framework for action is therefore of central importance for a successful project. The first step is to shift the focus away from the numerous detailed issues to a higher level.

From this holistic perspective, it is possible to recognise central fields of action and assign specific goals, work packages and schedules to them. Some fields of action are an essential part of almost all internationalisation efforts of treasury departments. These are

• Organisational structure
• Processes
• Treasury IT
• Regulatorik und Governance
• Human factor

The following overviews of these areas of action only provide an initial insight and do not do justice to the complexity of the individual topics. The other articles in the "Treasury goes International" series will therefore take up these areas of action and examine them in detail.

The international orientation of the treasury department begins with the question of its basic structure. As already discussed in detail in issue 128 of the KPMG Corporate Treasury Newsletter (December 2022), there are various aspects to consider when designing the treasury organisation. What may initially seem like a triviality becomes a challenge in an international context - especially when it comes to making a decision between centralising or decentralising the treasury function.

Essentially, it is a question of whether there should be a central treasury centre from which all financial decisions and processes are managed, or whether regional treasury centres should (or must) be set up to take account of local peculiarities. This decision has a significant impact on the efficiency and flexibility of financial processes in a global corporate context. In addition, the principle of segregation of duties must be consistently adhered to across countries in order to maintain the integrity of processes and minimise risks.

Another way to achieve efficiency gains in an international context is to set up shared service centres. These act as central hubs where cross-regional processes are brought together. The use of modern technologies enables global services, which are particularly advantageous in the treasury area. Shared service centres can either be organised as in-house units or outsourced to external providers.

Another variant of outsourcing treasury functions is the concept of Treasury as a Service (TaaS). Here, parts of the treasury processes - such as cash and liquidity management, risk and currency management or the execution of financial transactions - are handed over to specialised service providers. These service providers offer comprehensive solutions that enable companies to benefit from a flexible and scalable infrastructure without having to build up extensive in-house resources. TaaS providers offer expertise and technology solutions for standardised processes for daily operations that are tailored to the individual needs of companies. This enables treasury centres to increasingly act as a strategic business partner. This allows them to focus on value-adding activities that create direct added value for the company instead of limiting themselves to purely technical or administrative processes.

Another model that is becoming increasingly important, particularly in the global treasury organisation, is treasury support from nearshore or offshore service providers. Nearshoring refers to the relocation of processes to geographically close countries with comparatively lower costs, while offshore solutions involve outsourcing to more distant, often more cost-effective regions. Both approaches offer cost advantages and provide access to specialised experts. Nearshore models have the additional advantage that cultural and language barriers are lower and geographical proximity promotes better collaboration. Offshore solutions, on the other hand, offer maximum cost efficiency, but are more complex to manage due to factors such as time differences.

When looking at the different forms of organisation, it quickly becomes clear how many options are available - and therefore how complex the selection process can be. As part of internationalisation efforts, it is particularly important to rethink existing structures and examine their benefits in an international context.

As soon as a company's departmental structure has been established, the next key challenge comes to the fore: business-critical processes must be reconsidered in light of the requirements of international business. The existing process organisation in the treasury department must not only be critically scrutinised, but also significantly adapted if necessary. This is particularly important in the course of the internationalisation of treasury management, as the smooth and consistent handling of financial processes worldwide is crucial for the financial stability of the company.

An effective treasury organisation is characterised by central, standardised processes that are supplemented by local structures where necessary in order to meet specific requirements. Centralisation plays a key role here, as the use of best practice processes can increase both efficiency and security. Centralised treasury functions enable consistent management and control of global liquidity, risk management and financing.

Nevertheless, the decentralised anchoring of certain functions also plays an important role. Regional treasury managers are often irreplaceable, as they have a better understanding of local market conditions, legal frameworks and the dynamics of local business. They are also able to react more quickly to local operational requirements due to time zone differences. They act as an interface to the operating units and other departments, helping to ensure that local and global treasury objectives are better linked.

Treasury can no longer be imagined without technology. Treasury management systems (TMS) play a central role and enable the efficient management and execution of complex financial processes. They should therefore be considered early on in the internationalisation process.

The revision of the treasury IT strategy should take place in parallel with the revision of the organisational structure and process organisation, as these areas are closely linked. What may seem sensible in isolation may no longer be the optimal solution when viewed as a whole. It is important to develop both the structural and procedural requirements for IT together. This includes, for example, the rollout of centralised systems in international companies or the establishment of independent technical resources in different countries. It should also be checked whether the existing systems are sufficient, whether they may need to be expanded or even whether a complete replacement is necessary.

Setting up independent structures requires qualified personnel on site who are able to effectively manage and secure the systems. In addition, the implementation of suitable support structures is of central importance. In addition to technical support, the question arises as to whether technical support should be set up on site, near-shore or off-shore. Each option offers different advantages in terms of cost, quality and availability of specialised staff, which is why the decision must be weighed up on a case-by-case basis for each individual company.

In addition, it is crucial to include both upstream and downstream local systems and applications in the overall strategy. Another key element is the development of a new authorisation concept for local users. This concept must not only regulate access to the systems, but also ensure compliance with national data protection regulations.

Regional circumstances in the area of regulation and governance are also becoming particularly important. For example, foreign trade reporting (AWV) is not only important in Germany, but similar reporting obligations exist in many other countries, such as Austria, France, Japan and India. The picture is similar for derivatives trading: national counterparts to EMIR exist worldwide. The Directive on the obligation to report cross-border tax arrangements (DAC6) also plays an important role here. Companies must ensure that they report cross-border tax arrangements that fulfil certain characteristics to the competent authorities in a timely manner in order to comply with the requirements of DAC6. In addition, local legislation and tax issues can significantly restrict the freedom to organise a cash pooling concept. A comprehensive compliance assessment is therefore essential in order to meet regulatory requirements and minimise legal risks.

One aspect that is often neglected is dealing with cultural differences within international teams. Such differences can lead to misunderstandings and inefficient work processes if they are not actively managed. Conscious promotion of cultural sensitivity and open communication are therefore essential in order to optimise collaboration.

At the same time, internationalisation also offers a valuable opportunity to counteract the shortage of skilled workers. By expanding the talent pool on a global level, companies can attract qualified specialists from different countries. These international employees not only bring expertise, but also different perspectives and experiences that contribute to the company's innovative strength and adaptability.

The above makes it clear that internationalisation not only poses numerous challenges for treasury organisations, but also offers enormous opportunities. In order to successfully shape this change, it is essential to develop a deep understanding of the current international treasury landscape.

This is where we come in: With our "Global Treasury Survey", we want to find out how treasury departments are organised worldwide, which technologies are used and how performance is measured. The results of the survey provide valuable insights that can help to optimise treasury strategies and shape the internationalisation process in the best possible way. Your contribution will enable us to develop practical recommendations in a free white paper. The survey only takes 5-8 minutes!

Link to the survey:
Global Treasury (kpmg.de)

Source: KPMG Corporate Treasury News, Issue 148, Oktober 2024
Authors:
Nils Bothe, Partner, Finance and Treasury Management, Corporate Treasury Advisory, KPMG AG

Karin Schmidt, Senior Managerin, Finance and Treasury Management, Corporate Treasury Advisory, KPMG AG