The selection process for a regional treasury center (RTC) location is incredibly important. Organizations should pick an area that is geographically close to a region where they have operations, but that is far from the only factor in the decision.
ATTRACTING AND RETAINING TALENT
A key consideration should be the skill and talent available in a particular area. Many of the activities that need to be managed in RTCs demand top talent. “The array of skillsets and experience that is required is just increasing, and we’re not just talking about financial skills,” said Nick Powell, global head of commercialization, liquidity and investment products for HSBC. “We’re seeing an increasing number of technology professionals being recruited into treasury centers, and an increasing number of strategists. So I think that’s an important thing to think about—where are you going to derive that skillset from?”
On that note, treasury functions that are looking to attract and retain talent in an RTC need to consider the long-term career aspirations of treasury staff members and whether those employees have the opportunity for growth in that location. “It is worthwhile assessing whether those opportunities exist in the environment that you are managing these processes from,” Powell said.
Additionally, overall lifestyle should be a consideration. An appealing location with access to necessities like good healthcare and schools for those employees with children are important factors. “If you want to attract the most highly skilled individuals that you can and you want to make it a long-term, sustainable initiative, from a services, infrastructure and amenities perspective, housing those operations in a places like Singapore or Hong Kong is obviously more logical than locating a treasury center in the Antarctic or the Sahara Desert,” Powell said.
Cost is another factor that treasury departments need to contemplate when establishing an RTC. “I previously worked for an organization that started a treasury center in Hong Kong,” said Sassan Parandeh, CTP, global treasurer for ChildFund International. “Our costs went up and people were livid about it.”
Powell added that costs can be determined in many different ways; it’s not only what a treasury department spends by opening an RTC, but how much it saves. “For many years now, we have seen governments in a number of locations offering tax incentives and benefit programs designed to attract organizations setting up corporate treasury centers and finance related activities,” he said. “If you are centralizing activities in a particular market, whilst tax efficiency might not be the primary objective of setting up the RTC, it is important to understand where benefits and efficiencies can be achieved and how to qualify for such incentives in order to have a really clear understanding of what your costs and savings are derived from.”
In some cases, even after shouldering the initial cost of setting up an RTC, there are few savings to reap. “When I was the treasury director for a previous company, we opened two regional treasury centers and when we looked at the numbers, we ultimately didn’t save any money,” Parandeh said.
In fact, some treasury departments determine that establishing RTCs are not worth the investment or making a priority. “Every company is different,” said Drew Douglas, senior executive vice president, head of global liquidity and cash management North America for HSBC. “Clients are always interested in the advantages of establishing a more efficient global or regional treasury operation but some will say, ’It’s too expensive...or my current prioritization right now is global expansion,’ or their product cycle is so mature that they might be focused on getting operating costs out. So the cost of getting to nirvana as a treasurer might be too high.”
Johan Nystedt, treasurer and chief risk officer for Conagra Brands, noted that his previous company, Levi Strauss & Co., formerly operated a large European RTC and “flirted” with the idea of opening an RTC in Asia. Ultimately, though, the company determined that maintaining RTCs was too costly and opted to centralize all of its operations in the United States.
It is important to make sure that banking partners in the region you’re targeting meet your needs—or have local banking contacts to assist. If you’re setting up an RTC in an area that doesn’t have an abundance of highly skilled partners, you may need to consider locating elsewhere.
Beyond the geographical footprint, treasury teams also should ensure that their banking partners have a globally consistent product offering designed to work across borders. If your bank doesn’t offer you the same services from region to region, that’s a bad sign. It is wise to ensure that your banking partners have experience supporting RTCs in your chosen region and employ dedicated liquidity and cash management professionals in the area.
It practically goes without saying that connectivity to the treasury headquarters is imperative for RTCs. Edwin Tey, senior vice president, global treasurer for Singapore-based logistics provider GLP, explained that his Singapore-based RTC uses a cloud-based treasury management system (TMS) to connect to its headquarters. This is a common occurrence; as noted in AFP’s latest Treasury in Practice Guide, in recent years, treasury departments have been gradually moving away from installed systems and toward the cloud.
Treasury’s gradual shift to the cloud is largely due to IT departments not having the bandwidth to manage installed systems. Thus if a treasury department is setting up an RTC, it makes sense to use a cloud-based TMS so that it doesn’t need to rely on an IT team onsite any time there is a problem.
Treasury departments also need to consider the overall technology and the infrastructure of the general area when setting up an RTC. “If you’re setting up a regional treasury center in a location that isn’t supported by fundamental facilities and infrastructure— such as air and shipping ports, power generation and transmission, telecommunications and general utilities that maintain the economic and social standards of society, such as educational programs, law enforcement agencies, and emergency services—is that a logical thing to be doing? Does setting up a treasury center there fit into your corporate goals and the needs that you and your employees have?” Powell asked.
Perhaps most obviously, political and economic stability are important factors to consider when locating an RTC. Generally, organizations are not establishing treasury centers in countries that are unstable or that have frequent changes in regulatory regimes. “What you’re looking for is stability and control for the future,” Powell said.
For more insights, download the AFP Executive Guide, Operating Regional Treasury Centers, underwritten by Thomson Reuters.