Bank of America Merrill Lynch Article
August 2013
Global Strategies
The Race for Overseas Growth
At a series of Bank of America Merrill Lynch Global Strategy Forums, six of the
Our Experts
bank’s subject matter experts shared a positive outlook for global expansion and
Head of Global
Commercial Banking
talked about the latest strategies needed for success.
Alastair Borthwick
As much as 85% of the GDP growth of multinational companies is likely to come from
Risk Management
outside the U.S. over the next several years. “This steady drumbeat of international
Rob Stigall, Director and Sales Manager
of Global Trade and Supply Chain Solutions
activity — whether it’s companies starting Brazilian operations or opening treasury centers
in Hong Kong or Singapore — is driving all types of U.S. business,” says Alastair Borthwick,
head of Global Commercial Banking at Bank of America Merrill Lynch.
But as companies dive into fast-growing international markets, organizational structures
have been slow to follow. “In the areas of risk management, cash and liquidity management,
and access to capital,” says Borthwick, “new kinds of expertise are imperative to successful
overseas expansion.”
To address the needs of Bank of America Merrill Lynch’s client base of 30,000
companies — 73% of which currently conduct business internationally and a majority
of which report that overseas activities are growing — Borthwick and a group of
Bank of America Merrill Lynch experts shared their insights at a series of standing-roomonly conferences devoted to global business. The outlook, they agreed, is encouraging.
Craig Tonies, Managing Director and
Head of Capital Raising Products, Rates
and Currency
Global Cash and Liquidity
Management
Rita Cook, International Treasury
Solutions Executive for North America
Rohan Ryan, North American Head of
Liquidity Solutions
Global Access to Capital
Alister Bazaz, Client Services Executive
for Bank of America Business Capital
Mike Katergaris, Managing Director/
Senior Corporate Banker, EMEA (Europe,
Middle East and Africa)
GLOBAL STRATEGIES | 2
But the story doesn’t end there. As fast as the pace may be, the race for overseas
markets will ultimately go to companies that can update existing operating models and
“bring all of the elements together into a cohesive, integrated solution,” says Alister
Bazaz, client services executive for Bank of America Business Capital.
Below, our six experts address questions and concerns raised in three key global areas:
financial risk management, cash and liquidity management, and access to capital.
Financial risk management: a new framework
The timing couldn’t be better for companies planning to expand abroad, largely because
financing costs are at an all-time low. But that’s not to say that moving beyond U.S. borders
is without risk, especially in market, operating and regulatory areas, says Rob Stigall, director
and sales manager of Global Trade and Supply chain solutions. In addition, there are risks that
may be unfamiliar to American businesses. For instance, what happens when one participant
in a complicated international supply chain decides not to move ahead?
According to Craig Tonies, managing director and head of Capital Raising Products, Rates
and Currency, concerns like these can be easily addressed. “It begins with a risk-management
policy,” he says. And that, in turn, relies on an analysis that “quantifies risk and determines
how much is acceptable.”
Tonies adds that there are a variety of proven strategies and best practices that need to be
considered. They include contingency planning, adhering to import regulatory compliance
requirements (U.S. Customs, OFAC, conflict minerals policy, etc.), making sure that all parties
in a complicated supply chain understand the importance of staying on board and facilitating
working capital financing, and enhancing supplier stability by providing access to lower-cost
sources of liquidity.
While tactics in risk management are improving, the process is becoming increasingly more
complicated. Uncertainty is a constant in international business life, says Stigall, not only
in developing economies around the world but also increasingly in developed economies.
“The volatility in the marketplace and what’s happened in the world over the last five years
is significant in the way in which information spreads so rapidly,” he says, “as well as for the
integration of global financial markets.”
The latest statistics raise the stakes even higher. U.S. exports have increased 39% since
2009. Looking ahead, 60% of 2013 projected U.S. GDP growth involves exports. Of that, trade
with developed economies is expected to rise 4.1%, compared with 7.2% for developing
economies. With an increasing potential for disruption — “either by some sort of natural
disaster like the Japanese earthquake, or by a major political event or global economic crisis,”
reminds Tonies — there’s an even more urgent need for strategic global operations.
Stigall also points out differences between intentional and unintentional risk—concerns
you can control and those you can’t. In other words, you have to ask yourself this question:
“Where do I want to take risks to advance my own business model?” By contrast, he says,
“We’re all worried about unintentional risks that could be harmful to our businesses.
That’s what keeps us up at night.”
Ask Your Client Manager
Does your global credit relationship
dovetail seamlessly with your global
liquidity platform? Find out by asking your
client manager these five questions:
1.When I expand into a new market,
how can I centralize the origination
and management of invoicing of
receivables?
2.How can I centralize ownership of
inventory in a manner that still
supports robust financing techniques?
3.How do I reassess—and keep
improving—my supply chain?
4.Are there opportunities to reevaluate
liquidity management in order to
maximize enterprise cash?
5.How do I restructure my organization
to maximize my overhead, liquidity,
financing capability, acquisition
strategies, divestiture strategies and
end-of-term investment goals?
GLOBAL STRATEGIES | 3
Cash and liquidity management: putting the right structures in place
The conversations you have in the United States about cash and liquidity management
are the same kinds of conversations you need to be having when you’re talking about
going overseas. “Certainly, the details will differ from market to market—if nothing else,
different regulations in different markets demand different kinds of disclosure—but
your overall broad-stroke strategic
drivers should remain constant no matter
“When our clients leave the
where you do business,” says Rita Cook,
international treasury solutions executive
U.S. borders, we are there to
for North America. “When our clients
support them with a platform,
leave the U.S. borders, we are there to
support them with a platform, people,
people, and a physical presence and a physical presence or partner
network,” Cook explains.
or partner network.”
But their biggest concern, continues
Cook, is “how to actually take in their
receipts, which is the lifeblood of their
organization. It comes down to their
account structures. What are the local payment practices? What currencies are you
willing to take in different parts of the world? It can be a big learning curve.”
Rita Cook
International Treasury Solutions Executive
Bank of America Merrill Lynch
According to Rohan Ryan, North American head of liquidity solutions, “When you talk
about moving money around the world—whether you concentrate in one region or keep
liquidity fragmented across a number of different regions, you need to set up the right
payment structure.”
Best practices dictate having a dedicated team in place wherever you decide to grow.
“Make sure that the same people working with you on the ground in the U.S. have global
connectivity on the ground in the countries or regions where you want to be,” continues
Ryan. “Whether it’s a client manager or a treasury solutions manager, they’re already
talking about your strategy at the headquarters level, and they have the visibility you need
to help you structure the optimal global model. If you’re only working with in-country
banks, you simply don’t have that overreaching global impact.”
A Five-Point
Global Treasury Plan
For companies seeking a larger global
footprint, a Bank of America Merrill
Lynch checklist of best practices for
cash and liquidity management begins
with five basic considerations:
•Control: Headquarters should always
maintain a certain level of authority
and control over operations.
•Visibility: Keep all international account
information in one place, leveraging a
single-access global platform.
•Banking model: Determine a model
that allows for experienced and
accessible people, including local
contacts with global connectivity.
•Payments: Understand the local
payments environment, including
where and how you can make
payments and what currencies
are acceptable.
•Collections: Consolidate accounts
receivable, understand market
practices and leverage automated
straight-through reconciliation.
GLOBAL STRATEGIES | 4
Access to capital: new tools and expertise
Growing Capital
When an enterprise grows internationally, it can’t necessarily bring along its domestic
experience. The reason? New markets require new tools and different kinds of expertise.
One of the biggest mistakes companies make is trying to shoehorn old ways of accessing
capital into the new global picture.
Companies ready for global expansion
have a wide range of needs and choices
in accessing capital. Here are some ideas
for how to raise cash depending on your
company’s size and operations:
The key considerations, according to Bazaz, should be identifying all variables in play, taking
a global view of your capital structure, focusing on permanency and being wary of relying
solely on the views of incumbent in-country management. “They may — and probably will —
have different motivations than management does in domestic markets,” says Bazaz.
Mike Katergaris, managing director/senior corporate banker, EMEA, takes it a step further.
“If you’re moving overseas, the key is understanding how you’re going to finance the
operation,” he says. “In the current environment, most companies are finding that financing
costs are as inexpensive as they’ve ever been and as inexpensive as they’re ever going to be.”
And there’s more good news. “Capital markets are quite liquid across the globe,” Katergaris
continues. “As your company begins to expand and grow overseas, you can tap those capital
markets. As you continue to grow outside your domestic market, more of your revenue,
more of your assets and more of your working capital is sitting in a nondomestic location.
So there’s less reliance on domestic debt. That means companies are looking for new
sources of funding and, with that, new capital structures.”
Many complexities, one solution
That’s not to suggest that it’s a cookie-cutter market, Bazaz is quick to point out: “Not all
companies are cut from the same cloth. Some are looking for a small amount of financing
and some have a multitude of small subsidiaries that may not be able to access capital
on their own.”
As Bank of America Merrill Lynch’s dynamic Global Strategy Forums reinforce, the timing
has never been better to move abroad, especially for midsize companies, and the urgency
to leverage worldwide banking relationships has never been greater. For the 66% of clients
that are buying goods and services internationally and 59% that are selling internationally,
the key is managing the operational complexities in one integrated solution. Bazaz sums
up the opportunity this way: “Companies are sourcing capital in the most operative
markets and then converting it into the currencies of the jurisdictions in which they do
business. That used to be reserved for the Fortune 100. Now it’s a pervasive opportunity.”
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07-13-0314
• A company with one or more
international operating subsidiaries—
each with an estimated borrowing need
of $10 million or more—may use its
international operating subsidiaries as
borrowers along with its U.S. parent
company. By doing so, it will increase
the potential to borrow as it maximizes
efficiency and liquidity.
• A company that has multiple
international operating subsidiaries
in different countries may find that,
individually, these entities are too
small. But together, they can create
a reasonable borrowing need to
source the working capital necessary
to get started.
• A parent company that has small (but
growing) international businesses in
various operating subsidiaries—or,
in a number of countries, each with a
negligible amount of assets—may be
able to fold those operating subsidiaries
and their assets into the parent
company’s credit facility, once a critical
mass has been reached.
• A company that currently has no foreign
subsidiaries but has plans to grow
internationally may preprogram a credit
facility for the addition of international
subsidiaries as borrowers in designated
jurisdictions.