Six Strategies for International

Banking
If your business is looking to expand beyond the US, effectively managing
your organizations growth will depend on your ability to design and
implement appropriate international funding solutions. Use these six
strategies to help your business tackle the challenge of creating an optimal
international banking structure.
Lorraine Reategui, Managing Director, J.P. Morgan
February 9, 2016
We see it all the time. When an organization expands overseas, its treasury
department may encounter the daunting task of developing a banking
structure that not only improves visibility and enhances control butmost
importantlymaximizes efficiency. Treasurers face increased pressure to
integrate operations and centralize management of disparate supply chains
across multiple continents.
Whether your company is in three countries or a dozen, effectively managing
your organizations growth will depend on your ability to implement
appropriate international funding strategies and solutions.
While every industry and business faces unique challenges, we tend to see
growing companies make similar mistakes when they expand internationally.
Using these six strategies can help your treasury avoid the common
headaches of international banking and get an optimal international banking
structure up and running.

1. Design for the Long Term

There is no one-size-fits-all model to international banking. When developing
a structure, consider your businesss trajectory and the long-term goals for
new overseas operationsand consider the scenarios when centralization
makes the most sense.
If your operations are primarily focused on serving needs at home, a high
degree of centralization may be appropriate. For example, if a new operation
in East Asia is exclusively engaged in supply chain management, then a
banking structure that places all decision-making authority with the North
American headquarters would be ideal. But if a business intends to make
inroads into markets abroad, a less centralized model could provide a greater
degree of flexibility and responsiveness to local needs.
Centralized decision making may not serve your business well if youre
prioritizing it over your ability to adapt to regional needs. For instance, a
treasurers first tendency may be to embrace the maximum amount of
centralization possible, as it facilitates the goals of visibility and control. But

not every decision needs to be approved at the home office, and a structure
that prioritizes centralized control over regional flexibility can hamper
growth, as well as create regulatory headaches. In some cases, leaving
greater room for autonomy in regional banking structures can facilitate
future growth, especially if your businesss focus eventually shifts towards
high-growth markets abroad.

2. Start at the Top

In order to execute your treasury agenda, gaining senior-level buy-in is
crucial. Optimizing your banking structure will likely require resources and
cooperation from a variety of stakeholders. Before starting the project, you
should prepare a solid business case that shows the shortcomings of your
current structures, as well as the potential risks and rewards of your
proposed modifications. Clarifying the projects KPIs beforehand will help set
you up for success when tracking the programs performance, ensuring that
support doesnt fade midway through implementation. Throughout the
project, maintaining a constant focus on your structures KPIs in improving
visibility, gaining greater control and reducing costs can help ensure buy-in
from crucial stakeholders.

3. Prioritize Rationalization
Rationalizing accounts through an integrated global banking structure can
provide numerous benefits. Consolidating accounts among a handful of
banking partners may allow you to minimize counterparty risk, reduce
borrowing costs, negotiate lower transaction fees and centralize control over
banking decisions.
Account rationalization may also provide opportunities to leverage banking
technology and adopt automated controls that can enable advanced treasury
structures. The creation of payment and receivable factories, or the adoption
of cross-border notional pooling, may be far easier when your accounts are
fully rationalized.

4. Gain Operational and Financial Control

The ideal international structure will help your business gain centralized
control of key decisions, while maintaining flexibility at the local level. The
choices you make when designing your banking structures will determine the
amount of autonomy retained at the local level, hopefully striking that
necessary balance. Consider how you might benefit from:

In-house banking: The creation of an in-house bank can provide

highly centralized control over funding decisions while also allowing

subsidiaries to maintain responsibility for routine operations. Creating a

centralized entity that can manage intercompany loans and makes
investment decisions on behalf of subsidiaries can allow headquarters
to maintain more control over the flow of funds, while interfering less
with routine business functions abroad.

Payment factories: Attaching payments and receivables factories to

an in-house bank can provide centralized control over operations as
well. By routing every invoice through a payment factory that transfers
funds on behalf of your subsidiary, you can increase visibility over all
aspects of the subsidiarys operations, from supply chain sourcing to
final sales. A payment factory also creates an opportunity to
implement a set of automated controls that govern routine spending
decisions.

Shared service centers: Alternatively, creating shared service

centers can provide foreign subsidiaries with access to company-wide
resources, centralizing key operational areas while maintaining a
decentralized local funding structure. This can be advantageous for
subsidiaries operating in nations with tight currency controls or unusual
regulations that make international financial integration problematic. A
shared service center allows a subsidiary to retain local banking
services while still leveraging corporate expertise to manage complex
operational areas such as human resources, IT or purchasing.

5. Remember That All Business Is Local

The degree to which youll be able to consolidate financial structures among
international operations will likely vary significantly between regions. For
example, operations in Europe are ideal for creating highly integrated
structures. Every nation in the SEPA region has adopted a standardized set of
regulations that make integrated banking operations simple and efficient.
On the other hand, treasurers trying to consolidate banking structures in
Southeast Asia or Latin America are faced with a daunting patchwork of
national regulations and currency controls, as well as foreign exchange risks.
The transaction costs and regulatory burden of an integrated banking
structure in these regions may prove prohibitive.
In short, your banking structure should be capable of accommodating
regional variation, while taking advantage of opportunities to reduce
transaction costs and increase oversight through centralization.

6. Ensure Banking Decisions Reflect a

Universal Policy
As your business grows, its important to take a critical look at existing
banking structures and make sure theyre developing in alignment with
global policies that govern foreign exchange, debt and cash flow
management.
A clear and comprehensive policy is especially important for businesses that
have adopted a relatively decentralized, autonomous approach to banking
for foreign subsidiaries. A universal policy that sets risk management
guidelines and cash flow goals for the entire corporation can help local
subsidiaries make proper decisions while operating autonomously.