GREAT EXPECTATIONS
Banks are starting to roll out web-based products to improve the way CFOs handle cash. Is anyone buying?
By Lynne Curry

Throughout most of Asia, cash management remains a very inexact science. In India, for example, sacks of checks are still hauled from one bank to another because they must be settled in the same banking zone in which they were drawn. To speed things up, some companies use couriers who zip between towns by train, settling bills with cash. And in China, even payments between companies in the same town, using the same banks, can take several days before they reach their destination. The reason? Local banks like to hold funds longer than they should in order to meet short-term funding needs.

Given these quirks and hassles, it's no wonder that CFOs and treasurers in Asia are frozen with indecision when faced with the prospect of investing in new technologies that could streamline cash management processes. CFOs, in general, wait for good practical solutions to a problem, on the assumption that a system that's working, no matter how imperfectly, is better than an unproven one. This caution - or foot-dragging - is particularly noticeable in the slow take-up of web-enabled financial software. The awful truth is, compared to their counterparts in the US and Europe, CFOs in Asia have been sloth-like in embracing the Internet.

Still, according to bankers and finance managers at multinationals operating in Asia, attitudes are starting to change. With the rapid increase in business over the Internet, a radical shift in business relationships between customers, suppliers and distributors is starting to take place. Mix in sharply reduced telecommunication costs and some very sophisticated computer software and you have a revolution brewing - the e-business revolution. The challenges of adapting to it are immense - from security, legal and tax problems on one end to simply choosing the right software on the other. But fewer and fewer companies can afford to ignore this shift. "The Internet enables companies to change the way they do business with customers and suppliers," says David Rea, head of e-Delivery at Standard Chartered in Singapore. "As a result of this powerful change, any company that doesn't take advantage of it will lose its competitive edge." Adds Francis Kong, head of cash management at ABN-Amro Bank in Singapore: "E-commerce is not the future - it is now."

Indeed, forecasts from the experts bear this out. The US-based Gartner Group, a technology consultancy, currently predicts that worldwide business-to-business (B2B) e-commerce will total US$7.3 trillion in 2004. In Asia (excluding Japan) this would represent a dramatic leap from US$9.2 billion in 1999 to nearly US$1 trillion in 2004.

Data, Data, Anywhere

The e-commerce explosion, by its very nature, will stand the business of cash management on its head. For those companies that take the plunge, the benefits of using Internet-based technology to manage bills, invoices and collections result in greater efficiency, cost savings and more time to focus on strategic issues. Other benefits for CFOs include eliminating the job of paying bills or calling banks to identify which one has the highest interest rate on short-term deposits. "Because the Internet offers real-time communication through the supply chain with vendors, you can be tighter about when you ship and pay," Rea explains.

According to Anthony Solimini, senior vice-president, Asia Pacific, of global payments and cash management at HSBC in Hong Kong, the real benefit of web-based cash management will be "real-time data, anywhere data." A company headquartered in Hong Kong, for example, that has operations throughout Asia, can give access to information such as balances and payments to everyone from salespeople in the field, a regional treasurer in Singapore, a global controller in New York, or a distributor in Malaysia. "The Internet will provide a greater means of instilling efficiency in proccessing," says Ken Tashima, a director, Cash Management Services at Citibank in Hong Kong.

Not surprisingly, banks are working hard at developing new products to enable CFOs to do their payables and collections on the Internet. Chase Manhattan's Spectrum service, for example, will allow customers to go to one website and look at their bills instead of logging into 20 different sites. Still, only five banks have rolled out any specific Internet-based products in Asia so far. "What people will do and pay for in North America differs little from the practices in Asia," Standard Chartered's Rea says. Even so, he insists: "The question is not if, but when." With that in mind, a clutch of banks are preparing for Internet-based product roll-outs through to the end of this year.

Deutsche Bank, one of the first to plunge into the Asia market, is promoting db direct internet, a service that gives customers in Asia and Europe the option of examining their account balances at Deutsche Bank and other banks, initiating payments, and doing trade and letter of credit transactions. When Deutsche Bank first offered this service last year, "the corporate's initial fear was security. We didn't expect the pick-up rate for db direct would be overwhelming," says Tam Thy Hung, head of sales, Asia Pacific, of global cash management at Deutsche Bank in Singapore.

Despite these concerns, however, CFOs are making the leap. One of Standard Chartered's customers, a clothing manufacturer with factories scattered throughout Asia, lacked a wide area network, which links a group of smaller local networks that are spread out geographically.

The bank's service enabled the company to use the Internet to solve the problem, giving access to the payroll, accounts receivable and accounts payable from remote factories to company employees in one centralized location. The company avoided purchasing a more expensive network, while giving its managers greater access to its financial system.

Even for companies at the forefront of the e-commerce revolution, the move to Internet-based cash management processes is happening surprisingly slowly. US-based Eastman Kodak, the chemicals and photo equipment group, has big plans for doing e-commerce business in Asia, but paying bills and collecting payments are still in the future. "Kodak will use the Internet [for cash management], but we're not there yet in this part of the world," says David Uhazie, chief financial officer and vice-president of the greater Asia region at Kodak in Hong Kong. "B2B transactions and e-commerce are important and beneficial. Within the year 2000, we will have some portion of our transactions with partners and interfaces with customers on the Internet."

Initially Kodak will focus on the supply chain and tracking wholesale inventory, enabling the company to know what products are selling. With this system, Kodak will automatically place orders as distributors require stock replenishment. Kodak plans to test its electronic transactions on the Internet in China where it has a much smaller customer base. "It will take a while before customers and dealers will pay their bills on the Internet," says Kodak's Uhazie. "The biggest challenge will be whether our customers, distributors and wholesalers are interested in doing e-business."

The Paper Jam

Shell Eastern Petroleum is also seeking to use the Internet in some form for its cash management system. "The driver will be what kind of cash management system the banks provide," says Josephine Teo, Shell's treasurer in Singapore. Shell has requested several international banks to submit proposals outlining how they would integrate electronic banking and the Internet into the oil giant's cash management operations.

Presently, Shell uses two cash management systems to run its organization: a host-to-host connection between the company's computers and those of its banks, and another system involving data collection via a service provider, which the company then forwards with instructions to the banks. About 80 percent of the payables are currently transmitted electronically and the remainder via check, while about half of the multinational's receivables are collected electronically and half manually. "Checks still play an important role in collection," Teo says. "I don't think everything can be done electronically." Teo believes that checks will not disappear in the immediate future. "Check clearing still plays an important role and it will continue to do so in the forseeable future," she says. "I don't see check clearing disappearing in six months."

Another issue that companies are grappling with as they try to transfer their financial applications to the Internet is standardization of operations. "This is one of the prerequisites for operating on the Internet," says ABN-Amro's Kong. "If you don't have a good back-office platform, when you receive the files electronically you will have to print them out and do everything manually. E-commerce will become like a fax machine. A lot of companies upgrade their back-office platforms before they go to e-commerce." After an analysis, Kodak decided the area with greatest potential improvement was in using information technology more efficiently to process payables or accelerate the conversion of the collection into cash. "Some of our companies were operating efficiently and some were not," Uhazie recalls. "Some were manually signing every check. The first step was to use the bank's software and cash management tools to help us automate the payable cycle and automate the collection process."

A CFO at a medium-sized manufacturer in Hong Kong said her company was not ready for the Internet until it updated and unified its reporting functions. Although the company's factories in China and Thailand are beginning to work more closely together, for years they "worked in opposite directions on prices," she says. "There is a lot of individual reporting and a need for uniformity. Otherwise, you are not comparing apples with apples. On a scale of one to ten, we' re near ten in the dark ages when it comes to the Internet. But we are looking at the Net for sales."

In another case, ABN-Amro's Kong recalls, one manufacturer created a website to receive more purchase orders, but its web server was not linked to its back-office functions, and the company was forced to print out the orders. He said the company expanded its customer and distribution base, but failed to improve its back-office processes at the same time.

Standard Problems

The lack of standardization between companies creates more problems for CFOs aiming to transfer their financial applications to the Net. While web-enabled cash management operations may be fairly straightforward, the complexity arises when trading partners don't all use the Net. "If vendors don't all migrate to the web and only a portion do, the company could go from having one efficient cash management system to having two systems," says Denis Leadbitter, senior vice-president of global treasury services and head of product development at Bank of America in Singapore. "It could require a specialist on the website and another one on the traditional side," Leadbitter adds. "The conversion of enterprise resource planning (ERP) processes from a non-Internet to an Internet model has to be easy, flexible and open. If it costs a lot and involves complicated IT, there will be more reluctance to do it."

Large companies with a standardized ERP accounts payable system in place may lease out their operation over the Internet to smaller firms, allowing them to take advantage of the Internet's cheapness and reliability instead of paying millions for a sophisticated accounting system like Oracle. One oil company located in Singapore has plans to market its receivables operations from its shared service center in Manila.

Further, standardization of liquidity management operations is particularly difficult across Asia. The issue is not a technical one. Companies face different business practices and foreign exchange, legal and tax restrictions throughout the region. This is particularly true with pooling, the notional balancing of accounts without physically moving them. With pooling, subsidiary accounts are kept separate in a designated "header" account but are treated as if they were part of that main account. The advantage of this is that it eliminates overdrafts and interest charges by offsetting deficits with positive balances. Corporate customers are able to view the different account balances on the Internet, but are not yet able to do transactions involving pooling on the web with most banks.

Given the difficulties of standardization and pooling in different countries, many companies still feel more comfortable with host-to-host communication, an electronic link between a customer's computer and a bank's. The actual connection can be in a variety of formats, including over the public phone or a dedicated line. With plunging costs and greater flexibility, communication technology has become a commodity and has allowed smaller firms to be able to afford more advanced host-to-host communication. Companies no longer rely solely on proprietary bank software. "The trend is away from banks' proprietary software toward host-to-host where they communicate with our computer," says Standard Chartered's Rea.

As Solimini notes: "The Internet is still only a delivery mechanism. The Internet will make life easier, but it will not help companies manage seven countries." Indeed, there is no "push factor" to prompt companies to move onto the Internet when they already have proprietary delivery systems to the bank. "There isn't the need to go to the Internet when you have proprietary banking software that meets your banking requirements," says Chia Nam Toon, Singapore-based general manager of finance, IT and planning at ICI Paints Asia Pacific, a subsidiary of ICI, the British chemical giant.

Chia's approach may be typical of many companies, but it is one that he and many others may need to re-think. While the Internet may not be the answer now for all companies, in the future companies ignore its impact on their cash management operations at their peril. E-commerce has triggered a seismic shift in relationships among manufacturers, distributors, suppliers and consumers, with the middleman being squeezed out. "For some corporations, e-commerce is a watching game," Rea says. "It might not be for you today, but it may be for you tomorrow. If you believe that it is not for you ever, you may be missing the message about the fundamental change in relationships."

Lynne Curry is contributing editor at CFO Asia