Treasury Transformation in the Age of Disruption

De-globalization is driving complexity in MNC operating models
 

De-globalization and cross-border fragmentation have emerged as dominant themes since the second half of 2016. While the outlook remains uncertain, the headwinds generated have already filtered into the global corporate landscape.   

Driven by Brexit concerns, a number of MNCs operating across the UK and the EU-27 accelerated their contingency plans in 2018 - 2019, including but not limited to operational and legal entity transitions. For corporate treasurers, changes to the corporate structure and operating environment are likely to materially influence treasury optimization plans and target states.

Taking a broader view, “de-globalization” can also be observed in the escalating trade tensions between the U.S. and China (with spill-over risks rising for the US and Europe). Beyond the immediate headwinds to global supply chains, attention is also growing on the implications to investment flows and cross-border M&A in an increasingly protectionist environment.  

Against this backdrop, MNC treasurers should examine how centralization initiatives should be implemented within an increasingly complex and more volatile cross-border environment. This, in turn, will have implications on target operating models, legal entity strategies and the choice of banking and service providers. 

Digitalization accelerating business model transformation

The evolution of consumer behavior and rapid embrace of digital channels in the world’s largest consumer markets has already transformed a number of industries – including retail, transport, hospitality and financial services.

Broadly, digitalization is driving two key shifts of relevance to MNCs. First, “legacy” companies are contending with the emergence of “digital-born” disruptors that have brought new business models to the mainstream, including “peer-to-peer” and “marketplaces” in a broad range of industries – posing a direct challenge to vertically-integrated and asset-heavy models.

Companies have responded by investing in new digital channels and experiences and engaging in M&A activity. In the hospitality sector, we have already seen examples of hotel operators acquiring or setting up “home sharing” platforms. In the automotive sector, manufacturers have increased investments in mobility start-ups and established direct-to-consumer channels. The Boston Consulting Group has estimated the global value of digital M&A deals at ~$658 billion in 2017, representing a quarter of the M&A market by value and 21% annualized growth since 2014.⁵

The second shift is more subtle but equally transformational. As corporates get closer to their end-customers, they are faced with a rising bar of expectations. In the age of “one-click / one-day” delivery, companies that fall behind in providing seamless experiences are likely to find themselves at a competitive disadvantage.

Taken together, the pivot from B2B to B2C models has material implications on the company’s payments and treasury infrastructure, as treasury moves from “one-to-few” to “one-to-many” counterparties and the imperative for investing in customer experiences becomes more apparent.