Support to­mor­row’s business win­ners

China Daily (Canada) - - COMMENT -

In the last cou­ple of decades, as global trade has evolved, mid­sized cor­po­ra­tions have also come to play a much more im­por­tant role in sup­ply chains. Whereas in the past, they would have fo­cused on do­mes­tic mar­kets, th­ese days many such com­pa­nies are fully ac­tive in over­seas trade as sup­pli­ers and dis­trib­u­tors.

This is es­pe­cially true for emerg­ing mar­kets where trade is grow­ing more rapidly than in theWest. The world’s fastest-grow­ing trade cor­ri­dors are “south-south— such as trade be­tween Asia and theMid­dle East, Latin Amer­ica and Asia, and Asia and Africa.

To­day, by the time a company reaches the mid-size bracket, it is likely to be well un­der­way to in­ter­na­tion­al­iz­ing, look­ing for op­por­tu­ni­ties and support to fur­ther in­no­vate and push into new mar­kets. This is a cru­cial stage in the cor­po­rate life­cy­cle, and one which can make or break a company’s fu­ture.

Un­for­tu­nately, this is also the time when mid-sized cor­po­ra­tions tend to hit some­thing of a con­fused space in the bank­ing in­dus­try— too big and com­plex to be served along­side small and medium-sized en­ter­prises (SMEs), and too small to be fully on the radar of whole­sale bankers.

Most fi­nan­cial in­sti­tu­tions cater for mid-sized cor­po­ra­tions, but the def­i­ni­tions of “mid-sized” vary dra­mat­i­cally, and ser­vices are of­ten frag­mented by ge­og­ra­phy, while what th­ese clients re­ally need is the full com­ple­ment of in­ter­na­tional bank­ing ser­vices.

Many have the same bank­ing needs as large com­pa­nies— such as cross­bor­der pay­ment col­lec­tion or help to ac­cess cap­i­tal mar­kets for fund­ing. In­deed, in a num­ber of mar­kets in Asia, in­clud­ingHong Kong and Sin­ga­pore, more com­pa­nies are now is­su­ing debt or eq­uity well be­fore they hit the “large cor­po­rate” bank­ing bracket.

Most mid-sized cor­po­ra­tions al­ready use ba­sic cash man­age­ment ser­vices, but— as they in­ter­na­tion­al­ize— many need ad­vice on how to man­age their cross-bor­der cash flow or how to use more ad­vanced trea­sury prod­ucts, such as com­mod­ity or fi­nan­cial de­riv­a­tives, to help man­age their risk.

In­creas­ingly, mid-sized cor­po­ra­tions also re­quire ad­vice from banks as to where and how they can they tap op­por­tu­ni­ties on of­fer out­side of their home mar­kets. Many are will­ing to look far afield— for ex­am­ple mid­sized Chi­nese com­pa­nies look­ing to sell their prod­ucts in Sub-Sa­ha­ran Africa, or vice-versa.

This rep­re­sents a mas­sive op­por­tu­nity for banks to build a larger business with mid-sized com­pa­nies beyond sim­ple credit and bank­ing prod­ucts. But, un­til now, the in­dus­try has not quite kept pace with this shift in de­mand.

Tra­di­tion­ally, mid-sized cor­po­ra­tions have posed some­thing of a chal­lenge for banks. Though they have made it past the volatile start-up phase, th­ese com­pa­nies are still in­her­ently riskier to serve than large cor­po­ra­tions: their cash flow is less sta­ble, be­cause they de­pend on fewer clients and— be­cause of their smaller bal­ance sheets— they are un­able to ab­sorb the same fluc­tu­a­tions as large com­pa­nies. This makes them more vul­ner­a­ble to de­fault­ing on their loans, and more price-sen­si­tive.

How­ever, by seiz­ing on in­ter­na­tion­al­iza­tion to serve mid-sized cor­po­ra­tions in mul­ti­ple mar­kets with mul­ti­ple prod­ucts and ser­vices, banks can cre­ate a more sta­ble and prof­itable in­come from th­ese clients.

By do­ing more business with mid­sized cor­po­ra­tions, banks will be sup­port­ing a sec­tor that is in­creas­ingly vi­tal to economies around the world, but the ra­tio­nale is not merely an al­tru­is­tic one.

Com­pa­nies forge long-term, loyal re­la­tion­ships with their banks when they are still young— of­ten trig­gered by a “mo­ment of truth”— for ex­am­ple where the bank pro­vides a much­needed loan when no one else is will­ing to.

By sup­port­ing com­pa­nies at the early stage of their life­cy­cle, banks can build a pipe­line of large cor­po­rate clients for the fu­ture. It is all about stay­ing fo­cused on the long term, mak­ing sure you have the pro-ac­tive risk man­age­ment and cap­i­tal strength to support clients through good times and bad.

Mid-sized cor­po­ra­tions are vi­tal to trade, vi­tal to growth and job cre­ation, and vi­tal to banks. They are the in­no­va­tors and business win­ners of to­mor­row, and they de­serve all the support we can give them. The au­thor is global head of Com­mer­cial Clients, Stan­dard Char­tered.

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