The idea of a global treasury center (GTC) has long been embraced by U.S. multinationals, with companies such as Dow Chemical, Merck, and Microsoft widely admired for their practices. For businesses with operations in Europe, the trend toward centralizing treasury operations has been accelerated by the introduction of the euro as well as by the availability of tax-efficient treasury vehicles, such as Belgian coordination centers. A survey of 980 companies with treasury activities in Europe, released by The Bank Relationship Consultancy, found that 37 percent of respondents had already set up a regional center in Europe, with 60 percent of North American companies having done so.
The attraction, says deCaux, is multifold: economies of scale, concentration of expertise, and increased control. As a result, the usual practice for multinationals is to set up one central hub, and then to have a string of RTCs that report to that hub. Normally, that means having as few centers as possible, which can mean just one each in the United States, Europe, and Asia.
Which structure makes the most sense, however, “depends on the type of business, the size of the business, the locations you are in, and your overall tax objectives,” says Susan Griffiths, principal at Global Cash Management Ltd. DeCaux, for example, believes a company with “more than half a billion dollars in revenue in a region” should set up a treasury center there. And Skerritt says an additional consideration is “the objective you are after, whether it be risk management, control of your banking relationships, or global liquidity.”
One company that is focused on the latter is Sony. The Japanese electronics giant is in the process of consolidating its $25 billion annual forex operation as well as its cash-management and risk-management functions in London. And it expects to save between ¥ 6 billion and ¥ 7 billion in the process.
But savings isn’t its only motivation. Sony also wants a structure that allows surplus cash from each regional center to be concentrated in a master account that “follows the sun”–meaning funds can be used continuously within time zones. “Cost savings is just one reason why we’ve established a global treasury center,” says Hiro Kurihara, managing director of Sony’s Global Treasury Services (GTS) unit. “The more important thing is we can have full control over the global liquidity of the group so that we can utilize the funds [to reduce] the size of the balance sheet.”
The way it works is that each Sony center in Tokyo, London, and New York has individual local currency accounts. All are then linked to a pool account GTS has established in each center. At this level, Kurihara monitors the pooling from one RTC account to another. The amount pooled between RTCs depends on their cash-flow requirements and forecasts. And because pooling is done at the GTS layer, no intercompany lending actually occurs.
That, anyway, is how it should look next spring, once integration is complete. But Kurihara is already happy with the Japanese and European pools. Until two years ago, “we didn’t know what was the financial situation in other regions,” he says. “We could only try to utilize other regions’ money at the end of the fiscal year, but now, on a daily basis, we can do this kind of control.”