Cash Nexus

Sony's global treasury service center has suddenly taken on a new, intensified brief as its parent struggles to regain its global footing.

Talk about losing streaks, consider Sony’s troubles this year. The Japanese consumer electronics giant announced lower-than-expected yearly results in April and projected a 57 percent drop in net income this year. Its mantle is being challenged everywhere, in Asia most notably by Samsung, the Korean giant, which has shown greater skill in cutting costs and rushing cleverly designed, trendy products to market — once thought to be Sony’s unique line of trade. Then as if proof that bad luck marches in battalions, Sony’s Vaio laptop computers started giving harmless but disconcerting electrical shocks to its owners. At press time, Sony is still mulling recalling 18,000 of the machines as its management finesses this latest blow to its image of digital-age elan.

Little wonder, then, that pressure is building on Hiro Kurihara, the managing director of Sony’s London-based Global Treasury Services (GTS) unit, the company’s bold attempt at globalizing working capital and risk management. Set up in 2001, the ambition for the center was to spread its services to Sony’s electronics, Playstation, music, entertainment, and movie divisions, pooling the group’s working capital, centralizing foreign currency hedging and cash management, and opening a global window on risk management.

“Cost savings,” Kurihara said to CFO Asia in August 2001, “are just one part of the reason why we’ve established a GTS. The more important thing is that we can have full control over the global liquidity of the group, so we can utilize the funds so that the size of the balance sheet can be reduced.” So how does progress look so far? “We are on schedule, but not fully rolled out,” Kurihara says on the day that Sony’s spin doctors are busy managing the Vaio dustup.

Sony’s electronics group is nearly fully plugged into the GTS services, while the Playstation unit is partially so. He adds: “Regarding the other companies, the problem is that [their] activities are quite different from electronics. We are discussing how to apply our services.” Translation: it’s still too early for him to say that the GTS can attain its original, revolutionary goals.

But while the benefits of the model are taking longer than expected to emerge, the GTS has already proven capable of offloading some of Sony’s interest-rate costs, gaining efficiencies in funding on a global scale, and providing strong hedging advantages, both via derivatives and so-called natural hedging. In the meantime, Kurihara has discovered that the global operations of even a forward- looking company like Sony have enough moving parts to confound the most sophisticated vision of a treasurer.

Making the RTC Sing

Despite rough times, most large multinationals have embraced some form of global treasury operations — and are looking to them to produce the savings, economies of scale, and risk management opportunities that will widen currently squeezed margins. Sony pioneered the structure in Japan when the government liberalized certain areas of the finance sector in 1998.

Nissan followed suit as part of its revival plan in 1999. Others in Asia are catching up, including Japanese electronics maker NEC and SARS-beleaguered carrier Cathay Pacific Airways of Hong Kong. Shell Oil and Exxon Mobil each now have a global treasury structure of their own, as does mobile-phone maker Nokia of Finland. Reuters has just rolled out the Asian portion of its global treasury operations.

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