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Local Knowledge

To thrive in Asia, headquarters needs to understand the financial conditions on the ground.

Gaps in Understanding

Such examples are comparatively few, though. There is still often a gap between what headquarters knows about Asian operations and what it thinks it knows. Even a well-traveled executive like Brian Kenny, once the international finance chief of U.S.-based W.R. Grace, was unaware of a range of issues in the chemical maker’s Asian operations until he moved to Shanghai.

“There is a lot that people have to do here — particularly in finance — that headquarters just doesn’t see,” says Kenny, now CFO of Grace’s Asia-Pacific division. One example is the handling of credit terms. Many of the company’s Asian customers regard a line of credit as a zero-interest loan, he says. “They’ll borrow against it and then say, ‘Let’s talk about what we’re going to do over and above that.’”

Some treasury issues fly under the radar, too. Customers in Asia often pay Grace via bank draft — a common method there, but almost unheard of in the United States. This approach typically means a company gets its cash slowly, creating potential working-capital problems. “If you sell to a customer on 30-day terms and on day 29 they give you a bank draft, that’s three months more you’ll have to wait,” says Kenny.

Other challenges may be hard to see from headquarters. For example, forecasters in Asia are faced with rising inflation and commodity prices, unstable exchange rates, and a host of political issues that can disrupt supply chains. One CFO, B. Suryanarayanan of Mindtrac, a Singapore-based supplier of commercial tires, says he doesn’t attempt anything longer than a three-month rolling forecast — and even that is unreliable, he adds.

Then there’s human capital. The region’s exceedingly tight talent market is leading to fast-rising pay levels and rapid employee turnover. Even if corporate managers acknowledge such churn, they may misattribute the cause.”[At headquarters] they think that the turnover is happening because there’s something wrong with our company or our culture,” says Kenny. “Are we asking too much of them? Too little? Is there not enough training?” But the turnover is largely out of Kenny’s control. Many employees, he explains, are products of China’s one-child policy; as such they feel pressure not only to keep up with their peers, but also to earn money to support their parents during retirement. “In a sense, if the market is offering 25 to 30 percent pay increases, you aren’t doing your family justice if you don’t go for the money,” says Kenny. “This is something I’ve had to instruct the Americans about.”

Corrected Vision

Such instruction requires regular, clear communication between the home office and Asia (see “Getting Heard” at the end of this article). Kevin Zhou, retail CFO for Luxottica, a $6 billion Italian eyewear company, advocates complete transparency. Luxottica, which owns such brands as Ray Ban and LensCrafters, is aggressively expanding its retail presence in China, and Zhou is taking the lead in helping headquarters understand local financial issues and the country’s rapidly evolving regulatory environment. “You have to always tell them the truth about what’s happening in China, and keep updating them,” he says. “Keep explaining, and before long people at headquarters will really understand what’s going on in this market.”

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