THE IMPORTANCE OF OPTIONS
As a result of these pressures, it is not surprising that some firms have begun to ask whether the costs of manufacturing outside of their home markets may outweigh the benefits. These are certainly questions that multinational corporations and their treasury teams, which have increasingly become pivotal in the strategic direction of the company, should be considering.
“We have had numerous clients come to us and ask questions about the various political, economic and social trends in the markets they are operating in,” says Lim. “This is a positive sign because it shows that our clients are thinking proactively about what all these developments mean and trying to understand the risks and opportunities that these create for the business. But our overriding advice is always not to panic: these trends are very unlikely to cause business to grind to a halt.”
That said, some alterations may be needed. As a result of these conversations, ANZ is already seeing many treasury teams make some changes, with some increasing their hedging in light of increased market volatility. “This is helping smooth out that volatility for the business over the short term and this will be a key role for treasurers in the comings months and years,” says Evans.
But any true risk management strategy cannot rely on short-term hedging strategies alone and the business must adapt and evolve in accordance with the changing business environment. “Every good business strategy considers the risks to that strategy and should always have options to move in another direction should need be,” says Evans. Treasurers should certainly be looking at putting in place a Plan B should these anti-globalisation trends continue. This isn’t alarmist, simply good practice.”
In particular, ANZ suggests businesses should take a good look at their supply chains, especially if these include countries which are currently embroiled in trade disputes or are leaning towards protectionism. Again, the advice is not to panic but to make sure that a degree of flexibility is built into the supply chain, providing the option of switching suppliers should the need arise.
“Supply chains are complex constructs and take a long time to establish and cultivate,” says Lim. “As a result, these cannot be changed overnight, but we do believe that treasurers and procurement teams need to be working together to consider alternative options with the objective of making sure that the business can continue to operate smoothly, no matter what political or regulatory changes occur.”
Ultimately, for treasurers, it is about staying ahead of the game – and with forward planning, this shouldn’t be a problem. “Regulations and legislation don’t typically change overnight,” says Lim. “There is always time to react, but sometimes this does require businesses to be uncharacteristically nimble. We therefore encourage our clients to keep abreast of the winds of political change and ensure they have an action plan for the alternate scenario.”