Understanding regulatory requirements and standard operating procedures in international locations is essential for domestic corporations expanding into overseas markets. The following tips, compiled by Wells Fargo’s international banking division, can help companies establish an effective global treasury policy:
Consult
with key advisers early. Draft the overall scope and plan
for international expansion with the help of tax advisers, bankers,
legal consultants, and IT experts.
Establish
corporate objectives. A sound, fundamental policy that
creates strategic goals and a consistent process for business
operations worldwide is a necessity. All stakeholders need to agree to
the basic principles in advance.
Assess
the risks. Unstable currency markets that pose devaluation
risks must be taken into consideration. Corporations should understand
the laws and economic and regulatory risks that exist in the markets
where they are expanding. Tax structures, incentives, and implications
for offshore companies can be determined with the help of tax
advisers. Banking partners can advise on hedging strategies to help
manage foreign exchange risks.
Choose
the right kinds of accounts. Local, in-country accounts and
offshore, multicurrency accounts each have advantages. Local accounts
allow access to local clearing systems and same-day value on domestic
transactions. Branch and teller services are available for
transactions such as cash deposits. It’s possible that there will be
fewer regulatory requirements with local accounts, making it easier to
deposit or withdraw funds. Offshore, multicurrency accounts have
unified relationship management and client customer service available.
Transferring funds between accounts is easy, and you can count on a
consolidated electronic banking platform. Language and time zone
problems should be minimal, and in some cases there are no additional
foreign tax issues. In some cases, using both offshore and local banks
is most effective.
Give
yourself time. It can take weeks or even months to
establish a relationship and an operating account with a foreign bank.
Researching how the process works in the location where you are
expanding can make the process go more quickly.
Set
policies for capital management. A framework for treasury,
foreign exchange, liquidity, and investment management practices must
be established and communicated throughout the organization. Decide on
protocol as you would for your U.S.-based treasury system. Will the
offshore subsidiary be given autonomy to open accounts and set up
credit lines? What will the offshore subsidiary be responsible for in
terms of daily collecting and disbursing of funds? How will the
subsidiary manage financial risks and address political risks? How
will cross-border payments and currency conversions be managed? How
much freedom will the subsidiary have to invest surplus cash? How will
liquidity needs be forecast and managed by the corporation? These are
just some of the questions that need to be answered.
Assess
technology needs. Technology already in place, such as your
enterprise resource planning (ERP) system, can help you work more
efficiently. You may also want to assess whether new platforms are
worth investing in. XML technologies and communications through the
Society for Worldwide Interbank Financial Telecommunication (SWIFT)—a
member-owned cooperative through which banks, securities institutions,
and corporate customers exchange standardized financial messages—are
among options worth investigating.
Pick
the right bank partners. Choose banks that possess the
capabilities and expertise to support your needs while minimizing
transaction fees. Your banking partner can advise you on how to
navigate local complexities and can provide local lending as the
business grows.
—By Brad Hardy, CPA, (
hardyba@wellsfargo.com
) a senior vice president for Wells Fargo Global Banking, part of
Wells Fargo’s International Group, in New York City, and Ken
Tysiac, (
ktysiac@aicpa.org
) a JofA senior editor.
