by Gianfranco Bisagni, Co-Head of Corporate & Investment Banking, UniCredit
International expansion is a common strategy for European corporates. However, if not managed properly, it can bring with it a number of challenges and pitfalls. Gianfranco Bisagni, Co-Head of Corporate & Investment Banking at UniCredit, delineates the key drivers of corporate expansion and the strategies for the smoothest possible process.
What trends are you seeing at the moment in terms of corporates’ growth strategies?
European corporates have the resources and the appetite to expand internationally. According to UniCredit Research’s recent study, Internationalisation of companies by 2030, outward foreign direct investment (FDI) is a highly popular strategy – German and Italian multinational enterprises (MNEs) are already among the top global players and are expected to double their foreign investment activities by 2030. In the case of Germany, we are talking about an additional EUR 1,200bn and for Italy EUR 500bn, with the Eurozone and the US remaining the most important destinations.
This builds on a longer-term trend that has seen growth in FDI outpace worldwide trade volumes by 1,400% between 1980 and 2014.
Why is FDI a strong option for expanding corporates?
In the past, FDI appealed to corporates as a means of lowering their overall production costs by spreading processes across different countries – with each carried out in the most cost-effective location. Today this is no longer the most relevant driver. The main incentive now is the prospect of providing a more direct and comprehensive service to overseas clients, while avoiding transportation costs, trade tariffs and exchange rate volatility. This is proving particularly popular with German and Italian corporates – with 61% of Italian multinational enterprises citing high customer demand as an incentive for FDI, while 45% of German industrial companies investing abroad envisage improvements to their sales and customer service.
What are the main challenges corporates face when undertaking an FDI programme?
Corporates investing abroad must overcome a number of challenges. For a start, setting up abroad involves the challenge of negotiating the customs, regulations and practices of new and unfamiliar markets.
There are also challenges with internal administration. Cash management can be particularly tricky, as opening bank accounts for new subsidiaries makes cash positions increasingly complex. Overseeing the flows of a growing number of accounts can therefore become a considerable administrative burden.
Corporates investing in new markets also face the risk of dealing with unfamiliar counterparties. Containing these risks and building relationships with local buyers and suppliers will be another crucial element of any successful foreign expansion.
What can corporates do to mitigate these risks when dealing with new counterparties?
Fortunately for corporates, there are a number of innovative risk-mitigating products on the market. This is an area to which UniCredit has devoted considerable investment. We offer MT798 messaging, which enables clients to use SWIFT’s digital infrastructure to exchange data with their banks and improve the efficiency of their documentary processes. We are also part of SWIFT’s global payments innovation initiative, which aims to simplify correspondent banking processes for corporates by making cross-border payments faster, more predictable and more transparent.
We are a market-leading provider of the Bank Payment Obligation (BPO) – an innovative settlement method that allows banks to reduce clients’ exposure to settlement risk by mediating and guaranteeing payments between trading partners.
Once relationships have been established, supply chain finance solutions can help corporates improve their collaboration with local partners. Here, too, we are determined to offer clients of all sizes the highest level of service. To this end, we are working on a new trade finance portal for corporates, which will include, among other things, advanced features, with a digital platform for executing supply chain finance programmes.
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Digitalisation is the name of the game. Banks are often seen as less innovative than their peers in other sectors. What are you doing to counter this viewpoint?
The complexity inherent in corporate banking means that solutions will always take time to develop, but that does not mean banks are not innovative. Quite the opposite – banks are innovating on a number of fronts to bring greater convenience and efficiency to their corporate clients. UniCredit, for instance, is a member of the R3 bank consortium, which aims to combine the expertise of over 50 financial institutions to create blockchain-based products for financial markets. As such, we are carrying out advanced research into the use of this technology, which will make payments and trade finance processes faster and more efficient – immediately identifying errors in payment instructions, and executing correctly entered transactions almost instantly.
We have already completed proofs of concept for two blockchain-based trade finance solutions and are currently carrying out a series of highly successful test payments between two countries in Central and Eastern Europe (CEE). Here, too, we are ahead of the curve. Following a successful proof of concept, we are now broadening our tests to include a third-party bank outside Europe.
Meanwhile, we are also building an instant payments system, which will enable corporate and retail customers to execute payments in real time – accelerating fundamental business processes and preserving the harmony of Europe’s payments landscape.
Let’s return to some of the other challenges you mention. What can banks do to help corporates navigate unfamiliar local markets, for instance?
When negotiating new and unfamiliar markets, an experienced guiding hand is essential. At UniCredit, we always strive to provide this – utilising our on-the-ground presence and local expertise to lead clients through the challenges created by cultural and regulatory differences between their home and target markets.
Our strong international network of branches and representative offices around the world – spanning 20 locations in 17 countries, in addition to our 16 home markets in Europe, enables us to provide this support worldwide.
You also mentioned that international expansion creates challenges in terms of cash management. What can be done about these?
Digital technology is the key to tackling these challenges. Virtual account services, for instance, can drastically improve the scalability of corporates’ financial operations by concentrating their funds into a single account, divided into sub-accounts with individual budgets, permissions and account numbers.
Organising accounts in this way gives treasurers a complete overview of their company finances – making it easy to keep track of expanding accounts. Each account can be opened and closed almost instantly, and monitored in detail through other digital tools such as camt.086 account statements. UniCredit is a market leader in this area.
What role do fintech companies play in facilitating expansion? Are they better than banks?
The ‘banks versus fintech’ narrative is a misconception, precisely because both sides have different strengths. Banks are, by their nature, less agile than organisations in other industries, but they have a wealth of experience and expertise, complemented by long-held and trusting client relationships. Indeed, as a group, UniCredit is investing EUR 1.2bn on digital banking solutions by 2018. As part of our commitment to provide all our customers with the highest level of service, we are working in collaboration with a number of specialist technology companies, focusing on very specific parts of the value chain to develop new and innovative solutions that will benefit firms of all sizes.
Fintech companies, meanwhile, bring a fresh and innovative way of thinking that – through partnership with leading banks – can generate new efficiencies and unprecedented convenience for clients.
Collaboration is therefore a promising way forward for us. As fintech companies develop innovative new products, banks can work with them to identify use cases for their technology and help them navigate the complexities of financial regulation.
Of course, even now, when such collaborations are only beginning, there are a number of solutions available that can make a profound difference for corporates looking to expand internationally. Solutions as varied as virtual accounts, the BPO, advanced supply chain finance platforms, and camt.086 account statements, along with reliable guidance based on local-market expertise, can already help corporates smooth the path to international expansion - while new solutions such as instant payments and products from SWIFT’s global payments initiative hold further promise.
In the digital space, we at UniCredit embrace disruption as a catalyst for innovation – an incentive to deliver innovative solutions that facilitate and accelerate our clients’ business at home and abroad.
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Gianfranco Bisagni Gianfranco Bisagni is Co-Head of Corporate & Investment Banking at UniCredit, the division responsible for providing a range of financial services to corporates and financial institutions. From 2011 to 2015, he acted as Head of CEE Corporate & Investment Banking and Deputy Head of CEE Division at UniCredit. He previously served as Head of CIB & Private Banking at UniCredit Tiriac Bank Romania where he was appointed a member of the Management Board in 2010. Gianfranco started his career in the Italian UniCredit network, but moved to the United States shortly thereafter, where he was Deputy Chief Manager for the UniCredit New York branch, responsible for all the representative offices in North and South America. He was later named Chief Manager of UniCredit’s Hong Kong branch (2001) and subsequently Head of Corporate Banking Asia Pacific & Chief Manager Hong Kong branch (2008).
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