Cash Pooling - cross border

Commentary

With complex countries, we usually think of emerging markets. Japan is one of the most advanced, largest and affluent economies in the world – but it is also a very complex place for foreign companies to operate in.

Usually, the complexity for treasurers comes from regulation. In Japan, this is not the case: the yen is freely traded in one of the deepest markets; cash can be pooled and swept both within the country and across borders; one participant does POBO there; Japanese banks willingly report transactions and balances by MT 940; it has deep and open capital markets; and four of the world’s twenty largest banks by assets are Japanese. Instead, the complexity comes from a very strong culture, which is often not well understood by non Japanese, and which leads to a different way of doing business.

This call, which was well attended and quite animated, went into the challenges foreign treasurers face in this environment. Peers raised the following:

• High bank fees: Japanese banks are reluctant to negotiate these down
• Japanese banks are not used to RFPs for cash management – this is not how the domestic market operates. Many large Japanese companies have strong historical relationships with their banks, which often involve minority shareholdings.
• While MT 940s are not an issue, one participant faced significant issues getting their Japanese bank to implement even a simple host to host communication
• Communications challenges: it can be difficult to find Japanese employees who speak good English – very few bankers in domestic operations speak it.
• The need to carefully manage business meetings: these are usually more formal than in many other cultures: deference to senior personnel is required
• Difficulty managing onshore operations from a remote location: the local online banking tools are nearly all Japanese language only
• The language issue is further complicated by the katakana character set
• Resistance of local teams to change, especially if it involves working with foreign banks
• Complexity in managing relationships and wallet share with Japanese banks, who are often key global providers of credit and FX
• The use of company chops instead of signatures, and the related control issues
• The requirement to use local bank accounts for certain types of tax payments
• Security and confidentiality in Japanese online payment systems is not best in class – one participant had an issue with a single person (not in HR) making all payroll payments
• Repatriating cash via dividends and intercompany loans is not a problem, but it brings the usual complications: the need for retained earnings (one participant’s business receives advance payments), withholding tax and currency hedging cost. 

How to handle these problems?

• One peer did an RFP a few years ago, and awarded

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