From reduced FX risks to simplified cross-border finances: An MNC's robust expansion into Asean

WHEN Shanghai-listed Xiamen ITG Group decided to set up its South-east Asia (SEA) headquarters in Singapore in 2013, one immediate concern was getting a roof over its head.

It found a home at the iconic OCBC Centre, situated in the heart of Singapore's Central Business District - a strategic move made possible through its trusted relationship with OCBC, a partnership that began in China earlier that year.

For the next seven years, the conglomerate's Singapore subsidiary ITG Singapore - which specialises in trading commodities like ferrous metals and petrochemicals - thrived at this prime locale before moving to its own office building in 2021.

Yet, acquiring real estate was one of the more straightforward aspects of overseas business expansion.

Head of Greater China Business Office (GCBO), Global Corporate Banking at OCBC Benjamin Quek highlights the more nuanced difficulties Chinese multinational corporations (MNCs) like Xiamen ITG Group face when making inroads into SEA: "A lot of Chinese MNCs may be industry giants at home but they could be unknown in, say, Indonesia, and they may not be familiar with the local environment. Most SEA countries also have different capital control requirements. Having somebody to guide them is key to their regional ambition."

This is especially important as the region is fast becoming a target market for many Chinese enterprises under the China Plus One initiative. At the Asia Future Summit last month, group CEO of OCBC Helen Wong said that the bank has been seeing a lot of investment and trade flows between Asean and China, with many Chinese companies establishing supply chains here and setting up their Asean headquarters in Singapore before expanding into other parts of the region.

Smoothing the way for growth

For Xiamen ITG Group, which has been consistently ranked in Forbes' Global 2000 list and is 26th in the 2023 Fortune China 500 list, OCBC's GCBO has been pivotal in the company's overseas expansion.

Another example was when ITG Singapore set up its office in Indonesia in May. Director Li Defu explains that having financial support is key when opening a subsidiary but being newly established, the company could not secure funding from local banks there.

That's where OCBC stepped in by providing a financial service to secure the procurement needs of the Indonesian subsidiary.

As the firm grew in the region, OCBC recognised its evolving business needs. The bank raised its general open credit limit by four times and, to protect ITG Singapore against downside risks, introduced an FX solution which capped the exchange rate of USD and RMB.

As Li puts it: "OCBC offers attractive products and financing solutions."

ITG Singapore's rapid expansion in this part of the world means the business has to also manage foreign currency risks well. Over the past decade, the firm saw its turnover surge from US$10 million (about S$13.4 million) in 2014 to US$5 billion in 2022, representing a growth of more than 500 times.

"For many clients that make money from buying and selling commodities, margins are not high (about five to 15 per cent), and extreme market movements can wipe out profits," explains OCBC's Quek.

As an accredited cross currency dealer for the Malaysian ringgit and Indonesian rupiah, OCBC can facilitate direct currency conversions without the need for an intermediary currency like the USD. This is favourable to international companies managing multiple currencies to sustain their global operations.

"These are solutions we provide to clients so they can focus on their core business, without worrying about a currency moving against them, or taking on unnecessary risk," says Quek.

Currently, the bank is working with ITG Singapore to implement a host-to-host integration solution. This will help simplify the firm's accounting process and provide a holistic view of its financial position across subsidiaries in different parts of the world.

For larger MNCs like ITG Singapore, OCBC offers an enhanced cash management solution where a firm's accounting system is directly connected to the bank. "This offers almost real-time accounting and management," Quek explains.

Localised support

Another obstacle international firms like Xiamen ITG Group face when expanding to this part of the world is the fierce competition with other commodity-trading MNCs in SEA, Li says. Having a banking partner on the ground that understands cultural nuances and can help bridge the language barrier offers a valuable head start.

Besides having relationship managers who are effectively bilingual, Quek explains that OCBC engages its clients early on and supports them through various stages of the development cycle, whether it is to do with compliance, cross-border solutions, or connecting with local partners.

This comes as OCBC has over 400 branches and offices across Asean and Greater China, and a full licence setup in China - operating in 14 cities there - along with a mature network across Singapore, Malaysia, Indonesia, Thailand and Vietnam.

Working with a trusted partner

In July this year, OCBC announced its plan to accelerate Asean-Greater China growth, with the aim to achieve S$3 billion in incremental revenue by 2025 as part of its One Group strategy.

With a comprehensive view of its clients' operations across markets, the bank has the flexibility to offer innovative cross-border solutions. In the case of ITG, OCBC helped the firm expedite its entry into Indonesia while funding its operations from Singapore, leading to greater efficiency and cost savings.

"As an international financial centre, Singapore has advantages in terms of certain funding currencies where we may be able to offer better prices," says Quek.

Building on this strategic focus, OCBC is taking steps to unify its brand across key markets, such as using one brand logo across regions. Starting this December, it will be rebranding its operations in mainland China, changing its legal name to OCBC Bank Limited, pending regulatory approval.

ITG Singapore's Li says that this is a meaningful move as the unified brand instils greater trust and recognition from partners.

Quek emphasises that the rebranding underscores the bank's commitment to continue supporting clients seamlessly across markets. "Whether clients are in China, Hong Kong or Singapore, the logo and name are the same. This gives them confidence that it's the same group of relationship managers handling their business needs across regions."

Visit www.ocbc.com/business-banking to find out more.