HSBC: Canada must use more RMB payments to boost Chinese trade
Canadian businesses may be seriously underestimating the importance of renminbi (RMB) payments in improving their relationships with business partners in China, according to a new survey from HSBC Commercial Banking. In fact, Canadian businesses are the second least likely - after South Korea - to see a business or relationship advantage in using RMB (22 percent and 29 percent respectively vs. global average of 40 percent and 44 percent respectively).
While the number of Canadian businesses using the RMB has increased substantially in the last year to seven percent from three percent in 2015, they are still well below the global average of 24 percent. Globally, businesses are finding the RMB much easier to use, according to the 2016 survey. As Chinese financial regulations evolve, and as businesses become more accustomed to using China’s currency, respondents said they’re having less difficulty understanding regulations, navigating documentary requirements and moving funds than they did in the past.
“Using RMB is easier than ever before, helps mitigate foreign exchange risk and can improve relationships or attract new buyers to a company’s products. And clearly businesses in other markets are adjusting,” said Linda Seymour, Executive Vice President and Head of Commercial Banking, HSBC Bank Canada. “If you are not at least looking at whether RMB is right for your company, you may be putting yourself at a competitive disadvantage over the long term.”
China’s ‘Belt and Road’ initiative
Globally, the survey shows that companies, including those in Canada, are unprepared for the ‘Belt and Road’ initiative; the name given to a series of Chinese policy developments and infrastructure projects designed to boost cross-border commerce and capital flows. In fact, only two in five companies globally are aware of the initiatives although, European and North American firms may be edging ahead of their Asian peers in preparing to capitalise on this program.
First laid out by Chinese President Xi Jinping in 2013, the ‘Belt and Road’ blueprint aims to develop two corridors linking China to the world. The ‘Belt’ refers to the historic overland Silk Road trading routes connecting China via central Asia to Europe and the Middle East. The ‘Road’ refers to the maritime equivalents to the south, linking China, Southeast Asia, India and Africa.
Chinese enterprises invested USD14.8 billion in 49 countries along the ‘New Silk Road’ last year, working on projects including an Indonesian railway, a Greek logistics hub and Bangladeshi power facilities. The state-run China Development Bank has said it plans to contribute USD895 billion of project funding.
In the poll of 1,600 decision-makers across 14 countries, 24 percent said their firm is using RMB. Yet when asked about ‘Belt and Road’ - the name given to a series of policy developments and infrastructure projects designed to spur USD2.5 trillion of cross-border commerce annually - just 41 percent said they understand the opportunities it presents. What’s more, only 7 percent of ‘aware’ businesses are working on a strategy.
“’Belt and Road’ projects are already presenting huge opportunities for companies that can help develop physical infrastructure such as highways, ports and telecommunications networks,” said Noel Quinn, Chief Executive of HSBC Commercial Banking. “But these are only the first steps. By boosting connectivity, ‘Belt and Road’ will catalyse trade between more than 65 countries that are home to nearly two thirds of the world’s population. For any company seeking growth and new customers, that’s an exciting proposition to explore.”
Adds Seymour: “Many of the themes driving growth in the Chinese economy play to Canada’s strengths – including the massive investment in infrastructure. China remains an engine of global growth and a must-be market for Canadian companies. And yet, few Canadian companies understand the scope of the ‘Belt and Road’ initiative and most of these still have not factored this into their corporate strategies.”
For its 2016 survey, HSBC polled business decision-makers in Australia, Canada, mainland China, France, Germany, Hong Kong, Malaysia, Mexico, Singapore, South Korea, Taiwan, the UAE, the UK and the US who represent companies that conduct international business with or from China.
Six issues at the top of tax and finance leaders’ agenda
New Deloitte research reveals that tax leaders are under increasing pressure to add strategic value as companies accelerate business model transformation, from undergoing digital transformations to rethinking their supply chains or investing in green initiatives.
According to Phil Mills, Deloitte Global Tax & Legal Leader, to “truly deliver value to the business, the tax function needs to rethink its resourcing model and transform its technology infrastructure to create capacity and control costs”.
And the good news, according to Mills, is that tax and business leaders have more options at their disposal to achieve this.
Reflecting the insights of global tax and finance executives at global companies, Deloitte’s Tax Operations in Focus study reveals the six issues at the top of tax and finance leaders’ agenda.
Trend 1: Businesses seek more strategic counsel from tax
Companies are being pushed to develop new digital products and distribution channels and accelerate sustainable transformation and this is taking them into uncharted tax territory. Tax leaders say their teams must have the resources and skills to give deeper advisory support on digital business models (65%), supply chain restructuring (49%) and sustainability (48%) over the next two years. This means redrawing the boundaries of what tax professionals focus on, and accelerating adoption of advanced technologies and lower-cost resourcing models to meet compliance requirements and free up time.
According to Joanne Walker, Group Tax Director, BT Group PLC, "There’s still a heavy compliance load today, but the vision for the future would be that much of that falls away, and tax people become subject matter experts who help program the machine, ensure quality control, and redirect their time to advisory activity.”
Trend 2: Tipping point for resourcing models
Business partnering demands in the tax department are on the rise, but 93% of tax leaders say their department’s budget is remaining flat or falling. To ensure that the tax function can redefine itself as a strategic function at the pace that is required, leaders are choosing to move increasing amounts of compliance and reporting to a combination of shared service centers, finance departments, and outsourcing providers that have invested in best-in-class technology.
Trend 3: Digital tax administration is moving faster than expected
in addition to the rising focus of the corporate tax department partnering with their business counterparts, transformative changes to the way companies share tax information with revenue authorities is also creating an imperative to modernize operations at a faster pace. Nine in 10 (92%) respondents say that shifting revenue authority demands on digital tax administration will have a moderate or high impact on tax operations and resources over the next five years—and several heads of tax said the trend is moving faster than expected.
"It’s really stepped up in the last couple of years," says Anna Elphick, VP Tax, Unilever. "Tax authorities don't just want a faster turnaround for compliance but access into a company’s systems. It's not unreasonable to think that in a much shorter time than we expect, compliance will be about companies reviewing a return that's been drafted by the tax authorities."
Trend 4: Data simplification and lower-cost resourcing are top priorities
Tax leaders said that simplifying data management (53%) and moving to lower-cost resourcing models (51%) must be prioritized if tax is to become more proactive at delivering strategic insights to the business. Many tax teams are ensuring that they have a seat at the table as ERP systems are overhauled, which is paying dividends: 56% of those that have introduced NextGen ERP systems are now highly effective at supporting the business with scenario-modeling insights. Only 35% of those with moderate to low use of NextGen ERP systems said the same.
At Stryker, “we automated the source P&L process for transfer pricing which took a huge burden off of the divisions," says David Furgason, Vice President Tax. "Then we created a transfer price database to deposit and retrieve data so we have limited impact on the divisions. We are moving to a single ERP platform which will help us make take the next step with robotics.”
Trend 5: Skillsets are shifting
Embedding a new data infrastructure and redesigning processes are critical for the future tax vision. Tax leaders are aligned — data skills (45%) and technology process experience (43%) are ‘must have’ skills in a tax department of the future, but more traditional tax specialist knowledge also remains key (40%). The trick to success will be in tax leaders facilitating the way these professionals, with their different backgrounds, can work together collectively to unlock lasting value.
Take Infineon Technologies, which formed a VAT technology and governance group "that has the right knowledge about how to change the system to ensure it generates the right reports", according to Matthias Schubert, Global Head of Tax. "Involving them early was key as we took a greenfield approach, so we could think about what the optimal processes would look like and how more intelligent systems could make an impact
Trend 6: 2020 brought productivity improvements
Improved productivity (50%) and accelerating shifts to remote working (48%) were cited as the biggest operational benefits to emerge from COVID-19-driven disruption. But, as 78% of leaders now plan to embed either hybrid or fully remote models in the tax function long term, 34% say maintaining productivity benefits is a top concern. And, as leaders think about building their talent pipeline and strengthening advisory skill sets, 47% say they must prioritize new approaches to talent recognition and career development over the next two years, while 36% say new processes for involving tax in business strategy decisions must be established.