Improving working capital by centralising treasury operations within the ASEAN Economic Community (AEC)

Asia’s new economic powerhouse emerges as the perfect location for a central treasury function

A centralised treasury function has long been viewed as the Holy Grail by chief financial officers and treasurers alike, and few would argue against the inherent benefits this model has proven to offer. HSBC’s Rohit Joshi, Head of Global Payments and Cash Management (Singapore), and Ai Chen Lim, Regional Head of Sales, Multinationals (Southeast Asia) of Global Payments and Cash Management, believe the relevance of the centralised treasury function will be enhanced thanks to the upcoming introduction of the Association of Southeast Asia Nations (ASEAN) Economic Community (AEC).

Key insights

  • The key benefits of a centralised treasury function have long been appreciated
  • A treasury hub provides greater visibility, improved working capital and stronger risk management protocols
  • Other benefits include improved internal efficiencies, streamlined operations and standardised processes
  • The ASEAN Secretariat’s AEC presents a considerable advantage when it comes to facilitating trade flows and the global supply chain
  • Once it has been established, the AEC will sign critical partnership agreements with other economic blocs, strengthening the region
  • Smart companies are looking to ASEAN as a serious contender when it comes to choosing the right location for their treasury and financial operations functions

The global financial crisis of 2008 introduced a stark new reality for many multinationals, sending companies all over the world into a tailspin as they tried to bolster sales in an effort to maintain liquidity. However following the onset of the crisis, corporates fought to reduce operational costs, identify more internal efficiencies, and strengthen risk management protocols in the face of adverse financial pressure.

During the fallout of the credit crisis many critical lessons were learned. As a result, numerous corporate treasurers introduced longer-term strategies that ensure a leaner and more resilient organisation today. One such measure has been the widespread adoption of the centralised treasury model.

The benefits of a centralised treasury function

In recent years, leading companies – both global and Asian – have established a regional or even global treasury model that enables them to streamline operations, whether through a hub in North America, Europe or Asia. There are several obvious benefits from this drive typically found in the transformation from a manual, and at times paper-based treasury management model, to a much more automated, technology-enabled approach. This enables companies to improve internal efficiencies, streamline operations and standardise processes and protocols.

The move to a centralised treasury model provides much greater visibility over the company’s cash position than with a localised approach, which in turn can enable the corporate treasurer to free up working capital to support other areas of the business or new investments that generate revenue. Companies that have implemented a centralised model tend to be able to reduce the loans required to support daily operations thanks to an improved ability to move funds between entities in the region and indeed globally.

Typically, corporate treasurers can also reduce banking costs significantly with the introduction of a centralised treasury. By reducing the number of banking partners required to operate in multiple markets, companies can negotiate standard fees across the entire relationship, resulting in lower transaction costs and less paperwork, which in turn provides greater access to working capital across the centralised treasury operation. And while at times a local banking partner remains a necessity in certain countries for select transactions, on the whole this is a very attractive option for the treasury team.

The ability to manage risk remains one of the most critical reasons behind the decision to centralise the corporate treasury department into a regional or local hub, because any organisation that does business across multiple markets must develop a robust risk mitigation strategy that specifically targets foreign exchange and interest rate risk. This is especially true for companies that do business in Asia where there are many currencies and jurisdictions to manage, and it can be difficult to extract funds from the local markets thanks to domestic requirements or regulations. A centralised treasury function alleviates the strain considerably.

A new hub emerges

The benefits of a centralised treasury function remain well documented, and increasingly we are seeing companies establish a regional department within Asia. As the socio-economic face of the region continues to mature, a new hub in Southeast Asia is emerging as one of the world’s leading powerhouses that should be strongly considered by organisations that want to efficiently manage their working capital.

The Association of Southeast Asia Nations (ASEAN) was formed back in 1967 following an agreement between the Foreign Ministers of Indonesia, Malaysia, the Philippines, Singapore and Thailand1. Since then this important body has grown to represent ten dynamic nations including Brunei Darussalam, Cambodia, Laos, Myanmar and Vietnam1. One of ASEAN’s earliest goals was to create an integrated economic region built on four pillars of integration, namely a single market and production base, a competitive economic region, equitable economic development, and integration with the global economy. Expected to be ready by December 20152, the key benefits of the AEC as a regional treasury hub are already starting to emerge.

First and foremost, the sheer economic strength of the AEC is becoming increasingly apparent. To put it in perspective, the ASEAN region plays home to more than 600 million people3, which represents just under nine per cent of the world’s total population. As an integrated bloc, the aggregate value of ASEAN’s economy is the seventh largest in the world, representing a combined gross domestic product of USD 2.4 trillion3. Clearly this new region presents a huge opportunity for companies from all over the world in terms of business growth and access to talented professionals.

However, the AEC also presents a considerable advantage when it comes to facilitating trade flows and the global supply chain. As a region, ASEAN is the fourth largest exporter in the world, accounting for seven per cent of global exports3, and this looks set to grow with the introduction of the AEC.

Already, in recent years several of the ASEAN nations have risen to the fore on the global manufacturing and export stage, due in large to their strategic location near the largest shipping channel in the world – the Singapore Strait – which makes the region a credible choice for global companies to produce their goods for global sales.

Vietnam has risen to the fore as a manufacturing hub for global brands, while Singapore and Malaysia are world-class producers of electronics, and Thailand is known for exporting vehicle and automotive-parts all over the world. Other markets are rich in natural resources and have therefore become leading exporters of commodities. Indonesia is one of the world’s leading exporters of palm oil, coal, cocoa and tin, while the emerging market of Myanmar is expected to lead the way with oil, gas, and precious minerals3.

Meanwhile, other markets have emerged as critical players in the service industry. The Philippines for example is renowned for the quality of their call centre operations and business process outsourcing3, and Singapore has emerged as one of the leading regional treasury hubs within ASEAN. These factors alone make it extremely difficult for the corporate treasurer of today to ignore the AEC.

And finally, once it is up and running, the AEC will sign critical partnership agreements with other economic blocs, laying the ground work for smooth trade, future growth and the free flow of funds throughout. According to a recent report by global management consulting firm McKinsey, these partnership agreements – in addition to the Regional Comprehensive Economic Partnership trade negotiations – could form a “Mega-trading bloc comprising more than three billion people, a combined GDP of about USD21 trillion, and some 30 percent of world trade.”3

Choosing a regional treasury hub

Several markets in ASEAN are already emerging as clear leaders when it comes to choosing where to establish a regional treasury hub. And while others are sure to rise, the key markets of Singapore, Malaysia and Thailand offer several important incentives.

Singapore plays home to one of the most stable economies in the region. The Economic Development Board (EDB) recently introduced the Finance and Treasury Centre Incentive Award, designed to encourage multinational companies to establish treasury hubs within its small borders. The benefits of this include help from the EDB in arranging credit facilities with funds obtained from financial institutions in Singapore or from surpluses of network companies; corporate financial advisory services, and the provision of guarantees, performance bonds, standby letters of credit and services relating to remittances to approved parties. Income received from any activities, in which the EDB has provided qualifying services, is subject to a reduced tax rate of 10 per cent4.

Malaysia also offers tax incentives for companies that set up their regional treasury hub in the market. The government offers a 70 per cent exemption on income received from providing qualifying services, meaning that only the balance is subjected to 25 per cent corporate tax rate, which effectively translates to a rate of 7.5 per cent5. However Malaysia has recently introduced an even more attractive incentive, and eligible corporates can enjoy zero per cent tax rates if they house at least three qualifying services within their hub6.

Also following suit, Thailand aims to attract multinationals to its shores and establish international trading centres with tax incentives and a range of benefits including management, technical and support services within the market. Qualified companies that establish international headquarters in Thailand will be exempt from corporate income tax on income received from overseas enterprises or international transactions, among other tax breaks7.

The ASEAN bloc is emerging as a veritable powerhouse that will rival its European counterpart in terms of size and economic strength in the coming years. It is a critical market in the strategic direction of any multinational, not only in terms of the buying power of its residents, but also in terms of production and manufacturing thanks to readily available low cost skilled labour, an abundance of natural resources and an increasing focus from the AEC in terms of economic integration. As such, the AEC is fast emerging as an obvious choice for a regional treasury hub, and smart companies are increasingly exploring its borders as a viable option from which to do business.


About the ASEAN Economic Community
Back in 2007, the Association of Southeast Asia Nations (ASEAN) committed to creating an integrated economic region by the end of 2015. Known as the ASEAN Economic Community (AEC), this body aims to create a single market that helps realise the region’s potential to emerge as one of the largest economies in the world. The AEC mandate can be characterised by four clear pillars8:

Creating a single market and production base – The bloc aims to encourage the free flow of goods, services, investment capital and skilled labour throughout ASEAN, and as such they have identified 12 priority sectors on which to focus integration efforts, including transport, electronics, healthcare, textiles and tourism.

Increasing competitiveness – The AEC aims to harmonise policies throughout member countries on competition, consumer protection, infrastructure, intellectual property, taxation and e-commerce.

Promoting equitable economic development – By supporting the growth of small-to-medium sized enterprises and improving economic integration throughout the bloc, the AEC plans to narrow income inequalities between ASEAN members.

Further integrating ASEAN with the global economy – The AEC plans to strengthen and extend trade and investment relations between ASEAN and the rest of the world by adopting a coherent approach to external relations and improving the region’s participation in global supply networks.

With this in mind, the secretariat developed a strategic blueprint designed to help them achieve their goals by December 2015. Progress to date has been solid. All measures that target the free flow of capital and skilled labour have been implemented, and much progress has been made in reducing tariffs and encouraging free trade through ASEAN. There have however been some delays in terms of encouraging the free flow of goods.

A strong foundation has been laid in terms of harmonising competition policy throughout ASEAN. However in some domestic markets the laws are yet to be enacted, and there is still plenty of work to be done in terms of consumer protection and transport.

Perhaps the most progress has been made in terms of creating equitable economic development, in particular for small to medium-sized enterprises. Not only has ASEAN introduced its Strategic Action Plan for SME Development (2010-2015) it has also made significant strides in creating the ASEAN Business Incubator Network, which consists of 30 innovation centres. Much progress has also been made in terms of developing an ASEAN Integration Framework and Work Plan, and the ASEAN Framework for Equitable Economic Development was introduced in 2011.

External integration into the global economy is also a priority and we are already seeing promising signs of global cooperation. ASEAN+1 Free Trade Agreements with China, Japan, South Korea, Australia, New Zealand and India have all been ratified as of 2014, and the secretariat is currently working towards developing a Regional Comprehensive Economic Partnership involving ASEAN and six additional FTA partners, which should be completed in late 20159.

  1. ASEAN Secretariat website:
  2. ASEAN Secretariat website:
  3. McKinsey Understanding ASEAN, May 2014:
  4. Singapore Economic Development Board Finance and Treasury Centre Incentive Award brochure:
  5. Invest KL Malaysia:;_Regional_Treasury_Management_Centre.aspx
  6. Invest KL Malaysia:
  7. The Nation, 13 April 2015:
  8. ASEAN Economic Community Blueprint:
  9. Rajah & Tann Client Update February 2015 – 101 on AEC 2015:

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