Challenges of cross-country financial operations

Source: e27 © Reproduced with permission. First published on February 6, 2018

Starting a company is difficult in itself. Starting a company that operates across more than one country? An entirely different level of difficulty, as to do so would mean that companies would have to deal with multiple regulations, infrastructure, and culture among a myriad other things.

But while there are a lot of discussions about how to deal with operations and sales and logistics when going global (or at least regional), there isn’t much on financials. More specifically, there isn’t much talk about how the challenges companies face in using multiple currencies and how to deal with them.

We reached out to four Asia-based companies to talk about these challenges and how they were addressed.

They are HyunWook Cho, Singapore Country Manager of e-commerce company Qoo10, Jonathan Chua, CEO of e-voucher payment service BeamAndGo; Jae Kim, CFO of global beauty e-commerce company Althea; and Patrick Linton, CEO of remote staffing service Bolton Remote.
 

Qoo10 | HyunWook Cho, Singapore Country Manager

Online marketplace Qoo10 is one of the largest e-commerce companies in Asia, has offices in six different cities in the region, currently operates 7 localised marketplaces, and plans to expand into more Asian countries.

One of the challenges the company faced in their financial operations was in paying their merchants. When they initially offered products from Korean merchants to Singapore, payments were simply transferred directly to their overseas merchants. “When transactions were very marginal we just transferred the payments from Singapore to Korea. But when transaction increased, the cost became greater than what we transferred to the merchants.”

To deal with this, Cho said that they opened local entities to handle administrative things like merchant payments. “When you set up a local entity, it makes transactions easier and less costly.”

However, not all countries are viable for putting up a local entity, and for merchants in these countries, Qoo10 reverts to their original method of direct money transferring.

Another option would be to avail of services such as the DBS Multi-currency account (MCA), which allow remitting of funds to a bank account for foreign company. This is especially useful for companies who cannot afford to set up local entities the way Qoo10 has. The DBS MCA allows the business or the account holder up to 13 foreign currency wallets under one account, which means less cost as it requires only the minimum balance of a single account, and easy usage as new currency wallets are automatically created when the account first receives a supported currency.

As an advice, Cho tells companies to be strategic about their financial operations. “Cost is cost, it’s not going to disappear. You should first ask yourself: Where do we focus?”
 

BeamAndGo | Jonathan Chua, CEO

E-voucher payment service BeamAndGo markets their service to Filipino overseas workers, establishing sales channel partnerships in countries where they are. And with roughly 2.2 million Filipinos working outside of the Philippines from as near as Malaysia to as far as Norway, their service is quickly expanding across the globe.

“The biggest hurdle is understanding the different markets. Even though our target market is overseas Filipino workers (OFWs), we found that OFWs in different markets behave differently. Customer needs, payment options, service level expectations are different from country to country.”

And it’s not just the market that they have to contend with. Regulations are something Jonathan said could strongly impact their business.

“Regulations differ from country to country; sometimes the regulatory differences are small and do not affect us; other times the regulations are all-encompassing and require us to make significant changes to our platform.”

Having customers across the globe means that BeamAndGo have to deal with different payment methods and different currencies.

“Different currencies have an impact on our accounting and our operations. Right now the biggest challenge is that we accept payment in different local currencies while most of our expenses are in Philippines Peso. Anytime there is a conversion, you lose value. The value can be lost in the exchange rate or in fees. In either case, you never get the full value.”

Companies can also opt to make the exchange rates work for them. Those who have a DBS Multi-currency account, for example, can choose to keep the cash in the foreign currency wallet and convert it to their currency when exchange rates are advantageous to them. In this way, companies are better able to manage their costs and get the optimal value of the cash.

For those looking at being a global business, Jonathan encourages that they have on-the-ground knowledge, “I would advise that you go to the country and talk to your customers. After you do that, you will understand the gaps in your business and can find the appropriate local partner.”
 

Althea | Jae Kim, CFO

Global beauty e-commerce company Althea is headquartered in Korea and delivers to customers in over 250 countries.

“We wanted to give the most localised service available. That includes website language, promotions, marketing, and even customer service. Payments is the biggest one.”

This strategy of localisation means that Althea deals with different payment methods per country. “Providing facilities to pay using credit card is easy. But for each country we provide more localised payment options like cash on delivery, bank deposits, and over-the-counter payments.”

With localised presence in six countries, plus having their warehousing and fulfilment in Korea, Althea deals with 7 different currencies.

“To be honest, it’s a total mess. The accounting for it is very cumbersome. Accounting for all the fund flows, getting payments from customers and getting that to our HQ in Korea takes a lot of micromanagement.”

Apart from the accounting of the cash, Jae also shares that value is lost during conversions and that the best they can do is minimise the impact. “We are dealing with different currencies that fluctuates over time, so trying to minimise value lost is always a challenge. It takes a hands-on approach to manage so that it doesn’t grow too large.”

While a hands-on-approach is ideal in a situation similar to Althea, it helps to have tools like the DBS MCA to help simplify processes. Accounting fund flows, easy remittance, and managing leakage by delaying conversion to when foreign exchange rates are optimal can easily be one in a single account. The DBS MCA also allows for easier tracking with real-time visibility of each currency wallet’s available balances and comprehensive transaction information through a single dashboard in the DBS IDEAL online corporate banking.

Though Althea took a very localised approach, Jae admits that the unique infrastructure and regulations of each country made it challenging.

“Especially in Southeast Asia, in terms of payments. A lot of times the general baseline is you need an entity in each of the markets or else you can’t even open a bank account there, can’t even get a payment gateway to contract with you. It’s really difficult without an entity there. But also setting an entity up in different countries is difficult for most startups.”

Bolton Remote | Patrick Linton, CEO

Remote staffing company Bolton Remote is designed to be a global company from the start, as the nature of their business requires them to provide and manage a team in one place for their clients who are elsewhere. They simultaneously opened in the United States and the Philippines, followed shortly by Singapore, and are now in the process of opening in 2 new countries.

“I think for many companies, the decision to enter a market comes down to your reasons. For us, the reasons to enter a market comes down to two: one is to access a customer base and the other is to access skilled, cost-competitive labor markets. We have customers in 10 different countries, and we entered each of those markets very differently – different ways of approaching marketing, sales and customer success, even though the core products and platform are similar across customer bases.”

But it’s not just culture and behaviour that they have to manage; their finance structure needs to also be able to handle the challenges of having a wide reach.

“Most of our expenses are in Singapore, the Philippines, and the U.S. – the three countries where we have employees and other operating expenses – while our customers could be paying in Australian dollars, U.S. dollars, Euro, etc.”

Patrick says that they are greatly affected by currency fluctuations and that they have learned early on that ensuring both sides are protected from it is very important. He gives the example of their first year of operation wherein 50 per cent of the customers come from Australia.

“When the Australian dollar depreciated substantially, it hit our business. Since we operate under a TaaS (talent-as-a-service) pricing model, imagine getting paid a fixed subscription price in Australian dollars, but then having most of your expenses in U.S. dollars or Philippines pesos. If you’re talking about a few dollars and the price of a sandwich while you’re on vacation, it doesn’t seem that big. But when you start to talk about monthly transactions of hundreds of thousands of dollars, it adds up.”

It’s all about managing operations and trying to find out the best way to minimise the impact of these fluctuations, Patrick says.

“We had to tweak and re-evaluate how we handled all these currency fluctuations – it was a great learning experience for an early stage company still figuring out the best way to deliver our product and services.”

These challenges are a few of what businesses going global would face and it would be best if they prepare for it. Financial operations, when not planned and prepared for, can be costly for the company. Dealing with multiple currencies, opening local entities, or even just opening several bank accounts with different currencies can put a strain in a company’s finances and operations, especially companies that are in the early stages of expanding.

A solution such as DBS Bank’s Multi-Currency Account can address these issues, as it let companies transact in 13 different currencies under one account without any worries about fluctuating exchange rates or hefty maintaining balances.

Global is where businesses everywhere are heading, and while the way there is fraught with challenges, trials, and setbacks, startups can look to how these four companies who began with global in mind from day one are continuously growing.

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