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HSBC Expert Opinions

HSBC Expert Opinions

"Mobilising" Global Resources --- Tailor-made Cross-border Financial Solutions for Small and Medium-sized Enterprises by HSBC's International Relationship Managers

Terence Chiu, Managing Director & China Head, Commercial Banking, HSBC (China) Company Limited

In the wake of China's increasing importance in the global economy, the expansion of Chinese companies into the global market has become an unstoppable process - Chinese business leaders are now an increasingly common sight in places such as Times Square, the City of London and the business districts of major cities in emerging markets such as South America, Africa and Southeast Asia. They are acquiring local brands in order to enter foreign markets, purchasing advanced technology to improve the quality of their own products, building factories overseas to reduce production costs and even selling Chinese branded products worldwide.

Over the past few years, large Chinese companies have been at the forefront of this process. However, many small and medium-sized enterprises (SMEs) have now begun to foray into the global market following their continued growth. While diversifying into a wider variety of businesses, SMEs are experiencing an increasing need for cross-border services. With a globally connected network, HSBC has a unique advantage to meet those needs. Our International Relationship Managers work together to maximise the use of resources across our network and in doing so have constructed a comprehensive and efficient cross-border financial services system. This enables us to provide seamless global solutions for our customers and create a favourable environment for cross-border acquisitions and investments. HSBC's International Relationship Managers seek to become "core partners" of these SMEs during their continued expansion into the global market.

Understanding "Differentiated" Customer Needs

Chinese SMEs are now moving on from the initial low-risk stage of going global, such as relying heavily on exports, OEMs and international subcontracting. Many of them are now branching out into more complex areas of international business, such as establishing subsidiaries overseas, acquiring overseas brands and conducting small-scale mergers. For SMEs in particular, this necessitates a new strategic direction with branding and technological innovation at its core. They must balance short-term and long-term development in order to ensure their continued expansion into the international market.

Unlike large companies, one of the challenges facing SMEs during their process of internationalisation is the lack of a dedicated in-house team of experts that can plan the company's global strategy. They also lack a professional finance department that can effectively handle financial jobs such as cross-border trade finance or payment and settlement. Most SMEs rely on banks to provide them with appropriate financial services based upon an accurate understanding of their global business needs. For this reason, our relationship managers frequently organise events to share successful experiences of cross-border financial management for smaller enterprises. In addition, they invest a large amount of time and energy every day in acquiring an in-depth understanding of issues such as the financial robustness of SMEs' cross-border trade counterparties and the latest monetary policies and economic trends in different countries. By considering these factors plus the company's current business performance and its future strategic plan, our relationship managers are able to accurately identify the company's specific financial needs for its cross-border business.

"Tailor-made" Financial Solutions

While enjoying assistance from HSBC's International Relationship Managers during their global expansion, SME customers also benefit from support jointly provided by HSBC experts across various departments such as Global Payment and Cash Management, Global Trade and Receivable Finance, and Global Markets.

These experts are good at formulating a complete set of cross-border financial solutions tailor-made for the needs of SMEs. This includes a secure and efficient payment and settlement process for cross-border trade, cross-border cash management services and a sound set of foreign exchange hedging measures.

For example, if a Chinese SME wants to acquire foreign technology in order to improve its own products, our local relationship managers can offer comprehensive local investment guidance and advisory services for the customer. Relationship managers from HSBC China can assist the SME in finding feasible financing solutions such as bilateral and syndicated loans and long-term bonds. A tailor-made set of financial solutions most suited to the customer's actual needs can then be formulated in order to minimise its cross-border financing cost.

HSBC has already established a number of China Desks with Chinese-speaking staff at many of its outlets worldwide. In addition to understanding customers' local business performance, staff at these China Desks can also coordinate with their colleagues in HSBC China to provide Chinese SMEs with further expert advice on the expansion of their overseas business.

Thanks to our global connectivity and rich experience in cross-border business, HSBC's International Relationship Managers are uniquely positioned to serve our customers. Moreover, HSBC will continue to develop more innovative financial solutions in accordance with relevant policies and customer needs in order to support SMEs' global ambitions.

The HSBCnet Platform – "Simplifying Business"

In order to improve the environment for SMEs' global expansion, HSBC has been mobilising its local and global network of resources. This enables us to find appropriate innovative solutions for SMEs to better support their overseas business development.

SMEs place a high premium on all of their cross-border transactions. In light of this fact, HSBC established HSBCnet, a cash management platform for cross-border transactions. This system allows each SME to access all of its HSBC accounts and transaction details worldwide with a single login. In order to strengthen account security, HSBCnet can also provide different levels of user access according to the company's needs.

With HSBCnet continually upgraded, we will also provide SMEs with a host of other services to simplify their business. An increasing number of SMEs are now utilising financial tools to forward-looking and systematic financial plans for the expansion of their international business.

Ensuring a Successful Global Strategy

SMEs' global expansion is a continuous process. Any company wishing to succeed in the international market needs to create a strategically relevant and feasible model for its global operations, incorporating aspects including corporate culture, management, business processes and human resources.

In order to help SMEs achieve this goal, our relationship managers strive to gain an in-depth understanding of business owners "both inside and outside their offices" and think in the interests of our customers to assess how the companies should penetrate into global market. They also provide day-to-day guidance for customers, especially with regard to "removing" risks in cross-border finance. These include risks such as the general lack of understanding by SMEs about the financial robustness of their counterparties in cross-border trade, resulting in delayed payment; insufficient calculation of foreign exchange risks, leading to exchange losses, or inappropriate trade finance arrangements forcing the company to accept high interest rates.

Of greatest concern for SMEs is the sudden introduction of foreign exchange controls in a country where their counterparty is located, indefinitely postponing payment. Many SMEs are also concerned about the exchange risks associated with RMB appreciation. For this reason, HSBC has been committed to promoting RMB settlement for cross-border trade and investment worldwide. By using RMB settlement, SMEs can effectively avoid these currency fluctuation risks.

HSBC will fully support SMEs during their global expansion by providing them with innovative solutions most suited to their needs. By assisting SMEs with the development of their international business, we will help to ensure that SMEs not only "go global" but do so successfully and sustainably.

The "Takeoff" of Global Trade for SMEs and "Seamless" Financial Solutions by HSBC

Rachel Li, Country Head of Business Banking, Commercial Banking HSBC (China) Company Limited

With China rising to become a major trading nation, Chinese SMEs are accelerating the expansion of their global business, trading with both developed economies like Europe and America as well as emerging markets in South America, Southeast Asia and Africa. By engaging in trade with foreign companies, these SMEs are not just selling Chinese products to markets across the world but also buying large quantities of raw materials and quality goods.

One of the challenges SMEs face when expanding their global business is their lack of a professional team to deal with the financial issues associated with cross-border trade, such as financing and management of foreign exchange risks. As a result, they rely on banks to acquire an accurate understanding of their business needs and provide them with the financial services they require.

As a matter of fact, companies that come to HSBC all have their own individual financial needs. Some hope that HSBC can help with trade finance for their cross-border transactions; others seek assistance in order to minimise foreign exchange risks, whereas some are attracted by HSBC's global network and the assistance it can provide in establishing a secure and efficient cross-border payment and settlement system. Our global relationship managers offer much more than individual financial solutions - they provide a comprehensive system of professional financial services for cross-border trade in addition to a whole array of seamless global services. Their mission is to become "core partners" for SMEs during the expansion of their international trade, helping them not only "go global" but also do so successfully and sustainably.

Diverse Solutions for Trade Finance

Capital is the "blood" of any business - hence financial support is indispensable for SMEs' expansion into overseas markets.

Shanghai Swan Import & Export Corp. Ltd. (hereinafter referred to as Shanghai Swan) is a manufacturer and trader of quality clothing. Established in 2004, the company's annual sales volume now exceeds $45 million, half of which comes from its own manufactured goods.

Following a steady increase in its international sales, the company starts to come under financial pressure. Overseas buyers are extending the payment period to 90 days for some large orders while the company needs to complete the procurement of raw materials within 30-35 days upon receiving overseas orders. In order to maintain a robust cash flow for day-to-day operations, the company has to rely on trade finance.

After in-depth consultations with the company, our global relationship manager ascertained that the letter of credit approval process needed to be made much more efficient. Some of the company's overseas customers are also HSBC's corporate clients, meaning that HSBC could more easily authenticate letters of credit, significantly streamlining approval for trade finance. The HSBC global relationship manager then devised a tailor-made set of trade finance solutions, including factoring services.

These factoring services have enabled Shanghai Swan to gain quick access to capital, facilitating the prompt payment for materials sourced from upstream suppliers. Furthermore, by looking at HSBC's factoring approval process, the company is also able to better understand the payment ability of its overseas buyers.

However, the financial needs of globalising SMEs are not limited to trade finance only. As trade growth far outpaces the increase in their working capital, SMEs often need additional financing support from banks in order to purchase the machinery they need for ramping up production capacity.

Shanghai Bestwin Petrochemicals Co., Ltd (hereinafter referred to as BESTWIN) is an importer and exporter of fertiliser and sulphur with an annual sales volume of over 30 million USD. Following annual growth of 20-50% in its trade volume, the client needs extra liquidity to finance the increase in sales. This need was identified by one of our global relationship managers, who subsequently conducted in-depth discussions with the client in order to determine the optimal financing solution. BESTWIN followed the recommendations of the relationship manager by applying for a loan with HSBC in order to ensure financial stability for its day-to-day operations and secure more overseas orders. Thanks to the loan provided by HSBC, the client now enjoys both stable growth in sales and an excellent reputation in its industry. In addition, HSBC has established a solid basis for cooperation between the client and its counterparties in China and overseas - not to mention the win-win outcomes for both the client and the bank itself.

Targeted Measures for Minimising Foreign Exchange Risks

In order to facilitate SMEs' entry into the global market and reduce foreign exchange risks, HSBC boasts a team of experienced currency experts that work in coordination with our global relationship managers.

Shenzhen Ruizi Light Electricity Technology Co. Ltd. (hereinafter referred to as Shenzhen Ruizi) is a producer and exporter of LED energy-saving light bulbs, with an annual sales volume of approximately 80 million RMB. Before the company became a client of HSBC in 2010, it knew little about forward exchange contracts, often vulnerable to large fluctuations in exchange rates. Thanks to the support from HSBC, Shenzhen Ruizi has been able to use forward exchange contracts to effectively avert foreign exchange risks. The company's senior management members frequently attend presentations organised by HSBC in order to keep up to date with the latest developments in the currency markets and obtain recommendations on how to avoid foreign exchange risks.

Our global relationship managers also invest a large amount of time and energy in acquiring an in-depth understanding of the needs of SMEs and ascertaining their detailed trade payment schedules. Based on this information, relationship managers then devise a portfolio of solutions for SMEs in order to minimise foreign exchange risks, including measures such as forward exchange transactions, currency options and structured products. In the case of Shanghai Swan, the majority of its trade counterparties are located in Europe. In recent years, the Euro/RMB exchange rate has been subject to significantly higher fluctuation than the RMB/dollar rate, resulting in increased foreign exchange risks for the company. The company needed expert advice on how to control these risks. After in-depth consultations with HSBC's currency experts, our global relationship managers devised a tailor-made set of foreign exchange hedge solutions for the client.

Refining Financial Management

The expansion of an SME's global business is a complex technical process, especially in terms of international trade. Several factors have a direct impact on a company's ability to increase trade with foreign counterparties - establishing a secure and efficient payment and settlement system, making appropriate financing arrangements and accelerating the approval process for the company's use of capital.

In order to help SMEs successfully fulfill their global ambitions, HSBC has mobilised its domestic and international network of resources to create HSBCnet - a management platform for cross-border finance. In addition to meeting the various financial management needs of SMEs, the platform also helps companies to continue optimising their financial management processes.

Shanghai Swan has benefited greatly from the convenience of HSBCnet. The company has been able to import all foreign buyer data into the system, facilitating the lookup of information and eliminating the tedious task of repeatedly entering data. Within the HSBCnet system, our corporate clients can also look up all letters of credit, foreign exchange payments and spot transactions, all of which are now following significantly simplified approval procedures.

The HSBCnet system has also helped BESTWIN to enhance its financial management. In order to facilitate international trade, an offshore company was established in addition to its domestic entity. In the past, BESTWIN had to look up transactions separately for its domestic and foreign accounts, but the HSBCnet system now enables the company's managers to view both accounts with a single login. Different levels of user access can also be provided according to the client's needs.

For Shenzhen Ruizi, HSBCnet has enabled the company to reduce the risk of payment default in international trade. The company currently sells its products to countries as far away as Germany, New Zealand, Mexico and Finland. When negotiating trade contracts with foreign counterparties, one of the company's concerns is insufficient knowledge of the counterparty's ability to pay, inadvertently resulting in the risk of default. Thanks to the assistance provided by HSBC global relationship managers, the company has discovered that their counterparties are also HSBC clients - this means that both parties are able to use the HSBCnet system to effect payment, automatically reducing the risk of default.

HSBC's global network, the connectivity between its teams onshore and offshore and the bank's rich experience in cross-border services all serve to ensure that HSBC global relationship managers possess a unique advantage in terms of client service. In order to help SMEs better expand their global business, HSBC will continue to develop more innovative financial services based on relevant policies and client needs.

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