Staying optimistic key to surviving tough times

The global economy will grow this year with a surging demand from emerging markets, according to the sixth annual American Express/ CFO Research Global Business and Spending Monitor survey which chronicles the trends for the year ahead. This is one of the best news that the industry could hear in recent years. I was glad to note that CFOs expect the upward turn in global growth will turn the wheels of fortune. In all this frenzy, the role of the CFO is only getting tougher.

Being a CFO has seldom been more challenging. More and more CFOs are distilling complex and voluminous data into clear, concise, easy-to-understand information that helps them and their companies to constantly improve the timeliness and quality of the reporting of financial results and managing business operations. Indian CFOs are highly value-minded who spend carefully. They want to improve their ability to deliver value to customers and extract value from suppliers.

In the gloom, the glimmer of hope is the optimism espoused by CFOs in India, who continue to be optimistic about India's economic expansion prospects. This, however, has dropped marginally compared to what they felt a year ago.

To adapt to the new realities, Indian CFOs are participating more broadly in the development of corporate strategy both as decision-makers and as interpreters of potential outcomes.

The good news is CFOs see immense value in increasing spending on business, if only to meet the customer. For instance, close to 63 per cent of Indian CFOs say their companies are likely to spend more on travel to meet with current or prospective customers over the next year, against last year. The focus on more travel throws up opportunities in the global corporate payment sector. After all, if not planned well, travel and related entertainment expenses (T&E) can impact the budgets adversely.

Gaining from efficient solutions
The needs of emerging large sized companies and their finance executives are met through better monitoring of spending, which helps improve process efficiencies, and achieve cost savings. It is in this context that corporate payment mechanisms come into play. Adopting a corporate payment programme is more than just asking the employees to use a card for T&E expenses. It enables the corporation to track every transaction, leverage the outflow to secure competitive pricing and increase savings. Other benefits include improved cash flow, tracking and auditing expenses and providing business insights based on the analytics that such a programme offers.

The expectations and experience of CFOs is helping them shift their roles from controlling costs to managing them efficiently. The demand on the CFOs has evolved into continually reshaping a company's finance and accounting (F&A) operating model. The challenges remain on account of following reasons:

• Growth: With developed economies focusing on their home turf, growth from global expansion is doubtful, so is increase in mergers and acquisitions.
• Regulatory concerns: New regulations and increased cost of compliance is a cause of concern
• Fluctuating exchange rates: With the dollar strengthening, other currencies, especially in the emerging economies, are susceptible to fluctuations impacting profits and balance sheets
• Capital markets: The equity and debt markets are volatile. Companies with high debt exposure are looking at ways to reduce their debt and be less exposed to balance sheet risks.

Spotting the green shoots
Despite concerns, I come across CFOs who are optimistic about the future of the economy and expect buoyancy to return to business soon. For instance, expanding market access - such as expansion into new geographies or lines of business - topped the list of key investment areas where respondents expect their companies to invest more than in the previous year. About 54 per cent of respondents in the survey plan to spend more on market access in 2013.

The Indian CFOs have distinct concerns that make their jobs much more difficult. For instance, unlike their global counterparts, who are facing slowing economies and volatile currencies, the Indian CFO is facing all that and more. The top concern for CFOs is the increasing tax burden, shrinking markets, reduced margins and increase in talent deficit and suitable hiring.

In the future, CFOs role will have a lot to do to facilitate adoption of scientific, data-driven practices by combining various tools and analytics. An expense management system is a tool that will help CFOs to channelise their energies in addressing other core business functions. They also need to adopt appropriate target operating models and ensure that their practices are scalable and cost-effective. The future belongs to companies that have CFOs who can combine the best of local and global resources.

Manoj Adlakha
General manager & vice-president, global corporate payments, American Express India

 

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Takeaways from the Sixth Annual American Express/CFO Research, Global Business and Spending Monitor
Top concerns for CFOs

• The Indian CFO is concerned about a range of potential and ongoing threats to business growth. A good 56 per cent of Indian CFOs agree they have shortened their planning horizon in the past two years and 75 per cent are likely to do so over the next year
• The top concerns for CFOs in India include increasing tax burden, shrinking markets, reduced margins and a volatile currency
• 34 per cent of the Indian respondents are most likely among their counterparts in the Asia-Pacific region to exercise control over their spending
• 31 per cent of the Indian CFOs are looking at increasing sales within their domestic markets, while 56 per cent will seek growth through exports. In contrast, 53 per cent of respondents in the US are focusing on increasing sales within their domestic market
• 78 per cent of the Indian CFOs are optimistic about India's economic expansion over the next year, 63 per cent expect business travel spending to increase in 2013, mainly to meet with customers, 58 per cent are likely to use their cash reserves next year, for R&D, capital expenditure and paying debt

How expense management can help

• Consolidating and tracking T&E spends through a single payment vehicle provides the management with robust supplier-level data
• Consolidated spend data can be used to negotiate discounts or rebates with key suppliers, which can be optimised by reducing the number of suppliers
• A holistic travel policy detailing preferred suppliers, booking and approval processes and enforcement methods should be communicated well by senior management to employees
• Monitoring and compliance using reporting tools like enhanced MIS, companies can closely monitor adherence to T&E policy with visibility to compliance
• Additional savings and value reside deep within cost centres such as payables and business travel. Managing these areas better could yield additional value for companies
• CFOs who use expense management and position their companies to take advantage of the downturn will not only realise short-term benefits, but will also help companies do better when the economy improves