CFO Insights - Page 3

The Rise of Cross-border Commerce: How Businesses Can Keep Up

Published on
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1 February 2023

As consumers’ desire to make international purchases increases year after year, businesses must become smarter, faster, and more adaptable than before.

Nearly 20% of all e-commerce transactions are predicted to be international by 2023. The rise in the proportion of international buyers who will make cross-border purchases is perhaps even more astounding – by 2023, around 45% of consumers worldwide will be actively making such purchases.

But what does this imply for merchants and brands? What effects will this have on manufacturers? As consumers’ desire to make international purchases increases year after year, businesses must become smarter, faster, and more adaptable than before. Currenxie and Michelle Chia, Co-founder of MDADA provided their expert insights on some of the trends in cross-border ecommerce and what to anticipate in 2023.

Impact Of Cross-border Commerce On The APAC Region In The Last 3 Years

The Asia-Pacific (APAC) area is home to some of the world’s most inventive, vibrant, and quick-moving cross-border commerce markets, including the biggest one. Cross-border commerce is expanding in Southeast Asian nations. Indonesia, the Philippines, Malaysia, and Thailand are a few of the prominent nations in this region. Online transactions are still rising in these and other bordering nations. The market has undeniably been more competitive over the past three years as a result of new competitors consistently entering the market and established competitors increasing their skills. This has resulted in innovative developments and sustainable possibilities. An example of such innovative developments would be the availability of unique payment options like “Buy Now, Pay Later”.

“With the rise of cross-border commerce, digital merchants are increasingly finding themselves under pressure to provide services that are fast, frictionless, and tailored to customer preferences. This means that digital merchants must familiarise themselves with local customer shopping and payment preferences, especially as each market is different, and consumers have their own favourite payment method. In developed markets, consumers rely on credit and debit cards, whereas developing markets in Asia prioritise e-wallets and cash. Understanding their consumer purchasing trends is critical for digital merchants looking to create positive shopping experiences”.

– Arvind Swami, Director, FSI, APAC, Red Hat

Evolution Of Cross-Border Commerce In The Future: Key Aspects To Prioritize

The rise in cross-border commerce has been very beneficial to companies in the Asia Pacific region. During the pandemic, the rise in consumer demand and online shopping behaviour only accelerated this cross-border growth. For many businesses these last few years, the pandemic presented an opportunity to tap into online sales and digital marketplaces for the first time. Others, who were already established online, were now able to take advantage of the situation to strengthen their online presence and capture greater market share.

Today and moving forward, however, concerns around the state of the global economy and rising interest rates are causing cross-border companies to struggle to find a balance between supply, demand, and costs. How much should you keep in inventory? What about cash flow and logistics planning? This is felt most by the merchants managing their own supply chains and inventory. Marketplaces will suffer if Gross Merchandise Volume (GMV) drops, but they will continue to generate revenue as long as merchants pay listing and transaction fees.

A lot is up in the air right now, such as when interest rates will flatten and whether many countries will face recessions in 2023. The Buy Now Pay Later (BNPL) trend is also slowing down which may further dampen consumer spending. While many experts will try to predict what comes next, it’s imperative that companies in this space do what they can to stay relevant, continue to adapt and readily tap into new cross-border markets when opportunities arise.

– Sam Coyne, CMO at Currenxie

With consumers leaning towards transacting in a digital manner, merchants and marketplaces will continue to focus on embracing new payment options. Country regulators are also stepping in, so as to make cross border transactions more frictionless. Hence, we believe that merchants and marketplaces will increasingly look towards leveraging technology & platforms which provide them with agility, security, scalability, and the openness to leverage the wider payments ecosystem. 

– Arvind Swami, Director, FSI, APAC, Red Hat

Social Media’s Contribution To The Rise Of Cross-Border Commerce

Cross-border commerce sees a continual growth year after year with a boom during the pandemic period partly due to social media. When lockdowns were in place due to the pandemic, people from all over the world utilised social media platforms like Tik Tok to post reviews about their online purchases and it influenced others to make purchases from businesses in any part of the world. 

It appears that everyone was utilizing social media more frequently than usual in the wake of the COVID-19 pandemic. People were  using it to stay in touch with their loved ones, spread critical information or safety precautions, and find humor during those trying times of the lockdown. E-commerce sales inevitaby increased as a result of COVID-19. Online shopping is nothing new, but because of the COVID-19 pandemic, many brick-and-mortar stores have all but been replaced by ecommerce.

With worldwide shipping, it is now possible for people to easily purchase items from countries like the US, UK and Europe without having to get on a flight to do it. With social media users learning of new products everyday, businesses can expect purchases from international consumers on a daily basis. With this growth, many businesses are starting to not see a need in having a physical store and instead, they would much rather invest in an online one. 

“The high social media penetration rate across the Asia Pacific region contributed to the rise of cross-border social commerce. In Singapore, for example, the live-streaming business has taken off in the last 3 years. Some brick-and-mortar retailers have also turned to live streams to overcome pandemic-induced challenges. Seamless transactions process and quality control are the keys to matching consumers’ expectations. We believe cross-border live-stream is definitely here to stay and will become increasingly important as consumers will no longer be satisfied with shopping through websites and will build expectations for it.”

– Michelle Chia, Co-founder of MDADA

Rising Customer Expectations

The increased use of social media also reflects the rising expectations of customers. Customers in 2023 anticipate a straightforward, practical, entertaining purchasing experience. They desire the ability to track their orders, make purchases through various channels, and get real-time updates on the progress of their delivery.

E-commerce companies need to foresee customer expectations and fulfill them if they want to keep up. Direct communication and indirect research are the greatest approaches to achieve this goal. For instance, post-purchase surveys, social media monitoring, and direct contact with the support staff are all methods for gathering data about client expectations and grievances. Businesses must comprehend the major complaints of their customers and develop solutions in response to their input.

One pertinent issue with cross-border commerce is payment options. Every country has their own payment services, currencies and banks. What ecommerce companies should do is find a way to provide a payment option that is convenient, accessible and feasible for their international consumers. The only way to get this done is by doing research and collaborating with Fintech companies that will allow businesses to reach a wider audience. 

Challenges Surrounding Cross-Border Commerce

Global businesses will face a mix of challenges in the coming years. Balance of supply and demand, being one. Operational efficiencies, given the flux of the global economy, being another. For example many businesses are currently expanding their sourcing in Vietnam and India, following China’s long pandemic lockdown. It’s not clear yet whether this will reverse in the near future.

The cost of cross-border commerce is also not going down and cash flow will need to be meticulously managed. Businesses will need to mind their fixed and variable expenses. Streamlining the cost of collecting and sending payments across borders helps protect margins.

Inflation and recession are obviously forefront in terms of concern and at the heart of the challenges businesses are facing in the coming year. Businesses are also faced with the lingering impacts of more than two years of shipping disruptions and component shortages around the world. While transportation rates are coming down, disruptions and shortages are still common, and there is still a notable amount of uncertainty that businesses must contend with in the coming year

– Sam Coyne, CMO at Currenxie

The Asian payments landscape is fragmented, as the widespread adoption of digital payments and push for cashless transactions has led to the rise of multiple digital payment service providers across the region. In fact, a McKinsey report noted that there were over 150 wallet licences being issued in Southeast Asia, and there are also numerous debit and credit cards available for consumers looking to make purchases online. 

However, this makes it a challenge for digital merchants to adopt and integrate in a secure manner, as many of them are non-interoperable. With hundreds of payment methods being used across the region, this adds cost and complexity for businesses, making it difficult to offer fast and frictionless experiences to consumers.

– Arvind Swami, Director, FSI, APAC, Red Hat

The cross-border commerce sector will keep expanding in 2023. Organizations should anticipate increased obstacles in 2023 as a result of the business environment’s ongoing change and fast-paced nature. As businesses work to satisfy customer needs, consumer behavior will continue to evolve, supply chain disruptions will occur more frequently, and operational inefficiencies will increase. Additionally, the distinctions between online and offline shopping will become increasingly hazy. However, companies who follow these trends will be able to take advantage of possibilities to increase income and drive up sales.

2023 Edition: What Matters In Budgeting & Forecasting?

Published on

30 January 2023

The conventional approaches for creating forecasts have been rendered obsolete by the combined effects of COVID-19, global supply chain disruptions, the war in Ukraine, and skyrocketing inflation.

Forecasting financial success is a difficult task especially with the past several years having seen extraordinary risk and volatility. The conventional approaches for creating forecasts have been rendered obsolete by the combined effects of COVID-19, global supply chain disruptions, the war in Ukraine, and skyrocketing inflation. At a time when understanding potential future performance has never been more crucial, techniques including trend analysis, variation to budget, and rolling projections have been found to be insufficient.

The most valuable forward-looking duty for a management accountant is essentially creating reliable predictions of future financial performance. Forecasts are used by chief financial officers (CFOs) to create plans, select the best resource allocations, inform stakeholders of expectations, and define internal performance and pay goals. It is disheartening that forecast quality and accuracy have not increased proportionately despite recent significant investments in technology, data, and analytics.

There are numerous justifications or even excuses offered for the difficulty to produce precise forecasts. However it is an obvious fact that that the future is simply unknown. Explanations include unusual market conditions, quicker or slower adjustments in important indicators, or shifts in consumer behavior. All of them make sense, but they are not the only causes of forecast errors. Other elements that may reduce forecast accuracy are:

  • Forecasting to budget: Organizations spend a lot of time creating extremely precise budgets, which are frequently used as the foundation for determining compensation structures. Budget deviations are recorded and examined each period. Managers are under stress to make necessary changes so that the organization can later on in the year “come back on budget.” This can result in a forecast model that artificially manipulates statistics to produce a conclusion that closes any budgetary variation, regardless of whether such changes are feasible or realistic.
  • Failure to comprehend the forecast’s goal: For a prediction to be meaningful, it must be an unbiased assessment of how the organization anticipates the future will pan out, based on the greatest knowledge at the moment. Forecasts, unfortunately, frequently reflect business leaders’ idealized vision of the future rather than what they truly believe it will look like. Plans and budgets may be aspirational, but for forecasts to be believed, they must be logical.
  • Corporate Bias: Often, accurate projections are made utilizing the best data and analysis available, only for management to make a few “top line” tweaks that are not based on data or analysis but rather serve to depict the desired conclusion.
  • Ignoring risk and uncertainty: Since it is impossible to predict the future with accuracy, it is useless to create a forecast that offers a single perspective on it. However, a disproportionate number of projections are based on a single set of assumptions that exclude alternative hypotheses and well-known risk factors.

Looking ahead to 2023, it is wise to consider how forecasting might be strengthened to produce results that are appropriate for the situation. Following that, the following are some essential steps in a successful budgeting and forecasting process:

Assessing Current Year-to-Date Performance

Companies need to comprehend the present in order to precisely predict the future. Business leaders need to assess their say:do ratio, operational strategies, and KPIs and metrics for the first half of the year to determine whether they are being reached. Were the objectives over or under-achieved? Businesses will require this context to properly inform their upcoming financial projections and goals. Recall that the forecast and budget are merely expressions of the company’s operational and strategic intentions. The budget will be guided by determining the who, what, where, when, and why of the business activities.

Re-examining The Business’ Long-Range Plan

Long-term planning is a crucial tool for outlining not only the future vision, but also the associated goals and plans to achieve those goals. As a result, businesses should work with their CFO and CEO to utilize their long-range plan (LRP), also known as a target operating model (TOM), in order to give direction to the rest of the executive team. Verify that the business plan has not fundamentally changed and that this high-level guidance accurately depicts the company’s growth rates and matching investment levels. The long-range plan’s implementers must comprehend not only the aims, outlooks, and financial implications it includes, but also how everything will be executed.

Explicitly addressing risk and uncertainty

To convey the effect of uncertainty and variability on important variables, business leaders should look into using sensitivity analysis and scenario planning. Four important variables (inflation in raw material prices, exchange rates, shipping costs, and rival pricing) that might significantly affect future financial performance should be developed into projections so that companies can determine through time that one of these four variables is the primary cause of roughly 90% of forecast variations. The range of potential future financial outcomes under various conditions can be understood by the company by producing alternative forecast views under various assumptions for these four factors.

Communicating confidence levels

Not all forecasting data is created equal. Some figures, like costs that are quantified in long-term contracts, can be predicted with a high degree of reliability. Others are exceedingly challenging to forecast accurately, and they are often regrettably highly substantial things like sales. Many organizations share their degree of confidence for each forecasting component so management is aware of potential areas of uncertainty. There are several ways to accomplish this: Use ranges, with a wider range denoting lesser confidence and a narrower range denoting greater confidence, to express confidence, for example, green for high and red for low.

Planning For Multiple Scenarios

Instead of trying to get things perfect, “scenario planning” should be the main focus. Business executives must identify and challenge the underlying presumptions underlying their business model, market, regulatory framework, and consumer behavior. To create the organization’s response to the shifting conditions, pose hypothetical questions. Be very cautious when considering dogma or anecdote to be the final authority, and be sure to inquire even about what are actually accepted as industry best practices. Create a healthy mistrust of the fundamentals since they might be moving under our feet.

The crucial elements for preserving, growing, and accelerating the health and well-being of the company are what are defined, assessed, and developed in the plans based on the scenarios. Therefore, businesses should begin by considering the value chain for their organization and the crucial dependencies across all aspects of the business, including external relationships, customers, suppliers, regulatory agencies, and more. The value chain is defined as all the activities required to develop a product or service. Business leaders might want to consider a wide range of factors that go into the scenario that depicts a circumstance.

While some scenario planning variables will take macroeconomics into account, others will be regional and sector-specific. Include both long-term viewpoints for the following three to five years as well as both short-term perspectives for the upcoming year. The best case scenario planning should be coordinated with a company’s capital allocation strategy. Examining the balance sheet and the profit and loss statement should be done while forecasting. Capital allocation strategies will aid businesses in prospering after a period of turbulence in addition to managing liquidity.

Why Automating Treasury Processes Is A Must?

Published on
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26 January 2023

As new solutions arise in response to technological advancements and shifting company needs, the digitization of treasury operations is a must.

Although ensuring effective use of cash throughout the organization has always been a key priority for corporate treasurers, they have become more critical about maintaining transparency . Treasurers have to make sure their organizations had adequate liquid assets to endure repeated lockdowns, interruptions in the supply chain, and a drop in client demand. After three years into the pandemic, an evaluation is now necessary. How far have businesses come with treasury centralization? What obstacles to process automation still exist, and how may future collaborations between banks and fintechs help to overcome them?

Undoubtedly, the pandemic served as a wake-up call for many treasurers, but it is now more important than ever to provide visibility over and access to funds. The conflict in Ukraine, the sanctions that were imposed on Russia, and the continued COVID limitations in China are all causing supply chain delays for businesses globally, which has an impact on the demand for working capital and liquidity.

In order to free up time to focus on more strategic activities and business partnerships, the treasury function must continually improve automation. This is especially true as we move into a period of renewed geopolitical and economic uncertainty. Automating processes from beginning to end takes time.

Where To Start

To automate treasury activities, a wide range of solutions are available, including bank connectivity, file formatting, cash flow forecasting, data analytics, in-house banking, bank account management, receivables reconciliation, and fraud prevention. Given the variety of suppliers on the market, the variety of choice may seem confusing, but as the financial technology sector develops and grows, it is getting easier to recognize and obtain new capabilities.

To supplement their treasury management system (TMS), enterprise resource planning (ERP), and/or banking systems, some treasurers will still look for and use specialized technologies. However, to enable automated processes and better decision-making, TMS and ERP suppliers have either created or acquired specialized capabilities, or they have collaborated with other providers to achieve this.

The issue facing treasurers is not what they can automate, but rather which task they ought to take on first. Typically, a problem statement like: Which tasks use the most time or resources informs the priorities for automation. Which procedures are most vulnerable to fraud, mistakes, and omissions? What initiatives is the Treasury looking to embark on but cannot fund with its current resource base?

Automation In Practice

For treasurers, projecting cash flow accurately and on time has been a persistent problem that frequently ranks first in industry surveys. Data is frequently kept by numerous teams within the company, each of which has a separate system to create files in a variety of formats. By the time this process is finished, the report may only be of limited value because compiling this data frequently requires time and physical labor.

Therefore, firms must collaborate with technology partners to create a cloud-based, SaaS solution that aids in financial team decision-making. Given that the goal is to apply predictive analytics and AI models to optimize organizational processes, such a system provides real-time visibility over transactions and even goes beyond cash flow forecasting. In order to provide services like working capital optimization, FX hedging suggestions, end-of-day liquidity forecasting, and performance against environmental, social, and governance (ESG) indicators, the solution retrieves data from clients’ ERP and TMS and consolidates it with bank data and data from third-party data vendors on a single platform.

Up until recently, billing receivables reconciliation was frequently a manual or semi-manual procedure, which posed less of a challenge when resolving a small number of high-value transactions. The cash flow dynamic changes from sizable wholesaler and distributor payments to a high volume of little and micropayments as businesses adopt direct-to-consumer (D2C) business models. In order to enable real-time fulfillment and continuous service delivery, these must be quickly reconciled.

As a result, technologies are required to automate the reconciliation process, frequently leveraging AI and ML to generate clever matching criteria. Working with a third-party fintech provider to use their service offering for an integrated, rule-based auto-matching capability is an illustration of this. In addition to providing an intelligent, ML-based matching engine, this combines various payment methods and data sources. It also automates file conversion and optimization for import into ERPs. It gives treasurers a thorough, up-to-date, and precise view of reconciled cash flows to manage liquidity, while business teams may continue to offer customers access to goods and services without interruption.

Continual Digital Transformation In 2023

As new opportunities and solutions arise in response to technological advancements and shifting company needs, the digitization and optimization of treasury operations and decision-making is an ongoing process. When used outside of the finance department, i.e. when combined with an enterprise’s sourcing and distribution value chains, some more recent technologies, such as blockchain and distributed ledger (DLT), have the potential to completely change how treasury processes and transactions are carried out. Although they are still uncommon in the treasury sector, blockchain-based solutions like smart contracts are becoming more developed.

With the possibility for real-time, transparent processes and transactions, these technologies that support AI, ML, and API-based connection will eventually become more common, making the distinctions between finance, procurement, and fulfillment processes less rigid than they were in the past. Treasurers can further streamline and improve the efficiency of their operations and the quality of their decision-making by collaborating with their banks and technology partners, remaining informed of emerging fintech prospects, and becoming an even more valuable partner to the business.

Leading Finance Teams In The Next Decade

Published on
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25 January 2023

By reducing absolute costs and redistributing effort toward more value-added activities, effective finance teams serve as guardians of corporate value development.

Finance leaders will probably need to change their goals in order to reach the next level of effectiveness and efficiency in the financial sector. In offering higher real-time insights, reducing biases and human error, and accelerating workflows and decision-making, these two actions are extremely important.

It Is Time To Look Into More Than Simply Transactional Actions

The efficiency of transactional tasks, particularly those related to accounts payable, accounts receivable, and other key accounting areas, has significantly increased in many top firms. Although the majority of businesses have space for improvement, further efforts to increase efficiency will almost certainly result in decreasing returns as the cost base for these activities continues to decline. The more critical areas of finance, such as FP&A, optimizing capital structures, tax planning, controllership, internal audit, and financial-risk management, on the other hand, have actually seen fewer efficiency benefits. However, this seems to be about to change.

Machine learning and artificial intelligence (AI) are becoming more and more applicable to complicated jobs as computing power increases, building on the success of robotic process automation (RPA) and related technologies that automate transactional processes. Machine-learning algorithms and analytics are currently being used by one high-tech producer to assess financial and business continuity concerns. With the aid of these technologies, audits may now concentrate on the riskiest units while taking up less staff time overall.

The management discussion and analysis for a monthly operational review was also provided by a worldwide consumer packaged goods firm using natural language generation (NLG). With the help of this technology, structured data is transformed into insightful financial language that synthesizes and summarizes information. Highly skilled finance employees have more time to address concerns and pursue opportunities thanks to the automation of certain of the reports. The demand for professionals with analytical skills, such as data scientists and machine-learning engineers, has surged as a result of the growth of big data. The pool of talent is growing despite the fact that demand continues to outpace supply. This is due to higher salary, improvements in university computer science curricula, a rise in the number of free online AI resources, and private sector training efforts.

Advanced procedures and a competent workforce are combining forces to create an environment that will unlock efficiency in the value-adding sectors of finance. Following this directive, CFOs can:

  1. Focus on high-end automation instead of low-end automation. Few industry leaders are utilizing machine learning and related cutting-edge technology in “second-wave” automation use cases in capital allocation, financial planning, and audit rather than merely concentrating on mature, first-wave automation approaches like RPA. However, it is important to recognize the intricacy of these technologies. Many businesses have had trouble using AI. To find the best use cases for new technologies, CFOs must heavily invest in their pilot programs and be ready to pivot if their initial efforts are unsuccessful.
  2. Utilize staff time spent on value-added tasks more effectively. The optimum use of the time of the finance team should be to conduct analysis that influence actual business performance. By ensuring that requests for further information are based on a clear comprehension of a set of agreed-upon drivers of firm financial success, leaders can support their staff. CFOs might also establish detailed rules for how finance staff members should allocate their time. Consider imposing a rule that at least 80% of analyses should concentrate on prescribing future courses of action, as opposed to undertaking reactive analysis of historical data to explain previous performance.
  3. Sync up with the rest of the company’s use of AI and machine learning. Over the past few years, the technical environment has altered, with some platforms gaining prominence while others losing customers. A company-wide strategy on which technologies to utilize not only enables more targeted investments but also promotes more cooperation between the finance and other areas.
  4. Give employees in key positions the experience, mindset, and power they need to have an impact on the company. Even if cost reduction is a continuing priority, staff members still require ongoing skill development to effectively play the roles of advisors and counterbalances to top executives in directing the financial course of the company. For employees in senior FP&A and finance business-partnering roles, skill development is crucial.

Find Ways To Incorporate Additional Capabilities In The Finance Operational Model

In order to focus on the more urgent issues affecting their business, finance organizations are moving toward a new operating model that enables employees to change their job swiftly and dynamically. This necessitates not only a different method of task organization but also a different kind of financial specialist.

The new financial operating model starts from a leaner core, with tighter data standards, new data-management techniques, enhanced automation, and integration with a wide range of associated digital technologies, to reduce the work involved in operational operations. Several adjustments must be made in order to implement this paradigm. Create flat networks of teams instead of traditional hierarchies. The network model enables business partners in finance to access a pooled pool of analysts who are allocated to particular work items in accordance with clearly stated and accepted business priorities.

To provide deeper insights into company difficulties, mobilize temporary teams. The establishment of sprints to discover, create, and implement financial analyses that offer insights into business difficulties is one example of how agile working concepts are applied when building this capacity. Integrate digital capabilities throughout the finance department. Developing bot algorithms, leveraging analytics software, or understanding how to transform company data into useful insights are a few examples of these competencies.

Create a core of financially aware business leaders with the authority to interact with firm executives on a peer basis. Strengthening job rotations within finance as well as between finance and the business creates a pool of qualified individuals with easy access to other areas of the company. One automaker mandates that executives rotate through a minimum of two divisions, two financial departments, and two countries before moving up to senior positions. Senior finance leaders must rotate through non-financial positions at another automaker. The key distinction between the two scenarios is the focus on developing operational, leadership, and technical financial capabilities.

By creating a strict, open competency matrix, you may strengthen your financial skills. This thorough collection of standards enables managers and individuals to select between clear capability-building measures to support career advancement, helping to anchor talks about finance talent in objective criteria. For instance, advanced practitioners in a certain skill set would be obliged to devote at least 10% of their time to enhancing the abilities of other employees.

Create both formal and informal rewards for developing your skills. Examples include openly defining targets for internal promotions to pay for leadership roles, connecting incentives to knowledge and capability development, and publicly rewarding managers who grow their teams’ skills through coaching.

At the forefront of effectiveness, finance leaders provide much more than just the fundamentals of finance; their work daily directs how the entire organization operates. The next-generation finance function can develop the insights, performance, and planning capabilities leaders will need to support dynamic decision-making over the coming ten years by focusing on four key imperatives.

Addressing The Critical Skill Gaps In Indonesia

Published on
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10 January 2023

Digital literacy is essential for in the 21st century and although many ASEAN countries are nearing the peak of digital transformation, Indonesia is still lagging behind due to critical skill gaps in their workforce.

Lack of skills and inadequate infrastructure have been named as the primary causes of Indonesia’s lower labor productivity compared to other ASEAN nations. It was highlighted that Indonesia is known for having an excess of semi-skilled employees, and that the country’s education and training systems were failing to give students and job searchers the necessary skills to carry out the tasks that were available.

Digital literacy is clearly essential for Indonesia’s development in the twenty-first century. The nation’s yearly GDP growth rates have mostly stuck at 5% over the previous five years, despite having many of the characteristics thought to be favorable to rapid economic growth, such as a strong natural resource base, a young population, and an expanding services sector.

In recent years, Indonesia has started initiatives to accelerate digital skills among workers. On that note, let us take a look at the overall skilling rates of the country and the initiatives carried out by the government to upskill their workers digitally. 

At Current Skilling Rates, Digitally Skilled Workers Will Contribute US$134.5 Billion To The Country’s GDP In 2030

The economic contribution of Indonesian workers with digital skills is expected to increase based on current trends in the country’s adoption of technology. Workers in the technology industry and digital workers in non-technology sectors are anticipated to be the main drivers of this increase. Between 2019 and 2030, it is predicted that both types of workers will contribute more to the GDP. The corresponding GDP contributions of non-digital workers with digital skills in non-technology sectors, on the other hand, are predicted to increase by a relatively smaller but still sizable amount.

There are three key drivers behind these trends:

  1. Over the past five years, Indonesia’s technology sector has grown rapidly, and this trend is anticipated to continue. According to a recent study, Indonesia has the largest and fastest-growing Internet economy in Southeast Asia, with its Gross Merchandise Value (GMV) quadrupling between 2015 and 2019 at an average growth rate of 49% annually. An increase in employment in the technology sector has coincided with this sector’s expansion. According to this data, the number of workers in this industry increased by about 10% year between 2012 and 2017, which is nearly six times the average growth rate of 1.6 percent seen in non-technology sectors during the same time period.
  2. The number of digital professionals hired into non-technology sectors has increased in tandem with the rising adoption of digital technologies by these businesses. Similar to this, a 2019 research on Indonesia’s labor market shows a growth in the need for digital talent by businesses in these industries. Fintech professionals in financial services companies and e-commerce managers in retail businesses are two examples of “in-demand” digital occupations.
  3. Non-digital workers with digital abilities have also seen an increase in employment, albeit at somewhat slower rates than digital workers in non-technology areas. This is in line with more extensive research, which demonstrates that the nation has less capacity than other developed nations to cultivate and retain workers with digital skills. On the “Global Knowledge Skills” criteria, which heavily emphasizes digital skills, Indonesia was placed 84 out of 132 countries under the “2020 Global Talent Competitiveness Index (GTCI),” which rates nations based on their capacity to develop, attract, and retain talent.

At An Accelerated Rate Of Skilling, Digitally Skilled Workers Could Contribute US$303.4 Billion To The Economy By 2030

Even though the expected value of digital skills in 2030 is based on current trends, this value may grow significantly if Indonesia accelerated its rate of digital skilling to meet the current performance of global leaders. The country’s GDP contribution from digital skills could increase even more in 2030 under this “Accelerated” scenario.

It is anticipated that in the “Accelerated” scenario, non-technology industries will continue to contribute a disproportionate amount of GDP. Workers in digital roles make up a relatively minor portion of this, with the rest workers having non-digital roles but nevertheless needing digital skills to execute their tasks.

The estimated value of digital skills in Indonesia is split down by sector and reveals some intriguing patterns. The value of digital talents in the nation will reportedly be highest in the technology industry by 2030. It is not surprising that a large portion of the nation’s digital talent may continue to be centered in the technology sector given the current nascency of digital capabilities in the employment base of Indonesia’s non-technology industries.

When industries are evaluated based on projected growth in the value of their digital capabilities between 2019 and 2030, the picture begins to look very different, with Indonesia’s non-technology sectors projected to witness some of the highest rises. This is greatest in the professional services sector, where it is anticipated that between 2019 and 2030, the relevant GDP contributions from people with digital skills in that area will increase by over 10 times. Similar to this, it is anticipated that the value of digital skills will increase by 5.5 times in the financial services sectors, outpacing the estimated expansion of this value in the technology industry.

Key Trends Observed In The Financial Services Sectors:

Indonesian businesses are making more of an effort to hire IT personnel due to rising investments in technological solutions like big data analytics and automated compliance checks. According to a study of the job market in the industry, the growth of financial technology, or “fintech,” has increased the need for “fintech specialists” in financial services companies. Employers in non-digital roles are also expected to have a minimum of entry-level digital abilities that would enable them to use these new technologies efficiently.

Three Areas Of Action Will Be Needed To Fully Unlock Indonesia’s Digital Skills Opportunity

1. Equipping The Current Workforce With Digital Skills

It is crucial to make sure that Indonesia’s current employees have access to the appropriate resources to obtain the necessary digital skills training. In particular for MSME owners and employees, these include both basic and advanced digital skills such as the use of productivity software, web browsers, and other straightforward digital interfaces. 

There is a perceived dearth of both “hard” and “soft” digital skills in the nation. Thankfully, the government is taking steps to close the gap in digital skills. The Ministry of Manpower (MOM) has boosted funding allocation for “preemployment card” to assist laid-off workers, informal workers, and MSME owners as part of the national response strategy to the COVID-19 outbreak.

These cards have credit that can be used to pay for courses that will improve or update their skills. The MOM has highlighted that this will be a crucial component of their “three-part” skilling strategy, which includes “skilling,” or providing graduates with the work-ready skills they need to find employment, “re-skilling,” or increasing the employability of long-term unemployed workers, and “up-skilling” (enhancing the career options of temporarily unemployed workers). The Ministry of Industry created a list of training courses for business leaders, public servants, and vocational educators as part of the nation’s Industry 4.0 plan; however, given that this is a pilot initiative, the distribution of these courses has not yet been scaled up nationally.

2. Preparing The Next Generation Of Workers

It is crucial to start sowing the seeds for a future generation of flexible, tech-savvy workers now. This entails creating an education system that is flexible and sensitive to the evolving technological landscape as well as an ecosystem of initiatives targeted at equipping graduates with digital skills prior to their entry into the workforce. There have already been major efforts made in this direction by the Indonesian government. The government committed 20% of its state budget to education in 2019 to assist schools in educating and preparing their students for the new digital era.

These monies will be utilized to streamline curriculums, train new instructors, and educate soft skills.  The “Digital Talent Scholarship Online Academy” is a significant government project run by the Ministry of Communication and Information Technology. The school offers financial support and capacity-building programs aimed at providing online businesses with fundamental digital competences, such as cloud computing, network engineering, chatbot programming, and digital marketing, to expedite the digitalization of MSMEs during the COVID-19 epidemic. This program seeks to train 35,000 people from various demographic groups, including recent graduates, those with vocational degrees, and teachers of coding.

3. Broadening Digital Access To All

The importance of guaranteeing everyone’s access to opportunities for digital skill development cannot be overstated. To improve these neglected populations’ employability and capacity to gain from digital skills, targeted programs must be developed that are specifically suited to their requirements. This is crucial in Indonesia, where female, young, and rural workers have historically had considerably worse labor market outcomes.

To increase the inclusion of underprivileged communities in the workforce, the government is closely collaborating with business and civil society players. The “Online Academy” is a special training program for the “Digital Talent Scholarship Program 2019” that anyone can use to learn new digital skills. For instance, the “Open Distance Learning” initiative was put in place by the Ministry of Education and Culture to increase access to education for Indonesians living in rural and remote places.

Although these initiatives are essential to creating the momentum required to spread the advantages of technologies to everyone, they are currently being carried out on a small scale, and they frequently focus primarily on a small number of geographical groups. There is therefore potential for national policy measures to provide equal access to skill-building opportunities across the nation.

4 Key Areas To Consider When Effectively Managing Cash Flow

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9 January 2023

When done correctly, cash flow management can point out upcoming challenges and ongoing issues and help find solutions.

Poor cash flow can cause a business to collapse even when it seems to be succeeding. Additionally, even if inadequate cash flow does not put the company in danger, it may limit its ability to expand. Despite having a solid top line or consistent bottom line profitability, businesses cannot advance without cash. When done correctly, cash management can point out upcoming challenges and ongoing issues and help find solutions.

The company’s timely collection of accounts receivable is its primary source of cash flow. Businesses frequently lack or fail to adhere to suitable procedures for controlling their cash flow. Many businesses argue that their cash flow problems are not their fault and that they are the ones who are not getting paid by their clients. A company needs better clientele, better procedures, or a mix of the two if it is having trouble collecting its money. Companies will need to prepare for this if their clientele routinely makes late payments.

Aged receivables carry a significant danger of being written off, which has a negative effect on the company’s bottom line. However, aged receivables are not the only cause for poor cash flow. Poor cash flow management can hurt the company’s reputation and relationships with clients, employees, and subconsultants. If businesses want to avoid having poor cash flow, they should take a look at these 4 key areas; 

Reduce Spending

One of the more obvious strategies to improve cash flow is to cut back on spending. This is obviously easier said than done. But even a small number of cuts can have a big impact. To start putting this technique into practice, carefully review all of the company’s expenses. How much is spent on monthly expenses for electricity and office? How much money is spent on insurance, paying employees’ wages, and other expenses? Look for places where spending can be cut after doing some analysis. Additionally, it is crucial for businesses to look for alternative revenue streams.

Perhaps the business could sell a membership or subscription service, introduce a new good or service, or both, boosting their monthly income. Businesses may also want to think about purchasing energy-efficient, environmentally friendly equipment. Before committing to a recurring expense, such as a software subscription or equipment rental, businesses should weigh their options.

Create Additional Revenue Streams

Look for prospective locations to develop new revenue streams as a fantastic way to efficiently manage cash flow. Businesses can assess which of their products and offerings are already doing well in the market and come up with ideas for how to enhance them with new features or offerings. Companies may easily offer their customers more because they already have a customer base that is familiar with their brand and prepared to buy.

Choosing lanes that correspond with a company’s passion and area of competence is the first step in developing several successful revenue streams for that organization, as opposed to choosing what business leaders believe they should do according to market expectations. A company will stand out in the “noisy” sea of rivals by developing credibility and an appealing invitation to acquire customers. Business owners should have confidence in what they know, and customers will follow suit.

Repackaging and repricing current services to appeal to a different audience is another easy option to generate new money. One customer divided a day-long training program into smaller seminars that were provided over several months. That made it more acceptable to managers who could not take their employees away from jobs that generated income for a full day of training.

Offer Prepayment Rewards

Businesses can encourage their consumers to prepay a portion or their entire amount in front by providing a range of incentives, from discounts to extra products. Businesses can also use gift cards or other products to build a unique rewards program. Customers that prepay for large packages, services, or a number of items may be eligible for additional benefits. They will be motivated to stick around and keep on making purchases thanks to these incentives.

Every business believes that “cash is king,” and a company’s cash flow is its lifeblood. Therefore, it’s always a good idea to develop a customer incentives program that boosts cash flow. Businesses can increase their consumer base and foster brand loyalty by providing sales, discounts, and other unique perks. Additionally, businesses can make it even simpler to provide such prepayment rewards by automating and streamlining their present AP operations.

Keep An Eye On Your Inventory

Is a significant amount of the company’s cash flow going toward inventory? Although inventory may be a company’s lifeblood, owners shouldn’t want it to dry up their cash flow. Inventory management can give a diagnosis of a company’s health. After all, buying too many goods or materials and failing to sell or use them quickly enough could lead to a financial loss. Businesses may lose money if they underbuy their inventory and run out of everything just as orders start to come in.

Because of this, it’s crucial for firms to strike a balance between having too much and too little inventory and determining the precise amount that will suffice to meet customers’ needs. In order to maximize cash flow and reduce costs, how can firms manage their inventory investment the best? Businesses will need to classify their inventory into dead, slow-moving, and productive categories and handle it accordingly.

Dead inventory is stock that has been on the shelf for a while but hasn’t been moving. The company’s  inventory turnover ratio is probably being negatively impacted by this deadstock. It is pertinent that businesses m ake a speedy sale of any dead stock rather than keeping it on the shelves. Declare “unsellable” any dead stock that does not sell, and ask the distributor if they will accept it back.

Although slow-moving stock is still in motion and not dead stock, it might be headed towards obsolescence. The identification of slow-moving inventory may be challenging in the current economic climate. Due to the current volatile market, businesses that sell things have seen an unprecedented slowdown in their business. When examining inventory movement, such environmental elements must be taken into consideration.

Having said that, sluggishly moving goods lock up the cash in unsold stock. It has a detrimental effect on cash flow and profitability. If the business has investors, their return on equity will be reduced. Businesses  should check into businesses similar to their own, especially those in the same industry, to ascertain whether some of the inventory is indeed moving slowly. If the isolated item falls beneath the inventory turnover target that has been set for the products the business offers, those products can be designated as slow-moving. The company can then take steps to remove it from their shelves or warehouse.

Inventory that sells, increases revenue, and improves cash flow is considered productive inventory. Even if the productive inventory may have been sold slowly during this period of high volatility, it is still selling, and when the economy improves, businesses should notice a nice boost in the sales of their product inventory. Businesses must keep track of and confirm the productivity of the inventory they believe to be productive.

A company’s ability to create enough cash from its operations is essential to its ability to pay its bills, pay back investors, and expand. Cash is the lifeblood of a company. Even if a firm might falsify its profitability, its cash flow gives insight into its true state of health. Businesses can efficiently manage their cash flow by focusing on these 4 important areas.

The Key to Employee Satisfaction: A Better Salary or Flexible Benefits?

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6 January 2023

Clarence Zhang, Co-founder and Country Manager for Malaysia Mednefits

Employees are always motivated to stay in companies that best fit their career goals and offer the best employment packages. But between employee benefits and salary, which one brings more satisfaction to employees? To find out more about this as well as the key differences between how employees perceive the two, DigitalCFO Asia spoke with Clarence Zhang, Co-founder and Country Manager for Malaysia Mednefits  to get his insights on the topic. 

Global Shift In Medical Priorities For Employees In 2022

In 2022, the talent market continues to be challenged by the enduring after effects of the COVID-19 pandemic and rising healthcare costs that outpace inflation. According to the 2022 Employee Benefits Trend Report published by Mednefits, medical benefits are seen as an additional cost by 3 out of every 10 businesses. At the same time, we see an increasing proportion of SMEs view benefits as a way to generate greater employee engagement, and are starting to pivot away from just seeing benefits as a mere means of medical coverage policies. 

In 2022, we all know of The Great Resignation phenomenon where companies struggle to retain employees and attract new talents. Topics surrounding employee benefits, engagement and general welfare began to surface and became the mainstay in discussions between HR personnels and bosses. 

“There has also been a significant shift in employees’ needs, with a preference for non-medical needs on top of just basic hospitalisation and GP coverage,” says Clarence Zhang, Co-founder and Country Manager for Malaysia Mednefits. 

This alludes to the inherent limitation of the traditional benefits model which is evidently unable to keep up with the changing demands of today’s workforce. 

Salary Increments In 2023

“With the current economic outlook being highly uncertain, and many speculations of an upcoming worldwide recession, there has undoubtedly been a correction of talent flow within the labour market,” says Clarence Zhang, Co-founder and Country Manager for Malaysia Mednefits.

Salary increment is highly dependent on the job market performance, which will differ for each company in different industries, in the respective countries. Companies might find themselves considering other forms of compensation other than salary increments, such as an increase in the benefits package for employees. 

After all, flexible benefits are gains or profits, which could be monetary or non-monetary (but largely monetary), that an employee benefits from during employment. Therefore, this posits that there are still a lot of creative ways that a company can engage in to show that they genuinely care and wish to take care of their employees. 

If employees were to acknowledge and consider the increase in benefits as an aggregated increase in their monthly compensation, then it is likely that we will see salary increments rise to pre-pandemic levels in 2023 in well-performing industries because they will be finding all ways to attract and retain the best talents out there amidst a labour market that is experiencing a correction.  

Flexible Benefit Programmes To Retain Employees In The Long Run

There is an increase in demand by corporations for onsite events, as we’ve seen spending increase by 2 folds within the last 6 months. The proportion of SMEs viewing flexible benefits as a way to generate greater employee engagement is 49%, which is not very far off from the 60% we see in MNCs. 

Examples of such events or programmes include Health Screening, Optical Screening, Yoga programmes, Group Fitness Classes, and Health Talks (Topics range from within the Traditional Chinese Medicine realm, to Specialist education to better manage chronic diseases). For companies with a younger workforce demographic, we see financial literacy talks, breathing seminars, and mental wellness workshops being conducted as well. 

However, in order to better retain employees in the long run, companies need to consider more than just wellness-related onsite events and programmes. A flexible benefits package for employees should always be dynamic simply because the needs of employees differ based on age, lifestyle, lifecycle, job scope, etc. As such, corporate wellness programmes should only at best be considered as a cherry on top of the cake if the company has extra budget.

 Individualised Benefits In Improving A Company’s Financial Health

“The idea of providing individualised benefits to employees means that the benefits package is largely personalised for the employee to best suit his needs, which increases the benefits relevancy to him,” says Clarence Zhang, Co-founder and Country Manager for Malaysia Mednefits. 

Although this leads to an outcome that is seemingly contrary to what employers want – employees end up utilising more of their benefits and costing the company even more, what is happening here is the promotion of shared responsibility of a budget between employee and employer. This essentially shifts the control of budget from employer ONLY to employee AND employer. 

Shared responsibility is an ideal state, and clearly a superior solution for companies that deem MC abuse as a detriment to the company’s financial health. In the long run, the company will get employees who fall sick less often, are more proactively using the company’s allocated budget fully and become more productive and happy at work. This would translate to increased output for the company and is ultimately the most sustainable way to improve the company’s financial health. 

Importance Of Having A Cloud Financial Management System

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5 January 2022

Growth initiatives depend on cross-departmental cooperation, and CEOs are turning to CFOs for more strategic assistance to make a difference for their companies.

Is your company’s finance department prepared to serve as its strategic arm? We frequently hear that the “details,” such as having to consolidate daily enterprise-wide transactions from many systems into a single system, are what hinder finance teams. Even though the details are crucial, they are a major deterrent from the bigger, more strategic objectives of your finance team, especially when your company is expanding or changing.

Growth initiatives depend on cross-departmental cooperation, and CEOs are turning to CFOs for more strategic assistance. As a result, there has never been a better opportunity for CFOs to make a difference for their companies. However, it’s critical to consider if the current system can serve the company’s goals both now and in the future before a finance organization undertakes that work. The following four objectives should be understood by finance leaders when considering a cloud-based financial management solution. By doing this, the firm can advance from merely managing financial controls and transactions to actually offering real knowledge that can change the organization.

1. Gain True Business Insight

Financial reporting was automated and made simple by legacy solutions. For the purpose of financial reporting, they condense transactional data, leaving little or no information about the original transaction. Traditionally rigid and sequential, this process begins with the subledger’s capture of transaction data and ends with the general ledger’s posting, finally producing the data needed to generate financial statements. However, as the accounting process condenses the data, it eliminates transactional specifics, leaving only the balances to be kept in an accounting key.

The only purpose of the systems built using this methodology was to facilitate financial reporting. Organizations require data marts or warehouses, business intelligence solutions, and reporting tools in addition to these systems in order to provide comprehensive business information and management reporting. Businesses can streamline their financial operations using a cloud financial management system, removing unnecessary data to make everything easier to track for any audits.

2. Consolidate and Close with Confidence

In order to prepare for financial reporting, the consolidation and close procedure compiles data from across the organization. Though it seems easy in principle, it’s not at all so in practice. To create consolidated financial statements using traditional accounting systems, the finance team must gather, consolidate, map, translate, transport, and reconcile all data into a single location. This procedure requires a considerable amount of time, personnel, and systems, and the cycle is repeated every month, quarter, and year’s end. Restarting the entire process is necessary for adjustments resulting from material changes. Errors are inevitable given the number of processes that demand human involvement. How fast and simply can employees identify and correct these mistakes is the key question.

Financial closing solutions that are cloud-based may scale quickly serve thousands of users as well as allow agility through the regular addition of new product capabilities. This is achievable since the majority of cloud solutions do not have the server support restrictions frequently encountered in a data center. They can accommodate both complex consolidation models and scenarios as well as more straightforward ones for lower levels of the organization. Additionally, they can support various management hierarchies for management and financial consolidation, as well as various disclosure areas.

3. Proactively and Effectively Reduce Risk

The financial crisis significantly narrowed the scope of control. Companies now place a lot of emphasis on investing in governance, risk, and compliance (GRC) to safeguard themselves from market risk. However, the majority of legacy financial systems were created years before Basel II, Solvency II, Sarbanes-Oxley, and other standards were indispensable to corporate operations. In order to manage the separation of roles and monitor transactions, workflows, and configurations, businesses have been obliged to invest in pricey specialty or point solutions.

Additionally, many conventional legacy solutions provide a “audit trail” that records every action that takes place in the system. Due to its negative effect on system performance, this is ultimately disabled, making tracking and monitoring optional. But is safeguarding your firm against fraud or unacceptable business practices truly optional? How will the company be protected if you can’t keep track of payments, approvals, and changes to those crucial business components?

4. Embrace Change

Even though we are aware that change is a constant, there are several downstream impacts that can make it difficult for the finance department to effectively respond to, manage, and incorporate change into business operations. When new policies or guidelines are acquired or introduced, superusers or IT-type personnel are frequently needed to handle the configuration and deployment across systems. For the finance team, this means that there is a delay in bringing about that change—a delay of days, weeks, or even months. Instead of seizing new opportunities, the company wastes important time and resources attempting to keep up with change. Businesses with a cloud financial management system will enable them to react pro-actively and strategically, allowing them to not just adjust to change but actually flourish and expand throughout change. 

By offering top-notch tools, removing busywork, and enhancing corporate mobility, cloud financial management software and systems contribute to the success of the company. Additionally, it helps in the accurate daily decision-making necessary for CFOs to guide the organization in the right direction. Finance teams can automate procedures to successfully manage and properly aggregate reports utilizing a cloud system, since CFOs today have a crucial role to play as organizations become more dependent on extracting value from the enormous amount of data that is generated.

Priorities For Finance Automation In 2023

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5 January 2023

Investments in automation have increased by double digits over the past few years, and this rise is anticipated to continue even if it will happen at a little slower rate than in prior years.

Businesses’ plans for automation in 2023 and their investment priorities will change as a result of the uncertain economy and the necessity for automation technologies to work together flawlessly. Since many predict that 2023 will be a recession year, firms will adopt a more restrained approach to IT investment. 

Investments in automation have increased by double digits over the past few years, and this rise is anticipated to continue even if it will happen at a little slower rate than in prior years. When there is a downturn in the economy, emphasis will be more intensely focused on how automation may actually boost financial performance by bringing more cash to the balance sheet and cutting costs to increase operating profitability.

Key Priorities Of Financial Automation In 2023:

Automating manual repetitive operations, addressing supply chain issues, enhancing order-to-cash, enhancing customer experience, and cutting lead times will be the top priority in terms of processes. There must be several types of automation in place to address these issues. According to some, the main technology required to enhance operations is workflow automation. Along with robotic process automation, intelligent document processing, and other forms of automation, application integration is crucial.

Broadening automation technologies to support seamless end-to-end automation

Enterprises have typically had to choose a variety of automation solutions from several vendors to adopt through automation. Finance teams need to give smooth integration of these technologies a high priority because it is a major problem. Leading automation platform vendors have added various forms of automation in recent years to provide a wide range of automation capabilities. These types of automation include workflow automation to move work toward completion while supporting both automated and human-in-the-loop requirements, front-end automation using RPA, and backend automation using APIs. It also offers content automation, which applies AI to transform both structured and unstructured content into a form that can be accessed by machines.

Finance teams are now more simply and swiftly able to extract insights from massive data sets because of the expansion of automation capabilities. As a result, CFOs and leaders in finance are able to make better judgments than before and unstructured data can be unlocked to provide firms a huge competitive advantage.

Measuring the business value of automation

The ability for finance teams to link improvements to financial outcomes is another major challenge. Process mining, which examines a business process, and task mining, which determines how employees carry out the actual work or tasks within a wider business process, can both help finance teams overcome these challenges.

Process mining creates documentation on how a business process operates in production by gathering event logs from applications, producing a statistical study of process efficiency. Task mining records how manual labor is conducted by monitoring employees when they are performing the tasks. It also generates a statistical analysis that offers a score about whether the task is a viable candidate for automation.

Further automating manual repetitive processes and reducing lead time

As the economy gets tighter, it is important to thoroughly grasp the automation potential before investing in it. This will help create high-quality paperwork and specifications and give you a way to prioritize your efforts. Businesses can dramatically shorten closure days, enhance agility, reduce costs, boost productivity, decrease delays, and minimize errors by automating their financial procedures further. In turn, this frees up the finance team’s time to concentrate on other important areas such as growth strategy, risk management, and success.

Finance executives predict more financial volatility in 2023, thus automation technologies should be a key component of enhancing operational performance. Leading automation platform vendors are concentrating on various initiatives to provide platforms that are extensible, easier to use, and significantly better at planning, quantifying benefits prior to an automation, and measuring performance on an ongoing basis that is tied to financial performance. It is imperative that businesses review what they have automated and identify areas for improvement in order to better position themselves for the uncertain market of 2023.

DigitalCFO Asia Finance Predictions 2023

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DigitalCFO Asia | 19 December 2022

What will be in the finance spotlight for 2023?

DigitalCFO Asia gathers predictions and trends for companies moving forward in 2023.

2023 APAC Predictions imply a more hotly contested economic market brought on by a more turbulent geopolitical environment. Considerations of the geopolitical climate, record high inflation, rising interest rates, and critical analysis on emerging technology continue into the new year as APAC financial industry sets to maintain the economic situation. South-east Asia’s economic growth rate may slow in 2023 as global headwinds worsen, but the area is still expected to be a bright light in a world that is on the verge of going into recession, according to experts.

The financial predictions for 2023 in the Asia Pacific are as follows:

1. Predicted Lower GDP Growth for the APAC region

While many high-investment APAC regions have shown sturdy resilience against recent commodity-price shocks and tighter global financing conditions, it is expected that 2023 will weaken domestic and external demand for many APAC sovereigns. While predictions have APAC growth rates generally higher than other regions, the aftermath of the pandemic outbreak continues to be felt, though at a rapidly fading pace. Investments and consumer consumptions within the APAC region are likely to be affected as financing costs continue to rise due to the impact of tighter monetary policies and rising inflation set on by less supportive fiscal policy settings.

Furthermore, economic recessions in the West following the Ukrainian War and a slowly recovering Chinese market will reduce demand for Asian imports. It is expected that pre-pandemic fiscal deficit levels are still long in the future for many APAC Sovereigns as structural consolidation measures are put into place and enacted across the region. However, the slow fiscal consolidation forecasts will only result in a small number of APAC sovereigns experiencing substantial reductions in public debt over the course of the next few years. That being said, the outlook distribution for the APAC region is fairly balanced throughout sovereigns, with only two negative outlooks from the Philippines and Maldives and one net positive in Vietnam.

According to Mike Polaha, Senior Vice President, Finance Solutions and Technology at BlackLine, economic growth in Asia-Pacific is expected to slow down amid tightening global conditions, inflationary pressures and recession fears. In Singapore, the Monetary Authority of Singapore predicts that economic growth will slow ‘below trend’ in 2023, weighed down by key external-facing sectors. This possibility’s uncertainty elevates the need for Finance & Accounting (F&A) to focus on cash flow and working capital management priorities.

CFOs can be expected to ask their organizations in 2023 to optimize and maximize cash across the enterprise. In turn, this demand requires F&A professionals to obtain clearer visibility into where cash is originating and exiting the business. A recent global survey of almost 1,500 Finance & Accounting professionals by BlackLine suggests a lack of significant confidence in cash flow visibility. In Singapore, less than 4% of C-suite and F&A professionals surveyed are entirely confident in their visibility over cash.

This is despite nearly two-thirds (61%) of survey respondents in Singapore saying that understanding cash flow in real-time has become more important for their company in 2023. In fact, one of the biggest challenges they face is being able to provide accurate data quickly enough to help the organization respond to market changes.

The survey also found that more than half (57%) are concerned that customers will have less income to spend, which will affect sales and revenue; while about half (51%) are worried that their organizations will face higher costs.

To mitigate these concerns, F&A professionals will need to seek a better understanding of accounts receivable timing to make quicker and more productive interventions, and invest in automated processes and software assisting these strategic working capital aims. Nearly half of Singapore respondents (49%) in the BlackLine survey plan to implement or scale working capital automation solutions in 2023.

2. Regional Comprehensive Economic Partnership is expected to boost rising APAC cross-border commerce

QR code-based digital currency pilots across the Southeast and East Asian region will continue to maintain strong resilience in the APAC Payment Market following into the new year. Supported by a more practical innovation focus, these cross-border banking systems use newly developed modern technology such as permissioned blockchains and APIs for interoperability between national APAC sovereign platforms, boosting the potentiality for regional commercial growth in light of rising inflation and weather-related costs coming in the new year. 

The emphasis on compatibility and interoperability between the Southeast Asian multi-central digital currency pilots, China’s Cross-Border Interbank Payment System and India’s Unified Payments System will only continue to emboss the financial portfolio of the RCEP with use in processing regional cross-border transactions that the 50-year old SWIFT system is ill-equipped in meeting the operational needs of, leading to expectations that banks and established payment firms will increase investments in continued development of new technologies that can seamlessly integrate with APAC payment networks. However, while the technology is expected to serve as a boon for APAC in the new year, the highly competitive consumer payments market is projected to draw less investments in 2023 as it did in 2022. Counter to that, B2B payments are expected to go on an upward incline with continued modernization and adaptation within the APAC region. 

3. APAC Banks are expected to remain steady into 2023

After interest rates rise in most APAC economies in 2022, with the exception of China and Japan, it will be crucial to keep an eye on how asset quality and net interest margins interact. Even as support measures wind down, it is anticipated that loan deterioration will remain mostly low throughout APAC. Loan provisioning appears to be good in the majority of markets, and relief and forbearance measures may be extended in some areas of the region, namely in EMs. Indian state banks often have the smallest buffers, but their ratings gain from the notion that the government will help them, which is a characteristic shared by APAC EM bank ratings. 

Even with normalized credit costs and loan growth being negatively impacted by the generally unfavorable external environment, we expect a better outlook in Singapore as profitability measures increase further to levels above pre-pandemic levels. However, it’s unlikely that this will be enough to raise Singaporean banks’ ratings.Because of the presumptions around support, sovereign ratings will continue to be significant for many bank Issuer Default Ratings in APAC. With the exception of the Philippines (negative), Sri Lanka (defaulted), and Vietnam, outlooks on sovereign ratings are largely unchanged (Positive).

4. APAC Firms will use emerging technologies to reduce dependency on global solutions

By investing in possibilities that lessen their reliance on global solutions, APAC companies will narrow their regional emphasis to speed growth. 43% of business and technology leaders in APAC who place a high priority on platforms employ sector-specific cloud solutions. 45% of the world’s industrial sector is currently made up of businesses engaged in manufacturing, construction, utilities, and other industrial activities. Through the use of digital industrial platforms, these businesses will drive industry-wide cloud adoption and provide enduring value to customers. While most large businesses in APAC have used RPA over the past five years, many still find it difficult to pinpoint high-value operations that can be automated. 

One in five businesses in the region will embrace process intelligence solutions in 2023 to revive stagnantly or failing RPA initiatives since APAC now holds 11% of the global market for process intelligence. Container-based, microservices-oriented architectures with distributed capabilities will be prioritized by APAC companies. These architectures can be advantageous for a variety of technology domains, including artificial intelligence (AI) and machine learning (ML), data management, the Internet of Things (IoT), 5G, edge computing, and blockchain.

5. APAC firms will struggle to meet rising customer expectations

Businesses will find it challenging to keep up with growing customer expectations regarding omnichannel experiences and environmental, social, and governance (ESG) obligations despite embracing technology-led solutions to better the lives of customers and citizens. Continued value-consumer demands for firms to publicly commit to Environmental, Social and Governance efforts in an attempt to align with current value trends. However, the pressure to maintain market position will likely cause some to overstate or misrepresent their claims to ESG efforts. This will result in penalties of upwards of US$10 million or more for those found giving misleading ESG claims. 

Increasing regulations in such cases come as APAC regulators follow in the footsteps of their US and Europe counterparts following the social impact of greenwashing. At least fifty APAC firms are under investigation for performative ESG efforts, with five expecting severe fines for their offenses. Most of those firms are financial services firms, with many expecting to lose brand equity or revenue following any reputational loss due to the claims against them. Such can be seen when companies celebrating Women’s Day had their gender pay gaps revealed on social media, leading to ensuing litigation, regulatory fines and brand damage.

6. CFOs are taking charge too, not just CEOs

According to Mike Polaha, Senior Vice President, Finance Solutions and Technology at BlackLine, if CEOs are typically seen as those who bring the company’s vision to life, map out its growth, drive profitability and for publicly listed firms, increase share prices, CFOs are the bridge to making this vision work considering the ebbs and flows in the market and the organization’s capabilities. They are responsible for financial planning and stability, all of which contribute to business health and employee well-being.

While many respondents saw that CEOs and CFOs have equal responsibility to help navigate a business through the winds of change, CFOs have a greater tendency to believe this burden is theirs alone to bear. BlackLine’s survey saw that 68% of CFOs in Singapore said they were responsible for ensuring their company’s well-being during an economic downturn, compared to 30% who said that this was the responsibility of their CEO. CFOs in Singapore also saw that it was their responsibility to help steer the business successfully through a geo-political conflict (54%), the war for talent (54%) and inflation (65%) compared to CEOs.

An unpredictable and harsh economic climate could put tremendous pressure on CFOs to co-lead the business. But their knowledge of all things finance and marketplace movements will be critical in helping businesses go through what might possibly be another challenging economic year.

As APAC continues into the new year, financial awareness of the tribulations faced by regional firms is required to adequately navigate an ever-evolving situation following post-pandemic events and the continuation of emerging technologies taking center stage within the markets. It is anticipated that more businesses will invest in automated intercompany financial management solutions in the upcoming year. Due diligence for M&A transactions, regulatory compliance, and entity data management are all made possible by this.

CFOs In Building Operational Resiliency

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Fatihah Ramzi, DigitalCFO Asia | 9 December 2022

Natural disasters, catastrophic occurrences, and operational mistakes will affect business operations and how well CFOs integrate people, processes, and technology will determine how well they manage risk.

Operational resilience is the capacity of an organization to recognize, avoid, respond to, recover from, and learn from interruptions that can affect the provision of operations or business services. Operational resilience ensures that a business can continue to operate despite difficulties and disasters. Delivering products and services is made possible by resilience. Business continuity and resilience are related, but resilience is a broader concept that encompasses other disruptive factors including cyber, technology, supply chain, and the current pandemic.

The COVID-19 epidemic and the ensuing economic upheaval are only two recent occurrences that underscore the necessity to comprehend and prepare for the probability of multiple, converging crises and their effects on operational resilience. Daily interactions between consumers and businesses and financial services include everything from purchasing coffee to paying bills or getting a mortgage. The resilience of these services is crucial. If their products are unavailable, financial services companies run the danger of losing the trust of their customers. But they also run the risk of breaking industry rules. 

Organizations must be able to bounce back quickly from any disruptions they experience in order to be considered resilient. They must comprehend how service interruptions affect customers in order for this to be possible. However, this is challenging due to the growing complexity of IT. Agile development is facilitated by contemporary methods like multi-cloud architectures and the usage of open source code libraries, however manual monitoring of IT systems is highly difficult.

Financial organizations, especially CFOs, will need to deploy end-to-end observability throughout the whole IT infrastructure to foresee and fix issues before customers are impacted. Greater resilience will be made possible as a result, and financial services providers will be able to stand out from the competition by offering seamless digital experiences to their clients.

The fact that operational hazards might not be completely predicted is one of their major challenges. The very fact that risks are interconnected—with other businesses and the infrastructure of the financial markets—can have a negative effect on society. The resulting financial and reputational catastrophe might have a cascading effect on the entire industry. CFOs must accept that third-party service failures, system failures, and cyber intrusions will occur.

Unexpected outages, natural disasters, catastrophic occurrences, and operational mistakes will affect business operations and have an effect on stakeholders, clients, and the whole economy. How well CFOs integrate people, processes, and technology inside an organization will determine how well they manage risk. It’s crucial to make sure that a solid multi-layer risk strategy integrating the newest tools and technology is used to identify and manage the risks that arise between these interlinks.

CFOs can increase business continuity and control “known unknowns” by implementing an effective operational resilience program. Operational resilience goes beyond operational risk management and business continuity. It seeks to lessen the effect on customers and the larger economy. The need for CFOs to maintain business continuity by building operational resilience into their organizational DNA has been amply demonstrated by significant disruptive events like the COVID-19 pandemic.

Steps to Build an Operational Resilience Framework

1. Define Key Business Services / Critical Economic Functions (CEFs)

Identifying pertinent important business services that, if disrupted, might significantly impact the organization, customers, and the business environment is the first step CFOs should take to streamline and strengthen their operational resilience program. Since all subsequent processes depend on the accurate identification of these CEFs, the idea of potential harm is fundamental to operational resilience and serves as the program’s central organizing principle.

To effectively do this, organizations will need to:

  • Align the organizational risk appetite with the organizational structure, corporate goals, market expectations, and supervisory objectives. This will help an organization to gain a fundamental understanding of the business service alignment to the overall business strategy and empower the organization to determine what its organizational resilience is.
  • Determine who uses each service and engage them properly because their input is essential to the process.
  • Bring the important insights into one view. This gives a company the knowledge necessary to further develop strategic and important activities that are in line with the organization’s level of risk exposure. Additionally, it offers visibility over connected third parties, associated processes, systems, people, and dependent persons that could affect corporate goals.

2. Set Impact Tolerance and Risk Metrics

Critical disruptions are caused by a variety of known and unknown events, which could endanger the organization. If businesses want to accurately report on the stability of the organization, it is crucial to try to foresee, prevent, control, or minimize these variables. When establishing impact tolerances and risk metrics, organizations need to be aware of the following:

  • Establish tolerances with complete visibility and give operations and investments top priority. This is crucial since many firms are already required to make thorough, verifiable decisions in order to maximize their investment money.
  • Become more aware of corporate services and procedures. Value-based implications that jeopardize the firm’s survival, volume-based impacts that affect consumers and market participants, and time-based impacts that undermine financial stability are among those that the board must rank and accept.
  • Set tolerances using a logical and sensible process that takes into account all interconnected regions and processes. Realistic scenarios will be made possible, allowing for a better understanding and analysis of the impact tolerance as well as a quick examination of the different risks that might have an influence on the sector in which the organization operates and impacts on the overall stability of the economy. In addition, it’s crucial to enable a precise grasp of the project’s scope and organizational impact, in connection to its effects on customers and partnerships.

3. Understand Dependencies – Upstream and Downstream

Today’s business climate is dynamic. Recognizing the dependencies is a crucial first step for a CFO to create a relational data architecture to map the people, processes, technology, and third parties needed to deliver the business service. Understanding the links and points of view between internal and external factors is essential to fostering business resilience, as is making sure the whole picture is present, up to date, and that all changes are pertinent.

Such a strategy can aid in navigating the risks offered by third and fourth parties given that companies are becoming more dependent on third-party suppliers and the outsourcing of some operations. Gaining a better knowledge of upstream and downstream relationships can be accomplished by using the following best practices:

  • Utilize technology to get a single, comprehensive view of all crucial operations that a business has identified in accordance with the primary elements to which it needs or wants to be resilient. Make sure everything is connected and understood by looking at the horizontal and vertical views of the vital capabilities in order to identify the obstacles.
  • Make sure the company approaches third- and fourth-party providers with a risk-based and balanced strategy. To continue fulfilling their commitments, they will need to take into account the type, size, and complexity of their operations. Businesses who work with these providers are required to take reasonable precautions to handle their business in a responsible and efficient manner with suitable risk management systems.

4. Leverage Scenarios for Potential Points of Failure

In order to better understand the organization’s risk appetite and skills while searching for potential sites of failure, it’s crucial to make sure the impact on the business will actually occur. When creating scenarios for potential areas of failure, keep the following in mind:

  • Include previous failures that were both under the organization’s control and uncontrollable to assist develop operational resilience and offer improved insight across processes. Examine business continuity management, data management, digital risk management, and third-party risk management to bring together various parts of the organization. Clarity when comprehending the actual possibilities might help CFOs better monitor cross-disciplinary risk scenarios.
  • Utilizing the relational data structure, identify impact tolerance scenarios for people, processes, systems, and outside parties. This can be used to evaluate the influence of interrelationships. Understanding where stakeholders come into play can be improved by superimposing the scenarios on the business framework.
  • Recognize how the risk appetite range can be used to develop action plans to reduce risks. Plot the data from risk scenarios using the service’s vitality, reliance metrics, and microeconomic intelligence. To create a solid business contingency plan, outline the action plan utilizing data on internal capital adequacy assessment, prioritizing of the recovery, governance framework, culture, corporate structure, controls, and regulatory framework.
  • By forcing people to work outside of their comfort zones, CFOs can identify the weak points in a resilience plan. This can help CFOs to better grasp the operational resilience plan’s complexity, business criticality, usage frequency, visible areas, defect-prone locations, and other quantifiable success criteria.

The Need For CFOs To Be Dynamic In Their Cash Flow Planning

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Fatihah Ramzi, DigitalCFO Asia | 6 December 2022

With an inflationary climate, increasing interest rates, decreased customer demand in a global slowdown and higher labor costs in a tightening market, what can the CFOs do to manage the effects of these problems on cash flow?

CFOs must be nimble to meet the demands of their cash flow planning given the ominous economic clouds that lie ahead. Many businesses have recently been plagued by the “Too Much Inventory” problem. Market volatility, excessively optimistic sales forecasts, customer dissatisfaction anxiety, a flight to “safety stock” brought on by supply chain disruption, and previous organizational responses to consistently high inflation all contribute to the problem.

It is no surprise that operating and cash flow margins are being squeezed and liquidity discussions are becoming more crucial when one considers the inflationary climate, increasing interest rates, decreased customer demand in a global slowdown and higher labor costs in a tightening market.  So, what can the CFOs do to manage the effects of these problems on cash flow?

The need for a more dynamic approach to cash flow management is highlighted by these advances, which CFOs must coordinate with a wide range of organizational stakeholders, internal and external data sources, information systems, and cutting-edge technology solutions. Many companies have chosen to increase prices in order to pass on to customers the increasing expenses of manufacturing, shipping, and talent. Many clients have hit that critical threshold as they are postponing and/or lowering their purchasing activity, and that technique will continue to work until it doesn’t.

Leading CFOs are addressing demand-side concerns by increasing the sensitivity of cash flow management, which includes planning and forecasting, to both internal and external variables. Understanding the factors that contribute to ineffective demand planning, the dangers associated with it, and what promotes effective cash flow planning are necessary for this.

Many businesses and finance departments have spent a lot of time, thought, and effort updating antiquated solutions to supply chain risk management in response to disruptions and flaws that predate the worldwide epidemic. Similar changes are needed on the demand side of the economy as a result of ongoing market volatility and uncertainty because higher prices and rising interest rates influence consumer purchasing decisions. Along with that, the increased risk of customer credit and raised cost of capital have negative effects on capital expenditure planning and strategic investments.

Finance groups benefit from deeper, more immediate insights into the trends and forces affecting cash flow thanks to dynamic cash flow management. This transparency enables CFOs to make sure that business partners across the organization focus on more than just the P&L statement and capital planning, and instead handle cash flow in a way that supports organizational resilience in the face of unpredictability. Such methods of cash flow planning comprise:

  • Working capital analytics: These insights go beyond standard DSO, DPO, and DIO analysis to identify trends impacting receivables, payables, and inventory that support actionable intelligence to enhance working capital and cash conversion. The collection effectiveness index (CEI) can be calculated by finance departments to evaluate chances to increase client collections. Analyzing the proportion of high-risk accounts offers further insight into the factors that affect receivable performance as well as the make-up of the customer base, which should help with credit risk management. By comparing discounts provided and received, a company may be able to benefit from early-pay discounts or gain more insight into lost chances.
  • Scenario-based planning: Finance organizations can minimize financial risks and improve cash management by employing just a few important variables connected to the macroeconomic conditions (for example, interest rates) and company-specific drivers (for example, swings in consumer demand). A competent scenario plan recognizes connections to specific outcomes, such as the need for or decrease of external finance or the implementation of cost-cutting measures that have an impact on fixed or variable expenses. Making better educated investment, financial, and operational decisions requires CFOs and business executives to analyze and compare various cash flow scenarios. Notably, one in three firms are improving and/or expanding scenario planning to manage concerns resulting from inflationary patterns in the market.
  • Stress testing: Running “what-if” scenarios helps firms quickly adjust to shifting market conditions while illuminating best and worst case situations. CFOs frequently use a scenario-driven methodology to examine how different economic hypotheses may affect a company’s operations or a portfolio of investments. Finance teams execute numerous simulations for various probable and severe scenarios, starting with a baseline projection for the most likely outcome, to create a probability distribution of economic outcomes. By detecting prospective changes to the cost of capital and illuminating which investments should be scaled back depending on a specific increase in interest rates, these assessments can also assist capital planning.

Along with other economic, supply chain, and ESG-related factors, leading finance organizations also factor product profitability data, inflation-adjusted data, debt and equity strategies, currency exposures (and mitigation plans), and workplace planning strategies into cash flow planning. Such initiatives produce more useful outcomes. One possible outcome of product profitability assessments is the rationalization of SKU products, which can free up inventory, lower expenses, and even reveal completely unproductive client connections.

A dynamic cash flow management capability necessitates new partnerships, accompanying technology, and frequently, a new way of thinking. Sales partners and other finance clients frequently think in terms of P&L. Excess inventory and the business actions that led to it are probably not costs from the perspective of cash flow. A cash flow perspective enables business partners to comprehend how decisions they make eventually impact how operations are funded and even the outcome of major initiatives.

CFOs should ask for access to more data sources across the company as they broaden and strengthen their relationships with more business stakeholders on cash flow management-related projects. In order to better understand changing consumer needs, demand planning, sales, and marketing departments should improve their interactions with finance organizations. In order to manage changes to short- and long-term strategies to manage cash, investments, debt, and foreign currency exposures, treasury groups should keep CFOs aware of their work with banking partners.

To monitor debt parameters and covenant computations, as well as to comprehend the cash flow effects of planned capital projects and strategic initiatives, finance and treasury should also work closely together. The finance group may guarantee that the appropriate tools and insights are available to implement new cash flow planning models by working with data analytics teams and the IT department.

The yearly planning and budgeting processes that are currently under way in many businesses present a good opportunity for CFOs. While engaging business partners in the finance group’s ongoing drive to analyze and access greater data that is stored outside of the CFO’s direct control, they should argue for dynamic cash flow management. Making a strong case for the value of a cash flow mindset can help CFOs avoid having insufficient knowledge to prevent declining margins, emerging liquidity problems, and other problems from negatively affecting business performance in the months to come. All in all, it is necessary that CFOs use a more dynamic approach to their cash flow planning if they want to remain strong in the face of market volatility that will continue on even in 2023. 

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