Newsmakers / May 2018

Boosting Foreign Direct Investments, Sustainability

Citibank’s Global Subsidiaries Group (GSG) is a leading provider of financial services to top-tier multinational clients around the globe, serving the financial needs of the world's pre-eminent corporations. Operating around the globe, the GSG recognizes the borderless world of modern business and deals with the mounting challenges to the way business is done.

GSG consists of relationship bankers with their comprehensive understanding of complex financial issues, putting them in a position to offer a set of personalized services and innovative solutions for the client’s unique set of requirements—ranging from cash management, foreign exchange, trade finance, custody, clearing and loans, to the capital markets, derivatives and structured products.

Citi sees GSG as an integral part of its global network, which acts as a gateway to offer subsidiary clients unprecedented access to global services and solutions, thus enabling the company to provide a steady stream of tailored innovative cross-border and local financial solutions for every single client. GSG global head Marc Merlino explained the scope and the vision in an exclusive interview with Eko Prasetyo of GlobeAsia. Excerpts:

GA: What is your main target in Indonesia? MM: Our target is to support our corporate clients looking to grow and develop in the country. I think the combination of domestic companies’ growth and foreign multinationals bringing their particular sector expertise and disciplines to the market will boost growth, and we act as facilitator to combine these elements in terms of putting them together, supporting foreign direct investment (FDI) — which we believe is a positive thing for Indonesia.

Given the specific needs of Indonesia it is clear that we will see lots of opportunities in regards to Indonesia’s development and digital disruption or technology innovations. We have had discussions about the technology revolution coming to Indonesia in many ways, as it is an ideal country to benefit from this.

The three main segments of my business group are institutional businesses or financial institutions, the public sector — governments have become very important clients to us, not just our regulators but also our clients — as well as multinational corporations.

The team I manage is a team of relationship managers that is specifically dedicated to supporting subsidiaries. While the two lenses of business in the country are incoming non-Indonesian multinationals and outgoing Indonesian multinationals, my role allows me to be involved in both sides of the equation.

We are playing a role to support Indonesian companies, especially within our approach of relationship management, first and foremost. We have a team focusing on Indonesian parent companies, while my global team would become a hub to create global connectivity. The complexity is how to manage global relationships from the head office level, regional centers and local in-country offices, where we are trying to facilitate with our three levels of relationship management.

What specific challenges do you in managing your global clients? We believe that the good of globalization outweighs the challenges associated with it. What we do then is basically work with these companies to bring their global expertise into the Indonesian market. The challenges are, not surprisingly, the anti-globalization headwinds out there right now, be it protectionism or trade policies, as (they) contribute to the fundamental challenge that exists globally.

Apart from the very broad scheme needed to address the issue, many regulators in various markets are building higher or bigger walls around their countries.

Citi is spending a lot more time advising our multinational clients on the existing regulatory framework and trends, including where things are going. Obviously, any future strategic investment is not made to last only for two hours or days. We want to further assist them in their strategic investment-making process, including in Indonesia as an attractive market.

Are regulatory processes more difficult or easier in Indonesia? It is easier now, as I think it is reflected in the business index improvements. I was here a year and a half ago, and I met with Indonesian Investment Coordinating Board chairman Thomas Lembong to publicly sign a memorandum of understanding supporting FDI.

I think the trend line is positive now. But strategic investors want predictability and stability. They were very pleased to see Moody’s upgrading the government’s (debt rating). If you are a foreign multinational, it is essentially unacceptable if you do not have an Indonesian strategy. It is too big and important a market.

Indonesia is one of the leading countries in the world. Asia is the leading region in terms of growth and opportunity. There are obviously China and India — the two very strong economies — and then there is ASEAN. If you look at ASEAN, Indonesia is half of the population. It is the number one player in ASEAN, as reflected in the prioritization of decisions that our clients are making.

How should the Indonesian government attract investments? In terms of attracting inbound investments, I think they have to continue to make progress on the ease of doing business. I think Thomas Lembong was very clear that it was the priority at the time, and Indonesia has progressed to a better rating of ease of doing business, with the aim of reaching the top 40. I think that is really important.

Moreover, sovereign rating is also very important, as well as tax policies. Again, it is more about predictability and stability, as well as ensuring the consistent execution of fundamental issues such as tax holidays to attract certain foreign investments. Indonesia has the natural advantages in other categories: population, demographic, opportunity and where it is on the traditional development curve.

So, if you can, in a very broad sense make it simpler and more predictable to do business, (then) FDI would improve and increase. You will see more coming in and I think there will be more benefits accruing to the Indonesian corporate landscape.

Do geopolitical challenges in several regions, such as the United States, create disruptions in the global market? It has the potential. When there are lots of geopolitical occurrences these days, it would be relatively easy to step back and say they are going to disrupt the underlying economic activity. However, we are not seeing that right now.

We are actually seeing — particularly in this region — a very high level of activity. A new and different issue is that there are more corridors to drive growth, instead of only four or five corridors in the past.

This is exactly why the noise we hear in the news about certain geopolitical challenges is not having a bigger impact on the underlying economic flow, due to the connectivity of all of these elements of growth.

Our role is ensuring the relationship for connectivity between Indonesia, ASEAN, Asia and the head office (of Citi’s client). If it is a non-Asian parent, then making sure that as they are looking at these opportunities, we are also helping them think about investment decisions, regulatory issues, foreign exchange outlooks and all other assumptions.

How do you address technology disruption? Does it change your business model? Technology disruption is different, because there is a board-level discussion asking the philosophical question of “who am I?” or “what do I do?” and “what value can I add?” (as part of) their historical business model. It made everyone rethink what they are good at and what their value preposition is for their clients.

Banking is a business of trust, first and foremost. That is what we bring to the table, this leading relationship and trust we have with large multinational companies, while what many of these financial technology (fintech) players bring are innovative ideas and approaches to that trust.

Simply speaking, we can sit together with our clients and a fintech partner with their innovative ideas to think of what Citi can do to help them grow. Meanwhile, Citi also has its own in-house venture capital where we do strategic investments in startups, in addition to ongoing in-house development, special projects and investment advisory boards.

I think the important message in terms of how we address digital disruption is to bring some of those disruptive values to our clients, as opposed to advising them on how their business will change.

With your banking experience, how do you see companies overcoming challenges in this era of digital disruption? They need to be flexible and they need to be brave. (It is) not as simple as that, since there are lots of complexities surrounding it, but Silicon Valley comes up so often in various discussions. Many Silicon Valley entrepreneurs I have talked to were proud of their failures. It is a culture where you can fail one, two, three times before you are successful. It is whether you have the corporate culture for these failures.

Our CEO talks about failing quickly, where you should test these new ideas in the market. Do not build it 100% or spend $100 million over three years before deciding to test it. We should test it, then go to our clients to rethink the strategy. If it does not work, fail quickly and move on to the next idea.

The new spirit of business is flexibility, because you have got to ask tough questions on whether you add value or what are the pain points of the customers you are helping, while you have got to be brave to say ‘it is okay to make mistakes, it is okay to fail’