When it comes to global trade, traditionally much of the focus of banks has been on supporting multinationals and large corporates. But – by overlooking the needs of mid-sized companies – banks could be missing a serious trick.
It is hard to overstate the importance of mid-sized companies to growth and job creation. In Asia, Africa and the Middle East, companies up to this stage of development account for between 40 and 60 per cent of GDP.
As global trade has evolved, mid-sized companies have come to play a much more important role in supply chains
In the last couple of decades, as global trade has evolved, mid-sized corporates have also come to play a much more important role in supply chains. Whereas in the past, such firms would have focused on domestic markets, now many are fully active in overseas trade as suppliers and distributors.
This is especially true for emerging markets where trade is growing more rapidly than in the West. The world’s fastest-growing trade corridors are ‘south-south’, such as trade between Asia and the Middle East, Latin America and Asia, and Asia and Africa.
International trade and company growth
Examples abound of mid-sized companies from these regions hitting the big league. Take India’s Greenply Industries, now exporting laminates to upwards of 70 countries, with subsidiaries in Singapore, Indonesia, Thailand, Europe and the US.
Another great example is Singapore’s Kheng Keng Auto, which has expanded from a five-man family business to one of the country’s most active used-car importer/exporter, with business dealings in over 50 countries worldwide – including a strong presence in Africa.
Today, by the time a company reaches the mid-sized bracket, it is likely to be well underway to internationalising, looking for opportunities to push into new markets. This is a crucial stage in the corporate lifecycle, and one which can make or break a company’s future.
Banking mid-sized corporates
Unfortunately, this is also the time when mid-sized corporates tend to hit something of a confused space in the banking industry – too big and complex to be served alongside small and medium-sized enterprises (SMEs), and too small to be fully on the radar of wholesale bankers.
Most financial institutions cater for mid-sized corporates, but the definitions of ‘mid-sized’ vary dramatically, and services are often fragmented by geography, whilst what these clients really need is the full complement of international banking services.
Many have the same banking needs as large companies, such as cross-border payment collection or help to access capital markets for funding; in a number of markets in Asia, including Hong Kong and Singapore, more companies are now issuing debt or equity well before they hit the ‘large corporate’ banking bracket.
Most mid-sized corporates already use basic cash management services, but as they internationalise many need advice on how to manage their cross-border cash flow or use more advanced treasury products, such as commodity or financial derivatives, to help manage their risk.
Increasingly, mid-sized corporates also need advice from banks as to where and how they can tap opportunities on offer outside of their home markets. Many are willing to look far afield – for example mid-sized Chinese firms looking to sell their products in Sub-Saharan Africa, or vice versa.
This represents a massive opportunity for banks to build a larger business with mid-sized companies beyond simple credit and banking products. But, until now, the industry has not quite kept pace with this shift in demand.
Banks must take the initiative
Traditionally, mid-sized corporates have posed something of a challenge for banks: because they have fewer clients, their cash flow is less stable. And, because of their smaller balance sheets, they are unable to absorb the same fluctuations as large companies. This makes them more vulnerable to defaulting on their loans, and more price-sensitive.
However, by seizing on internationalisation to serve mid-sized corporates in multiple markets, banks can create a more stable and profitable income from these clients.
By doing more business with mid-sized corporates, banks will be supporting a sector … increasingly vital to global economies
By doing more business with mid-sized corporates, banks will be supporting a sector that is increasingly vital to economies around the world, but the rationale is not merely an altruistic one.
Companies forge long-term, loyal relationships with their banks when they are still young – often triggered by a ‘moment of truth’ – for example where the bank provides a much-needed loan when no one else is willing to.
Support today, win tomorrow
By supporting companies at the early stage of their lifecycle, banks can build a pipeline of large corporate clients for the future. It is all about staying focused on the long term, making sure you have the risk-management and capital strength to support clients through good times and bad.
Mid-sized corporates are vital to trade, vital to growth and job creation, and vital to banks. They are the innovators and business winners of tomorrow, and they deserve all the support we can give them.