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BLUE OCEAN FINANCE
Blue Ocean Finance: The Evolution of Corporate Treasury Operations in the 21st Century
Author(s): ZHANG, Hong, SHAH, Gourang, SCHLAGETER, Martin, YANG, Anne
Summary
As a result of globalization, multinational corporations (MNCs) have had to deal with increasing business complexity and market friction as well as higher integration costs to maintain their organizational structures. To sustain their operations and better consolidate their global resources and businesses, MNCs need to determine and consolidate their borders in a way as to ensure that the benefits of integration exceed the costs. In this course, their corporate treasury functions have experienced three stages of major evolution in the 21st century. In the first stage, MNCs improved the efficiency of cash and other existing treasury factors to reduce costs. In the second stage, MNCs started to consider factors that were traditionally unassociated with treasury operations, working to extend their treasury functions to the management of business flows. In the third stage, MNCs went beyond the first two steps to pursue what we call “blue ocean finance” by creating a centralized structure and building their corporate treasury center into a full-fledged financial service center. The institutionalization of payment and lending services – the two fundamental services offered by the banking industry – within the boundary of MNCs, allowed MNCs to provide global financial and other services to their subsidiaries internally in a much more effective manner than external banks while significantly lowering costs, thereby achieving value innovation.
Pedagogical objectives:
This case provides an in-depth analysis of MNCs’ treasury evolution based on the theory of Blue Ocean Strategy and the Coase theorem. Using three illustrative examples to demonstrate the evolution and transformation in corporate treasury operations of MNCs, the case intends to demonstrate:
- how different approaches to consolidating MNC borders result in either value creation or value innovation;
- and how the frameworks and tools of blue ocean strategy can be applied to analyze and explain strategies and moves in the field of corporate finance.