Looking abroad? Challenges and considerations for higher education institutions
American colleges and universities are becoming far more internationally focused. The rise in the number of foreign students on U.S. campuses is well-documented, with an 8 percent increase in foreign students seeking education at a U.S. college or university between the 2013-2014 school year alone, according to the Institute for International Education’s Open Doors report. Our higher education institutions are continuing to be recognized around the world for top-quality research and education. However, for university business offices, just as much attention should be paid to the flip-side of this trend: U.S. institutions are expanding overseas. The number of U.S. students studying abroad has more than doubled in the last 15 years and faculty members increasingly find foreign teaching and research assignments. Combine this with the prevalence of new offshore campuses of U.S. universities and joint ventures with established foreign higher education institutions, and the implications for university business managers are clear: proper management of cash flows between countries is now essential. From managing foreign exchange volatility to minimizing operational risk, below are several goals to consider:
Establish rigorous foreign exchange policies:
Think about the ways your institution utilizes foreign exchange and different needs call for different tools and planning. For instance, it may be helpful for the treasurer’s office to consolidate and coordinate the university’s FX planning—for both cost and control purposes—rather than allowing departments to arrange their FX transactions independently. Keep in mind the following situations and approaches when utilizing FX:
- Ultimately, the movement of currencies can create operational and strategic risk for the treasury team and is something that should be addressed proactively. Your study abroad and faculty research activities may require regular and frequent payments in foreign currency. It may be possible to manage some of the risk in currency fluctuations with proper FX hedging tools, particularly when the requirements are known in advance.
- Asset purchases present different challenges. Some purchase requirements are recurring and predictable. Others, particularly for larger pieces of research equipment or real estate, are one-time transactions requiring substantial advance planning and budgeting. Larger foreign cash flows are clearly needed for institutions that operate campuses abroad. To a smaller extent, campus joint ventures with foreign institutions may call for periodic cash payments. The predictability of payments due to foreign operations may not be known.
- Finally, endowments will often have a need for FX due to investment purchases and sales. Though less common, gifts to a university may be located abroad and FX services are required once the gifted asset is liquidated and funds transferred back to the U.S.
With such a wide range of purposes, predictability, currencies and contract sizes, it’s clear that the consolidation and coordination of FX requirements will serve most institutions well.
Manage treasury operations with new tools:
International activity complicates the management of university cash flows, but technology has brought better tools to the fore front. Chief among these are new cash management workstations and platforms, which bring together account activity, as well as allow the purchase and sale of FX online. Such platforms can save time and cost when managing transactions and can be fitted to enable proper levels of control for security purposes.
Technology has also pushed purchase card platforms forward for international operations. Overseas staff can utilize purchase cards, equipped with chip and pin technology, for convenience and security for routine purchases, while still allowing the home office to monitor usage in real time and reconcile accounts.
Overseas activity may also put additional demands on your sources of liquidity. Circumstances may require you to access funds, quickly and dependably, to support foreign needs. If bank lines of credit are part of your overall liquidity plan, new platforms for managing your borrowings online can be excellent tools for your home campus to access these lines—and best support your foreign operations.
Invest time to find the right local partners:
Regardless of the scope of your institution’s overseas aspirations, it is important to team up with financial and operational partners that have experience in foreign transactions and connections within the countries in which you operate.
Check to see if your partners have local offshore offices; if so, see what they’re doing for other clients. Consider leveraging these resources—discuss your plans with your financial partners and ask for their advice based on their local knowledge.
Make sure you’re aware of issues specific to the country—currency convertibility, customs, local holidays, etc.—to help you best plan for future events. Often, your partner may be able to provide published research on local business conditions. Don’t forget disaster preparedness for foreign operations; they require the same level of diligence as your home campus.
Finally, if your financial partner does not maintain a local presence in a country confirm if they maintain correspondent relationships with institutions that do.
Learning all you can in advance and knowing where to look for advice will pay dividends when you’re called on to support your institution’ s foreign operations. These above steps should put you in the right direction in establishing and maintaining your international operations on the business front, while providing your students and faculty with a more cultured experience, full of new opportunities across multiple horizons.
John Lenckos is senior vice president of Bank of America Merrill Lynch