DLL - BACK TO BASICS
de lage landen (g)
WHAT'S NhwS Issue 2 February 1998
organization
13
De Lage Landen (DLL), our wholly-owned financial services subsidiary based in
Eindhoven, has announced plans to focus its international activities in the
growing vendor finance field, and to gradually withdraw from its non-Dutch
trade finance and factoring business over the next two years. What's NewS talks
to DLL about changes in strategy.
E
E
E
Paul Dirken:
'....it makes
no sense to
keep too
many balls
in the air'.
DLI currently has the largest international
trade finance operation in Europe, with
offices in Belgium, France, Great Britain,
Germany, Italy and Spain, as well as its
headquarters in the Netherlands. Its wide
range of trade finance products revolve
around the management of customers'
receivahles. Despite a growing trend
towards European unification, however,
e factoring market remains firmly
national in orientation. Legal and cultural
ingredients vary enormously from country
to country. And although the market is in
the midst of a double-digit growth phase,
economies of scale are elusive and it has
proved costly to profitably compete with
the local banks and factoring companies
that dominate each national market
through their own distribution channels.
EUROPEAN LEADER
'Basically, we had to take a long hard look
ar our ambitions, and to accept that
although both the international trade
finance and vendor finance markets are
attractive, it makes no sense try to keep
too many balls in the air,' explains Paul
Dirken, Executive Director of the
iternational Trade Finance Division. This
not to say that DLL has been entirely
unsuccessful in this field. It has managed
to build up the leading European trade
finance network in a difficult and
competitive market, and has developed a
number of attractive and innovative
products such as reverse factoring, where
it acts as an intermediary between a large
cliënt and its various small suppliers. DLL
has been able to offer this product to such
Rabo clients as the Promodes supermarket
chain in France.
OUT OF TIME
Nevertheless, persistent local relativity's
stand in the way of pursuing a unified and
cost-effective European strategy. For
example, in France, the now-troubled
local banks have accustomed customers to
receiving services below cost price, making
it difficult for outsiders to profitably win
new business. On the basis of its
unparalleled seven-year experience in
international trade finance, and
considering the increasingly stringent ROS
requirements that now apply to the
Rabobank group as a whole, DLL decided
last October to call in the McKinsey
consultancy firm. The brief was to explore
the issue of whether these international
activities could be reformatted in a more
profitable way. The answer, when it came
in December, was that it would take too
many years to achieve the kind of returns
DLL was looking for. 'Basically,' says
Dirken, 'we simply ran out of time.'
DIVESTMENT STRATEGY
The DLL board is therefore now actively
exploring the possibility of selling the
operations. 'There has been a lot of
interest from several large players,' reports
Dirken. 'The DLL network offers the
strategie investor a unique opportunity to
move into Europe without having to
establish a network from scratch.'
Meanwhile, attractive products lilce
reverse factoring will henceforth be
supported by DI.L's Dutch-based factoring
operations, and will continue to be
available in the home market, although
these may be expanded to include other
markets in the future. In addition, DLL
LEASING TRADE FINANCE
will still provide its Dutch export
customers with the same high level of
trade finance expertise in cooperation
with our local banks.
GROWTH MARKET
The medium-term focus is thus shifting to
vendor finance, a market expected to grow
very quickly in the coming years. Skills
developed in trade finance will be useful in
attacking this market at full strength, says
Dirken. Already, DLL has vendor finance
offices in nine countries outside the
Netherlands, and is a leading player in
Europe and expanding elsewhere. Many
large industrial companies are now
focusing on their own core businesses, and
wish to win new market share without
tying up too much operating capital.
Potential clients may wish to offer
customer financing but haven't the
expertise to manage such programs
themselves. In their quest for optimum
efficiency, they will enter into vendor lease
arrangements, often through joint ventures
in which De Lage Landen is lead partner:
such structures not only provide expertise,
and marketing tools to generate additional
sales, but also help keep the vendors'
balance sheet ratio looking bright.
LOYALTY PROGRAMS
DLL has already established an attractive
track record in such European programs.
Large clients include DAF (in trucks) and
Digital (in the computer business).
Working together with Rabobank
International, DLL has also arranged
worldwide vendor finance operations with
AGCO (see WNs Jan 97), one of the
world's top five producers of tractors and
agricultural machinery. In principle,
customers who use capital equipment
should care less about outright ownership
than about maintaining their output; they
will potentially respond with keen interest
to the possibility, offered by DLL vendor
finance, to transform their fixed costs into
variable ones. Such programs, which help
DLL clients expand market share and
improve customer loyalty, were at the same
time a major contributor to DLL's 1997
success in breaking through an important
psychological barrier and achieving a
balance sheet total of NLG 10 billion.
Moreover, these activities closely fit with
the cooperative/-partnership ethos that
prevails within Rabobank, as well as with
our commitment to adding customer
value, Dirken says. Working intimately
with clients, we gain access to information
about the needs of their customers, which
means that, as an entire organization, we
can better serve them while at the same
time reducing associated risks.
