Financial Firms Unprepared as Pressure to Globalize and Specialize Increases in Rapidly Growing Market
IBM (NYSE: IBM) today announced the results of a research report that indicates the financial markets industry is facing a dramatic phase of growth, particularly from emerging markets, yet financial services firms acknowledge they do not have global integration strategies to capitalize on this growth.
The IBM report, entitled “Get global. Get specialized. Or get out. Unexpected lessons in global financial markets,” indicates that 93 percent of those polled acknowledge that their firms are not operating in a globally integrated fashion.
“In less than ten years, worldwide investments will double,” said Shanker Ramamurthy, Global Industry Leader, Banking & Financial Markets and Practice Area Leader FSS Strategy & Change, IBM Global Business Services. “The question is: will financial markets firms be looking in the right places? And will they be capable of capturing these more globally dispersed opportunities? We believe that the future leaders of the industry will be those firms that can successfully specialize around what clients value most and become fluid, adaptable, globally integrated enterprises.”
In a groundbreaking global survey, IBM, in cooperation with the Economist Intelligence Unit, spoke to almost 1000 business leaders -- including more than 800 senior financial markets executives and over 100 of their corporate clients. The analysis resulted in unexpected lessons for the financial markets industry:
1) The worldwide opportunity is large -- but it won’t necessarily be found in the same old places. Worldwide investments are expected to double by 2015 to nearly US$300 trillion. By 2025, the opportunity quintuples to nearly US$700 trillion. However, 60 percent of this future growth is coming from emerging markets, more than twice that from mature markets. While mature markets will remain large, these newer markets could soon have asset bases that rival those of their long-standing peers.
For example, today, Chinese investors have 17% of their savings in bank deposit accounts, while in 2025 over 38% will be invested in securities -- China will be tied with Japan in second place in terms of such investments, with the US maintaining its position in first place. The opportunity goes beyond the BRIC countries with a sizeable opportunity in places such as South Korea, Indonesia, Turkey and Mexico.
2) Firms are not prepared to capture this emerging opportunity. Many financial markets firms are not in a position to capitalize on this more geographically dispersed industry opportunity. More than 93 percent of the executives interviewed acknowledge that their firms are not operating in a globally integrated fashion. And when asked to assess their proficiency with globally oriented organizational and operational practices, two-thirds of the respondents consistently rated the performance of their firms as poor to moderate.
3) The business model executives generally believe is best may actually be the wrong bet. Among industry executives, the general reaction was that large diversified universal banks are the firms best positioned to compete globally. However, when reflecting more deeply about the capabilities required, executives actually rated specialists higher than universals on some critically important global capabilities. This self-contradiction reinforces the point that being the best in every niche of the industry is increasingly difficult and costly.
4) The people side of financial markets firms may be getting short shrift. Many financial markets firms may be neglecting the people-related implications of running a global business. Executives pointed out a number of barriers to becoming globally integrated, and most are related to culture and associated intangible assets.
As part of the research, we surveyed 955 business leaders -- including 848 financial markets executives and, importantly, 107 corporate clients. One-third of these individuals hold top corporate leadership positions -- c-level officer, executive vice president or division head. Overall, 85 percent were director level leaders or above. These respondents represent virtually every part of the financial markets ecosystem, encompassing buy side, sell side, processors, plan sponsors, industry associations and regulatory bodies. The sample was evenly distributed in terms of firm size: small (35 percent), mid-sized (31 percent) and large (34 percent). Our respondents were based around the world: 32 percent in the Americas, 33 percent in Asia-Pacific and 35 percent across Europe, the Middle East and Africa. The macroeconomic model employed not only forecasts future worldwide investable assets, but also seeks to answer the difficult question of how these assets will shift between emerging and mature markets (or veteran and prospect markets as referred to in the report) through 2025. Unlike other forecasting models, our analysis ties financial asset and investment flow growth to nominal GDP and factors in the relative sophistication of each economy. The relative size of an economy should not be the sole determinant of financial assets in aggregate; the regulatory environment and other factors of market sophistication must also be considered.
Suzanne L. Dence, Financial Markets Industry Leader, IBM Institute
for Business Value
Wendy E. Feller, Associate Partner, Financial Services Sector Lead, IBM Institute for Business Value
Daniel W. Latimore, CFA, Global Research Director, IBM Institute for
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