Waiting on death row
Many Asian financial services companies are in danger of being overtaken by international competitors as the speed of globalisation and e-commerce hots up.
The warning came in a study by management and technology consultants Andersen Consulting, which amounts to a wake-up call for the whole sector.
Andersen's Trevor Gruzin said Hong Kong's banks had five years to get into shape.
Nevertheless, although a third of the world's largest financial institutions now had a presence in three or more countries, global expansion overall had proved to be remarkably unsuccessful.
'Only 14 of the world's 31 largest financial services organisations achieved superior returns to shareholders in the 10 years to 1996,' the report found.
The good news was that two of these 14 winners - Standard Chartered and HSBC - had a strong Hong Kong perspective. In common with the successful US global players such as Citicorp, ABN Amro and Chase Manhattan, these two led their international expansion efforts with a narrowly targeted strategy rather than trying to do everything at once in a foreign market, the study found.
'Not surprisingly, most high shareholder-return globalisers led their efforts with their strengths - either a particular skill or unique product offering.' Chase Manhattan, for example, built its global consumer business by leveraging a competitive advantage based on relationship banking and outstanding service quality - two areas in which it had significant expertise and for which it is well known in existing markets.
HSBC's success was founded on 20 years of purchasing companies to enhance its global presence. 'HSBC's global strategy is to find the perfect combination of consumer banking, asset management investment banking and international corporate banking. The company plans to leverage financial products such as credit cards and investment funds on a global basis,' the report said.
HSBC had also addressed a major obstacle in global banking - universal branding. The company recently implemented a US$100 million campaign to unite its 5,000 offices in 79 countries and cement its identity.
The study concluded that in addition to leveraging a competitive advantage of skill or scale, successful global players also: Pursued a narrowly focused entry strategy; Properly aligned its organisation with its globalisation strategy; and Proactively managed foreign operations while empowering local management.
The common denominator was a focused international strategy, which a high proportion of the global companies studied lacked.
'While these companies expanded by opening offices overseas, they had no identifiable competitive advantage over local players - or if they had, failed to exploit it.' Freedom from government regulations had greatly assisted the US in its dominance of global financial services, said Mr Gruzin, managing partner for Andersen's financial services strategy in the Asia-Pacific. But the advent of e-commerce had now levelled the playing field for Asian companies operating in more restrictive regimes. European financial institutions were now rapidly catching up on the US, he added, leaving Asia lagging behind.
'Asia has five years to get its act together, or be taken out by the others,' Mr Gruzin added. 'Asian companies need to adapt their management styles and be even more innovative than usual and make the most of e-commerce - it is a lifeline.' Increasing US and European dominance was not new, but the pace had escalated due to e-commerce. For companies expanding globally it was vital to play to strengths and never attempt anything in a new market unless it could be done better than locals.
'Both HSBC and Standard Chartered do that very well,' Mr Gruzin said. 'To be successful internationally it is not necessary to have expertise in all areas - just be particularly good or famous in one or more.
'This is a tremendous opportunity for minnows to form joint ventures and partnerships with big players who don't want to start from scratch in every new market.'