Get globalised or get out

Financial markets firms have historically avoided the commoditisation trap by innovating to create new products and services.

The bulk of their impressive growth has typically come from the world's largest and mature markets such as the US, the UK and Japan. Yet today, growth opportunities in those geographies are evaporating, and meaningful future expansion will come from new markets compounded even more so by the US subprime crisis.

In spite of the fallout and the turn-of-the-century downturn, financial markets firms have enjoyed double-digit revenue growth in excess of 11% over the past decade and the worldwide industry opportunity is expected to double by 2015.

However, even with a steady stream of innovative products and services, companies will find it increasingly difficult to grow revenue in these satiated veteran markets where rivals are competing for a shrinking pool of opportunity.

Firms have found themselves increasingly looking to find new areas for growth but the big question is where to find such markets? The other question that remains is when these areas for growth are found, which firms will seize these emerging profit pools?

It will be those that specialise in the areas their clients value while optimising their global reach that will be at the head of the pack in an increasingly globalised world.

Worldwide investable assets are expected to double by 2015 to almost US$300 trillion. By 2025, the opportunity advances to nearly US$700 trillion, however, 60% of this future growth, which amounts to more than twice that of veteran markets, is going to come from non-traditional places such as the emerging markets of the Middle East.

As a senior executive of a government regulatory agency in the Middle East said: "Capital flows to where opportunities are - it is as simple as that. Capital and money don't recognise boundaries".

While veteran markets will remain large, these newer markets could soon have asset bases that rival those of their long-standing peers. Interestingly the research carried out has allowed us to project that by 2015, if the Middle East is viewed as a single country it would be ranked number 15 in the world financial markets.

However, what has also been discovered is that many financial markets firms are not in a position to capitalise on this more geographically dispersed industry opportunity. More than 93% of the executives interviewed acknowledge that their firms are not operating in a globally integrated fashion.

Furthermore, when asked to assess their proficiency with globally oriented organisational and operational practices, two-thirds of the respondents rated the performance of their firms as poor to moderate and were a little perplexed as to how to actually get global.

We also found that among industry executives, the general gut reaction is 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.

To lead the worldwide playing field, we believe firms should differentiate by focusing on particular areas of the business that matter most to their clients.

Equally important, firms need to systematically shift away from rigid multinational organisational structures toward more fluid, globally integrated enterprises that enable them to capture opportunities whenever and wherever they emerge. In short, firms must get global and get specialised or get out.

Suzanne L Duncan is financial markets industry leader at the IBM Institute for Business Value.

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