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PRESSING THE RESET BUTTON ON LOCATION STRATEGY

Deciding where to have a geographic presence is a key question for investment banks in 2017.

With challenging market pressures and changing regulatory requirements, investment banks are frequently looking for creative ways to boost competitiveness. One of the ways investment banks could do this is by identifying optimal operating locations—taking into account geographic presence, operational consolidation and diversification.

Consider the key drivers for location strategy

Deciding where to have a geographic presence is a key question for investment banks as they are evolving their business models. Whether it’s a global company looking to retain market share, or a smaller regional player seeking to internationalize operations, there are a number of key internal and external drivers that influence the location strategy of an investment bank.

Aligning location strategy to operating model is a must

Before identifying and implementing the optimal location strategy, investment banks should take alignments to their operating model into account. In order to create a sustainable location strategy, banks must align it to the strategic objectives of their organizations’ operating models.

Objective: Set up adequate legal and compliance processes

Consideration: Undertake due diligence exercises to ensure all required legal documentation, trading agreements, licenses and local compliance processes are in place.

Objective: Align brand to core customers

Consideration: Build awareness through targeted campaigns to establish a reputation aligned to the selected target clients, e.g. corporates.

Objective: Ensure culture homogeneity

Consideration: Focus on firm culture and conduct, providing adequate staff training to align operating models regardless of local working cultural norms.

Objective: Nimble technologies and processes

Consideration: Set up technologies and processes in a scalable manner to ensure that operations can be set up safely and with ease when moving, causing minimal risk to the rest of the network.

Objective: Adequate infrastructure and planning

Consideration: Have necessary resources in place to enable quick pop-up of teams in low-cost locations in order to keep rents and headcount costs low.

Objective: Attract top talent

Consideration: Take advantage of a mixed global talent force, leveraging niche skills in given local markets, and offer competitive incentives adaptable to local culture.

Location, location, location!

Financial services hubs range in size and come with different strengths and weaknesses. Global hubs are likely to be well suited for revenue-generating activities and general management processes. Regional hubs, on the other hand, might have acquired critical mass in certain areas of expertise. Investment banks need to carefully weigh the pros and cons of each hub type before making geographic decisions.

Potential Advantages Potential Disadvantages
Global Hubs
London
New York
Hong Kong
Global and Regional Liquidity
Hubs Skilled Talent Pool
Client Concentration
Cost of Rent
Cost of Headcount
Stringent Regulations
Regional Hubs
Boston
Luxembourg
Functional or Market Specialization (e.g. Asset Management) Relevance Potentially Limited to Niche Clients
Utilities Hubs
Warsaw
Bangalore
Edinburgh
Low Cost of Rent
Low Cost of Headcount
Potential Working Culture Differences
Potential Talent Scarcity
Reduced Control
Virtual Hubs
Little or No Cost of Rent
No Cost of Headcount
Improved Efficiency
Standardized Processes
Process Excellence Required
Costs of Maintenance and Control

Don’t overlook market factors.

Investment banks should consider the market factors in play at each geographic location. Each market will feature a different maturity and sustainability. In some markets, there may be barriers to entry for foreign corporations. Other markets may be short on the local talent pool. These are important considerations that should not be overlooked before creating a new location strategy.

Maturity and sustainability of the local market

Consideration:
Selecting a location with high local business potential and space for innovation.

Barriers to entry

Consideration:
Selecting a location with low red tape, favorable conditions for foreign corporations to set up and operate (tax structure, bureaucracy, political stability and security), regulation (capital requirements, segregated assets), conditions for foreign workers (work/family visa policy, family amenities, income tax, local laws, societal restrictions), overall cost of business, including labor.

Availability of appropriate human capital

Consideration:
Language barriers and finding a balance in demand/supply for niche skills are common challenges when settling up at a new location. Warsaw and Bangalore are currently being viewed as key cities for technology and other roles due to the availability of a skilled talent pool. Investment banks might be teaming up with universities in such cities to establish a direct sustainable pipeline for top talent.

Complexity of setting up operations

Consideration:
Depending on the desired structure of operations, capital costs such as building rent, infrastructure set up and timelines are key factors to consider.

Depth and level of integration of the local market

Consideration:
Selecting a destination with a liquid market where it is easy to raise capital will be key to expanding the business.

Next steps

Set up vision and objectives

Each investment bank will have different needs for an optimal location strategy.

Align location strategy to the organization’s operating model

This is a must for sustainability.

Consider the locations

Specialized players might want to maintain a strong presence in regional hubs, while global players will want to maintain a presence across different geographies.

Consider the market

Workforce availability and legal requirements will be key in making a decision on different markets.

Select and implement the optimal strategy

Create a holistic business transfer framework to execute the final plan.

Conclusion

Investment banks need to plan their location strategy to fit both current and anticipated market and industry challenges, while optimizing operating models.

The correct choice will depend on several contributing factors: The target client population, the legal entity structure, the maturity of the operating model, digital workforce effectiveness goals, the technology infrastructure and the willingness to keep costs low. By aligning their location strategy to their operating model and choosing locations and markets wisely, investment banks should be better able to satisfy business aspirations and withstand changes in external factors.

Challenge Highlights

Evolving your bank’s business model requires close examination of what you do—and where you do it. Is it time to press reset on your location strategy?

Get in touch

Antonella Aureli
Milan
Anca Vasilescu
London
Oluchi Ikechi
London