TOP 10 CHALLENGES FOR INVESTMENT BANKS 2017
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.
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.
Get in touch
Antonella Aureli
Milan
Anca Vasilescu
London
