With one-third of the world's land surface area and two-thirds of the world's population, Asia is the world's most heavily populated continent, and is now firmly established as a manufacturer and growth driver of the global economy thanks to economic powerhouses such as China, India, Japan, Indonesia and Singapore. According to Professor Jeremy Siegel of the Wharton School of Business, China is likely to account for 20% of the world's gross national product by 2050, or as much as the US (11%), Western Europe (6%), Japan (2%) and Canada (1%) combined. By this time, India is likely to account for a further 16% of global gross national product on its own.
Date: Feb 15, 2011 Author: Mario A. Bassi
Keywords: Strategic focus, Leadership, Opportunities, Challenges, Execution
With one-third of the world's land surface area and two-thirds of the world's population, Asia is the world's most heavily populated continent, and is now firmly established as a manufacturer and growth driver of the global economy thanks to economic powerhouses such as China, India, Japan, Indonesia and Singapore. According to Professor Jeremy Siegel of the Wharton School of Business, China is likely to account for 20% of the world's gross national product by 2050, or as much as the US (11%), Western Europe (6%), Japan (2%) and Canada (1%) combined. By this time, India is likely to account for a further 16% of global gross national product on its own.
Global assets made a powerful comeback in 2009, growing by 11.5% to US$111.5 trillion, according to Boston Consulting Group, or almost back to the peak achieved at the end of 2007. Asia's assets (ex Japan) grew by 22%, or US$3.1 trillion, in 2009. In other words at almost twice the rate of global assets. Asian countries now occupy four of the top 10 places in terms of the highest number of millionaires – with Japan and China occupying second and third place respectively behind the US. Taiwan and Hong Kong currently occupy 9th and 10th place respectively. The greatest proportion of millionaires can be found in Singapore (11.4%) and Hong Kong (8.8%), ahead of Switzerland (8.4%) and Kuwait (8.2%).
In a research paper on the wealth management industry, MainFirst Bank has predicted that the annualised growth rate of affluent persons is likely to work out at 8.1% between 2008 and 2013, with Asia contributing a substantial proportion thanks to a growth rate of 12.8%. If these assumptions prove correct, the total assets of Asia's affluent community in 2013 will account for 31.7% of the global total, outstripping the share accounted for by North America (26.2%).
An impressive example of China's growth momentum can be illustrated by the case of automotive constructor Geely, which started out as a fridge manufacturer in 1986, began producing cars 12 years later, and in March 2010 (another 12 years later) purchased Volvo from Ford for US$1.8 billion. This year's World Cup in South Africa numbered a Chinese company – Yingli Green Energy Holding Company Limited – among its sponsors for the first time ever. The corresponding budget for a marketing initiative of this magnitude is believed to be a minimum of US$100 million. The company in question was only founded in 1998. China is also forecast to become the world's number one country for initial public offerings (IPOs) this year.
Key strategic region
Chi-Won Yoon, chairman and chief executive officer (CEO) of Asia Pacific for UBS, which is still viewed as an industry leader in wealth management, set out why Asia is viewed as a strategically important region for the company at an Investor Day held on November 17, 2009. The company intends to increase its total business volume in the region by two-thirds. But when one analyses the data more closely, it emerges that wealth management is to actually double in size. Oswald Gruebel was recently quoted in the Straits Times, Singapore's largest daily newspaper, as follows: "We have been in Switzerland for 150 years. I'm sure that if we had invested here as much as we invested in Switzerland or the US or Europe, it would have been completely different. But we think that it's not too late."
Deutsche Bank, too, has declared Asia to be a strategic focus for growth as part of its management agenda. At the annual 2010 press conference, chairman Dr. Josef Ackermann stated among other things that the bank was looking to increase its earnings in Asia by some EUR4 billion by 2011. Its objectives also include becoming one of the top three investment banks in the region, one of the top five in private wealth management, while at the same time doubling its earnings.
Alongside these two colossi of the banking world, Swiss private bank Julius Baer has also confirmed its own strategic objective for the region – expanding its business in Asia to the point where it becomes a second "domestic" market after Switzerland. Julius Baer has expanded and extended its business in Asia massively in recent years. The bank now employs 350 staff in Singapore and Hong Kong, and has firmly established itself as a private banking brand.
Challenges for private banking
But alongside all the opportunities that are opening up to providers of wealth management services in Asia, the region also poses some major challenges when compared with the mature markets of Europe and the US. The sheer geographic scale of the region for one thing: even at its height, the Roman Empire would have fitted into the Asian continent more than six times over. Furthermore, the religious and linguistic diversity of this continent completely dwarfs that of the established private banking markets in its complexity.
Hong Kong and Singapore have both evolved into wealth management hubs in recent years. Singapore, for example, decided to build itself up as a private banking centre following the Asian crisis of 1997, and has driven forward this objective consistently. As a consequence, existing providers in the region have further expanded their services, while financial service providers that have neglected this business in the past are now pursuing it as one of their strategic growth initiatives. In addition to the large institutions such as UBS, Credit Suisse, HSBC, BofA Merrill Lynch and Citibank, there are now an ever-increasing number of players occupying the middle tier such as EFG, Julius Baer, and RBS Coutts. The competitive heat has been stoked up further by the entry into the market of new players such as Australia's ANZ Bank, which has only recently started focusing on wealth management in Asia, and local bank OCBC, which acquired the Asian private banking business of ING.
With all the existing providers looking to expand their business further on the one hand, and all those now looking to move into the Asian private banking market for the first time on the other, the demand for experienced client advisers and other specialists is huge. This is a serious problem, because wealth management for affluent private clients is a relatively recent service in Asia, and local experts are in very short supply. As a result, stories continually appear in the media about senior executives being poached by competitor banks and taking entire teams over with them. In addition to switches of this nature, an increasing number of banks have gone on record to state that they are looking to appoint new staff in the immediate future. The planned number of new staff is often in the hundreds.
Wealth creation in Asia is very strongly influenced by first-generation entrepreneurs who have become affluent through their natural commercial instinct and willingness to take risks. These clients demand very high standards from their bank and their advisers, and are for the most part also greatly involved in the management of their investments themselves. Furthermore, there is often no clear boundary between private assets on the one hand and commercial assets on the other. This gives rise to a situation in which a bank has to be able to offer solutions on the commercial side if it wishes to have a meaningful relationship with the entrepreneur in question. As multiple banking relationships are very much the order of the day in the world of Asian businessmen, the speed at which decisions can be made also plays a key role in the development of positive client relationships.
Asian investors have traditionally displayed a greater fondness for structured products than their counterparts elsewhere in the world. This may have something to do with their greater urgency for strong investment performance and thus a willingness to take risks, an approach that was well rewarded before 2008. However, the experiences of investors over the last two years have led to a tightening of regulation in the "investment suitability" area, both in Hong Kong and elsewhere. Banks are now faced with new demands for their private banking clients that will massively change the entire financial advisory culture.
For example, most banks are accustomed to drawing up risk profiles for their clients as part of their "know your client" due diligence obligations. In the past, however, this was often done only internally and never communicated to the client. The risk ratings drawn up by banks must now be openly communicated to clients, whose acceptance of these ratings must then be documented. Both these and other recommendations on the part of the regulator place huge demands on front and back office. Yet this comes at a time when banks are actually looking to increase the amount of time an adviser is free to look after clients on the one hand, and optimise costs in support functions on the other.
Differentiation through an effectively implemented strategy
A very experienced and highly-respected personality in the world of private banking recently commented at a wealth management conference that the business with affluent private clients in Asia was like the source of a river – very rapid and wild-flowing water that occasionally leaps over the banks. In Europe and the US, by contrast, the river is in a more mature state and proceeds calmly along a broad and less erratic riverbed.
A clear corporate vision and the associated strategy is becoming increasingly essential if a financial institution is to be able to control what is at times an all-too-dynamic situation. Particularly in an environment where the onus is simultaneously on increasing revenues, optimising costs, and minimising risks.
Such a strategy is typically made up of the following basic components:
In my view, such a strategy will be seriously effective only if everyone in the team knows how their personal objectives are contributing to its implementation. Essential here is a corresponding set of Key Performance Indicators (KPIs) at all levels, in other words from the CEO right through to the individual staff member. Equally important, as a consequence, are regular reviews of data and the associated action plans. Companies can often focus too much on the accumulation of ever-increasing amounts of data rather than on the formulation of a need for action and its implementation.
Strategy is a process
You often hear from staff, particularly those on the "front line", that the road to success in Asia requires every situation to be approached on a case-by-case basis, without any need for a convoluted academic "plan". But given all the challenges a company faces, it cannot avoid setting out certain parameters and ensuring a certain degree of governance alongside the pure entrepreneurial spirit – not so much a plan, therefore, as a process.
Sun Tzu, one of the oldest Asian strategy experts, wrote a long time ago in his work Art of War: "Strategic planning is a contradiction in terms. Strategy works in uncontrolled, competitive environments while planning works in controlled environments that are protected from competitive chaos. Instead of planning, strategy revolves around positioning. You advance your position by moving into openings created by others and adjusting your actions to fit the dynamics of the situation. Each move is an experiment. Since most experiments fail, strategy teaches you how to experiment safely and learn from your failures. As you learn better methods for analysing and making progress in competitive environments, you get better results. As you advance your position, your thoughts and attitudes naturally conform to your new position. Strategy is a process, not a plan.... Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat."
