Globalization Globalization Should Be Seen as Journey
By Steven Chai
Co-head of BCG Seoul Office
``Globalization'' is at the heart of the top domestic financial companies' growth agenda. The rational and the urgency around it are difficult to argue against. There are two most obvious reasons worth noting.
First, the domestic demand for financial services is very close to saturation, leaving a 5 percent annual growth potential for the foreseeable future. Even that may be optimistic.
Second, the financial services industry is behind in its global presence relative to the national economy's global activity level and status. In other words, domestic financial companies are capturing less than their natural share considering the opportunity potential.
Today, the top ranking Korean financial institutions generate less than 3 percent of their revenue from global operations. The equivalent number for the global top 50 players ranges from 25 percent to 85 percent.
In order for financial companies to make progress on the globalization front, reflection on two questions may be useful.
The first would be ``Is the global aspiration aligned with the current set of financial companies' capabilities?'' and the second is ``Is there a well thought out globalization strategy in place as well as the discipline to implement it?''
The answer to the first question is probably a big ``no.'' First, there are many fundamental ``Korea specific barriers'' to overcome such as language, management culture and aptitude toward embracing diversity.
Then there is the lack of investment in developing global talent and building track record. Furthermore, domestic banking to date did not require superior abilities in wealth management, corporate and investment banking, which are capabilities differentiating successful global players.
Given that these are some of the ``minimum table stakes'' to play the game, it follows that Korean financial companies are not naturally fit to succeed outside of Korea.
Similar handicaps exist in the regulatory bodies and in the associations leading the financial service sector. This makes it difficult to find a cohesive leadership that can provide direction and motivation.
Given such constraints, the current performance of domestic financial companies outside of Korea is a natural outcome and should not be overly questioned.
Even compared to our neighbouring countries, Korean financial companies have the image of being less international than their Japanese peers and more insular than their Chinese peers.
It is therefore a priority to objectively acknowledge such limitations and realize that a global aspiration will require going far beyond an evolutionary path.
Only then one can begin addressing the second question around strategy and discipline. The past globalization efforts can be characterized as ``flag planting'' i.e. setting up shop in various geographies.
Going forward, distinct decisions must be made along the type of global business opportunities: 1) serving the local demand in a new geography, 2) serving the Korean customers' international needs and 3) investing in international assets.
In terms of discipline, the players will need to treat their respective global operation as a very different and independent business; separate management philosophy, separate HR management policies and different set of people.
Concrete revenue target should be set, but more importantly investment plans need to be put in place and carried out. Small set backs should be part of the expectations. Globalization should be looked at as a journey and not as a project.
There is no doubt that making a true difference in the next 3-5 years will be an uphill battle, and that the very few who truly commits and succeeds will command a leadership position in the industry.
M&A Must Item for Bank Globalization