How North American and European banks can tap into Asia’s big 10

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As the world’s economic engine continues to shift to Asia, North American and European companies will increasingly seek banking services that seamlessly connect to and within Asia. The challenge is many, particularly domestic and regional, North American and European banks don’t have the networks to make that seamless connection.

"A partnership with a local regional bank can leverage existing, established pan-Asian presence, capabilities and experience."
Kevin Wong, Sophie Wilson and Agnieszka Kirkhope, ANZ

If domestically focused banks from these regions want to deliver services that support their corporate customers’ growth ambitions in Asia, then the answer, and strategic imperative, is collaboration with an existing regional institution.  

Asia’s big 10

The opportunities being created by the Asian Century are immense. China and Emerging Asia are expected to make up more than 50 per cent of the global economy by 2050.

This is a seismic shift considering the region’s share of the global economy in 2000 was less than 10 per cent.

At the centre of Asia’s economic ascent are the ‘Asia 10’ – China, India, Indonesia, Japan, South Korea, Malaysia, Thailand, Singapore, the Philippines and Vietnam.

Integral to Asia’s growth has been trade flows, underpinned by the region’s role in manufacturing supply chains, a growing network of free trade arrangements and a rising middle class who are demanding more imported goods and services.

Naturally, many companies globally outside of Asia are seeking to capitalise on the very strong business opportunities presented by the region.

Over the past five years, the top 100 companies in each of North America and Europe have seen their Asian sourced revenues grow by over 50 per cent.

The key services

North American and European banks will see increasing demand from their corporate customers for banking services that seamlessly connect to and within Asia.

In our experience, these banking services will centre on trade, clearing, foreign exchange and payments & cash management, with the extent and complexity of service requirements dependent on the customer’s stage of growth in Asia.

The network affect

Client feedback and other research tells us the ability of a bank to provide such services in rapidly growing and changing Asia is a key competitive differentiator for US and European companies when selecting providers for their offshore cash management and trade requirements.

Growing a regional network take time, resources and is often complex. But strategic collaboration will allow domestically focused North American and European banks to quickly support their customers’ Asia-related banking needs at reduced cost and risk.

It could be a more viable strategic initiative given ongoing banking regulatory pressures, non-homogenous Asian markets, competitive industry dynamics and relative lack of scale compared to global banks.

A partnership with a regional bank can leverage an established pan-Asian presence, capability and experience – while allowing North American and European banks to preserve their competitive customer franchise.

Unilateral investment vs. collaboration

We have analysed a selection of North American- and European-domiciled banks which have a mainly domestic presence in order to understand their capacity to unilaterally invest in Asian capabilities.

We have compared these banks against more globalised institutions in relation to scale, regulatory capital and profitability, and come up with the following key observations:

  • Domestically focused North American and European banks have to carefully assess how to enhance the relatively scarcer capital they have available to deploy; and
  • Domestically focused North American and European banks have relatively limited internal knowledge of and experience with the costs, risks and complexity of offshore/Asian expansion.

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Collaboration - the right choice

Inevitably, the success of any collaboration effort will depend heavily on selecting the appropriate banking partner in Asia.

In this regard, a key consideration for a North American and European bank is protecting its competitive franchisegiven, that strategic collaboration will mean providing the Asian banking partner with access to customer relationships.

An obvious solution to this issue is to partner with a banking institution that is not a competitor in the core markets of North America and Europe.

In addition to having non-competing geographic priorities, the selection criteria for an Asian banking partner should also encompass relevant Asian market presence, relevant product offering, local coverage, willingness to share insights, strong reputation and financial strength, and partnership orientation.

An Asian-centric bank which can provide these things could help North American and European banks succeed in the Asian century.

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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