Global Expansion Strategies Fail to Pay off for Most Financial Services Firms, But Winners Leverage Four Key Strategies

Accenture Study Finds High Proportion of International Companies With No Clear Strategy For Creating Global Value

NEW YORK, February 22, 2000 -- Going global might have been the mantra of the ’90s, but a new study from Accenture indicates that few international financial services companies have achieved above-market-average value from their expansion strategies.

This study found that while nearly one-third of the world’s largest financial services companies operate in three or more continents, global expansion overall has proven to be remarkably unsuccessful. Only 13 of the world’s 31 largest global financial services organizations achieved above-market-average returns to shareholders over the 10-year period ending December 31, 1998.

Successful globalizers consistently employed four key strategies:

The Accenture study, "Globalization in Financial Services," evaluated the 10-year financial performance of financial services organizations that operate in at least three continents and generate more than 25 percent of their revenues outside their home countries. The study also included other financial services firms chosen not for their size but for their winning global strategies - including some of the "born global" Internet companies, such as E*TRADE. Researchers aimed to discover how and why certain "globalizers" have been successful in attaining superior financial performance as a result of their expansion strategies.

Creating Value Through Focus
"Our study found that a high proportion of globalizers seemed to have no clear strategy for capturing value through global expansion," says Robert Davidow, the partner in the Financial Services practice of Accenture who led the research. "Successful globalizers leverage an advantage in at least one of several key areas, including brand, market strategy, core competencies, common systems and management disciplines, among others."

For example, Citibank seized upon its strengths in such areas as brand management, go-to-market strategy and customer management to exploit its skill advantages in new markets. Others, such as First Data Corporation (FDC), entered new markets to leverage skills and scale - in credit card processing and money transfer services - to achieve competitive cost advantages.

According to the study, most companies have chosen to globalize for one of three main reasons: to serve important domestic customers in foreign markets; to exploit an inefficiency in a foreign market; or to break out of a low-growth domestic environment. Several companies had no clear rationale for expanding and seemed to long for a sense of adventure, the study noted.

The study identified winning globalizers as those companies that entered new markets with a well-defined offering that could exceed the capabilities of local market competitors. Less successful was introducing a wide range of services simply to create an international presence.

While financial performance is the key measure of success among companies that globalize, the study also analyzed other factors.

"Success is measured not only in total returns to shareholders, but also by who is capturing and retaining customers and building their brand in the new economy," Davidow notes. "While some successful established industry players have kept pace with the effects of e-commerce, newer globalizers are winning a disproportionate share of customers early in the game through expansion over the Internet."

Internet Accelerating Pace of Globalization
Despite an unimpressive track record, globalization is destined to accelerate within the financial services industry. As the Internet enables companies to offer certain financial services on a virtual, worldwide basis, the challenge of surviving and thriving in the global marketplace becomes even more daunting. E*TRADE, for example, was able to create a global brand and establish operations in 33 countries in only three years. In comparison, some traditional full service brokers have taken 30 years to achieve similar geographic coverage, although with a far broader offering.

In addition to the Internet and its effects, the Accenture report points to several other forces that will spur companies to adopt a global perspective over the next 10 years. These include customers - both retail and corporate - demanding access to products and services on a global basis; over-capacity, which is inflating costs and creating a need for continued mergers; and substantial differences in pricing between markets, ultimately attracting companies to countries where they can leverage their strengths and gain a share of the local market.

The impacts of globalization are critical even for those companies who choose not to be global, Davidow notes. As regulatory barriers come down, competition for every service will intensify. Non-global financial services firms should re-evaluate what they do best and outsource or seek join ventures to cover the activities in which they aren’t competitive, he says. Such ventures, as illustrated by the partnering of Internet competitors Schwab and E*TRADE with local brokerages, provide a symbiotic relationship for global companies who want to flex their skill or scale in a new local market.

Crafting an effective global strategy requires careful introspection and deliberate moves, much like a game of chess, notes Davidow. "We’ve been through the opening game of globalization, but now we’re starting the middle game where the real winners and losers will be determined."