Download ADVANCED BUSINESS SERVICES (ABS) Examples: banking

ADVANCED BUSINESS SERVICES (ABS) Examples: banking, accountancy, insurance, logistics, law, advertising, business consultancy, high­level personnel recruitment Money counts ­ every economic activity has to be financed at all stages of its production o without development of systems there could have been no development of economies beyond most primitive organizational forms ­ these complex space­time webs of monetary flows and obligations underpin our daily social existence Financialization= endemic feature of contemporary economic life Int. fin. system→ “casino capitalism” (at night the games go on), “mad money” (increased volatility) Structure ABS: ­ providers of highly specialized knowledge ­ intermediaries in process of production, distribution and consumption ­ differentiate between financial services and professional business services banking= pooling of financial resources among those with surplus funds to be lent out to those who chose to be in deficit example of financial services: administration of fin. transactions for clients (commercial bank), buy and sell securities (investment bank) example of business services: provide legal advice (legal firm), designs and implements commercial campaigns (advertising company) ­ increased complexity of the fin. system involves a huge variety of different types of fin. institutions o boundaries have become increasingly blurred Dynamics of the market Demand for ABS is driven by increasing complexity and specialization of functions within economies ABS providers = beneficiaries of such development = contributors to increased complexity ➔ helping to create their own growing markets Production markets have become more global ➔ firms follow their clients abroad (trust already exists) ➔ different nat. territories create opportunities for ABS firms to construct more complex and geographically diverse operations and to build up extensive networks Increased diversity and volatility of the market Intensity of competition for consumers has increased enormously 1) market saturation: 1970s traditional fin. services were reaching saturation 2) disintermediation: corporate borrowers have increasingly sought capital from non­bank institutions 3) deregulation of fin. markets: new geographical markets, provision of new fin. products, changes in how prices are set 4) internationalization of fin. markets: no longer restricted to domestic context ➔ new competitive environment (but change wasn’t smooth) Technological innovation Information and communication technology (ICT) is absolutely central to ABS! Information about markets, risks, currency exchange rates, returns on investment, credit worthiness → process and product product = information about cash (speed is very important) money = item of information governed by rules ICT helped create new financial products ➢ conclusion: global integration of fin. markets has collapsed space and time and reated the potential for virtually instantaneous fin. transactions ➢ however, completely borderless fin. trading doesn’t exist because most fin. services supervised and regulated by individual governments The Role of the State Before 1960: A tightly regulated system ●
Supervision of the financial markets and institutions at national level ●
Regulation by the government because of: ▪
Concerns over vulnerability of financial system to periodic crisis ▪
The Centrality of finance to the operation of the country’s economy ●
Two important types of financial regulations: ▪
1) governing the relationships between two different types of financial activities Means that the financial services markets have been segmented: neither institution was allowed to perform the functions of the other; eg. Banks perform specified activities and security houses other activities ●
2) governing the entry of firms into the financial sector Limits on degree of foreign ownership in financial services; because foreign banks were difficult to supervise After late 1980: The crumbling of the walls ●
Pressures for deregulation from several sources; especially from transnational financial firms ▪
Governments needed to secure that their financial market do not escape to places where deregulation is less and potential profit higher ●
Another reason for the deregulation trend: the emergence of Eurodollar markets ▪
countries held more and more US dollars outside the US banking system to prevent their dollar holdings being subject to US political control ▪
this emergence were reinforced by banks to operate in a less restricted manner internationally ▪
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here you can see: internationalization of financial services and deregulation reinforced each other ●
Deregulation of financial markets in all major developed economies ▪
For example USA, UK, France – series of changes in 1970­1980s: eased the entry of foreign banks, removed traditional barriers between banks and security houses, opened the national Stock Exchange to outsiders ▪
Singapore: actually a highly regulated economy loosened restrictions in order to maintain the country’s position as a major financial center After 2008: Reintervention of the State ●
2008: collapse of major banks and financial institutions ●
Some institutions were allowed to fail BUT in the main: governments tried to rescue their banks with massive financial support ●
These banks were “too big to fail”, simply because credit is so essential for an economy to operate ●
Short­term costs were that immense for the taxpayer ​
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in the longer run a new global financial architecture is needed! ●
Dramatic shift from tight regulation to deregulation – until 2008 financial crisis regulation returned ●
Completely borderless financial trading does not exist – in finance regulatory systems are especially significant Corporate strategy 1. Concentration & consolidation ∙ All ABS sectors dominated by small number of large firms ∙ Evolves from M&A 2. Product diversification ∙ Supply of “packages” ­> banks: clearing banking, corporate financing, insurances, mortgages, … ∙ Trend occurs in every ABS sector ∙ Reasons: economies of scale & scope ∙ Problem with intangible goods (financial ABS): depend on culture, behavior, regulations ­> differ in every country 3. Transnationalization ∙ Provision of ABS depends on geographic proximity ­> face­to­face contact is crucial ∙ Major customer expanded their operations overseas: ABS under pressure to follow a) Financial service ∙ Banks tried to carry out most work from home base: phone, mail, local correspondent banks ∙ Today: strategy based on direct presence ­> selling global brand image b) Legal services ∙ Provision requires direct contact in each territory ­> nature of information very sensitive and legal regulations differ from country to country ­> creates complex transnational operations ∙ Follow one firm approach: aligned, seamless and consistent service ­> complex! ∙ Solution: partnership and practice groups c) Executive recruitment ∙ Headhunting: search because of importance of business leader with transnational experiences ∙ 4 forms: o Wholly owned: firm operates tightly with organized set of offices across the world o Network firms: strategic alliances between several independent firms o Hybrid firms: tighter integrated that networks o Combined structures: some of biggest headhunting firms may adopt different approaches at the same time to meet specific circumstances d) Advertising o Markets become global and intensely local at the same time o Though Internet and social media consumption: complex challenges for advertising firms ­> have to develop ability to creat demand for a product in multiple geographically dispersed heterogeneous markets in which consumption behavior differs o Solution: Global Holding Groups ­> short­term M&A (get around constraints from long term M&A: only one firm per industry) Geographies of ABS Cities as the “natural habitat” ●
ABS seem footloose: not tied to raw materials; deregulation reduced national barriers and developments in technology permit information to whizz around the world ●
BUT ABS continue to be strongly concentrated geographically­ they are more concentrated than any other kind of economic activity ●
Global/world cities = natural habitat of ABS o
= ”capitals of capital” o
London, New York and Hong Kong remain the top 3 global financial centre ●
Characteristics of these world cities: o
High intensity of connectivity between cities (= position of the individual city in the world city network) o
Contacts are concentrated and firms are sociable (flow of information, face­to­face contact, close relationship to TNCs) o
Example London: “the international financial centre” ▪
Strength in foreign exchange, international equities and derivates ▪
Largest concentration of foreign banks ▪
Key role as “capital switching centre” ­> London’s turnover = NY and Tokyo’s turnover put together ▪
Significance due to several factors: ●
Geographical position: located in the time zone between NY and Asia ●
Regulatory environment: very deregulated market ●
The global financial network is NOT static o
Increasing status of East Asian financial centres (Singapore, Shanghai, Beijing) o
BUT these are long­term processes – London is still the leading financial centre