International Expansion in Financial Services

Corporates in advanced economies are accelerating their international expansion ambitions as they look to escape slow growth at home and expand abroad, looking to capture sales growth in geographies that are demonstrating GDP growth. In its April 2013 World Economic Outlook Update, the International Monetary Fund (IMF) projects 3.3% overall global GDP growth for 2013, but this growth is being driven by emerging markets in Developing Asia, Latin America and the Caribbean, and the former Soviet Republics. The IMF's 2018 projection for these geographies are:

• Developing Asia: 7.7%
• Latin America and the Caribbean: 3.9%
• Commonwealth of Independent States (CIS): 4.0%

Contrasted with 2018 growth projections for developed economies:

• United States: 2.9%
• Euro Area: 1.6%
• Japan: 1.1%  

U.S. based multi-national companies provide one example of foreign market expansion. The Business Roundtable (BRT), an association of chief executive officers of leading U.S. companies, published a report titled “American Companies and Global Supply Chains Networks” in January 2013 detailing foreign market growth for these firms. BRT found that foreign market growth is much faster abroad than at home. Over 1999–2009, BRT states that value added across all their foreign affiliates grew at an annual average of 7.0% versus an annual average of just 1.7% for their U.S. parents. Average growth was 8.4% in Brazil, 22.8% in China, 24.9% in Eastern Europe and 26.8% in India.

Another example of international expansion is evidenced by global mergers and acquisitions (M&A). According to Dealogic’s Global M&A Review for 2012, global M&A volume finished up 2012 with the highest quarterly total since late 2007.  Cross-border M&A was up 3% year-over-year in 2012, boosted by 30% growth in the Americas, with the highest volume of M&A activity in EMEA.

As multi-national companies expand into new geographies, their corporate treasurers are looking to their financial services providers to support their international expansion activities. Strategies to support multi-national corporates vary, particularly between global banks and their smaller national and regional bank competitors.

To support transaction banking clients, many global banks expanded into key geographies by obtaining commercial banking licenses. At the top of the 2013 Fortune 2000 list, ICBC operates in 39 countries and has a network of 1,630 foreign correspondent banks in 138 countries and territories. Citi provides services to 65,000 corporations in 140 countries, with transaction services offered in over 95 countries. HSBC operates in 60 countries and territories, with a focus on emerging markets. JPMorgan Chase has a presence in 39 countries and maintains more than 3,000 global correspondent banking relationships.

 Other examples of recent global bank expansion initiatives include:

• Bank of America (United States) and UBS (Switzerland) receiving banking licenses in Brazil
• JPMorgan Chase (United States) and Morgan Stanley (United States) winning approval to form securities joint ventures in China
• ICBC, Bank of China and the Agricultural Bank of China receiving approval from the Federal Reserve to expand their operations in the United States
• Itaú BBA Securities (Brazil) launching a USD-based securities lending and repo business
• Deutsche Bank (Germany) re-affirming the importance of growth in Asia Pacific and the Americas in its “Strategy 2015+” plan
• Citi (United States) and Standard Chartered (UK) plan offices in Iraq to support global power, oil, telecom and construction clients 

In order to meet the needs of larger commercial customers, national and regional banks usually partner with global banks who supply correspondent banking services and private-label cash management solutions. Correspondent banking services typically include treasury management, credit services, foreign exchange, international trade and finance, and investment management. Providing private-label services for banks is a strategic focus for US-based BNY Mellon. 

Meeting the needs of demanding corporate clients in remote geographies can be challenging for global, national and regional banks. They frequently turn to specialized providers in those geographies who have international reach and local expertise.