Is the U.S. in Trouble When It Comes to Keeping its Financial Services Sector from Going Overseas?
Just finished editing an article going into our Global Issue (October) ... it's really a great read and a wake-up call for the U.S. It's a shame that I had to cut it substantially to fit in print, so I thought I'd do something a little unorthodox for us and print it in its entirety, uncut, here on our blog before it actually hits the streets on paper. Let us know what you think. (The author, "Fritz" Shepperd, is a longtime Editorial Advisory Board member for Business Facilities and spends most of his time these days in Europe tracking these sorts of issues.)
New Global Capital Flow Creates New Global Hot Spots
The meltdown in the financial markets and clouds on the economic horizon for the U.S. may be shocking to some, but in fact it has been in the works for a long time. The capital markets were euphoric during the summer, but it was only a matter of time before the facts would make it to the front page. Those include another real fact that the markets were starting to adjust to when the mortgage crisis hit: For several years, a tremendous outflow of billions in cash from the U.S. has grown to the point where it radically affects the financial industry. A new landscape of global hot spots is developing as the cash tries to find a home. That means new offices, new opportunity, and a new source for economic development.
The signs have been everywhere. Citibank announced massive layoffs this summer in North America as it announced massive hiring in India. Companies in the "back office" business of the stock market and financial services industry are getting offers for buyouts, takeovers, and joint ventures. For the first time in history, Goldman Sachs made as much money abroad as it did in the U.S. In the meantime, New York City lawyers, accountants, and money managers are wondering where the IPO business and the money has gone. Truly, globalization has hit the finance and financial services industries.
It was just a matter of time. The simple fact is that capital flows to where it is best used and where it receives the best return for the right level of risk. As industry left the U.S. in the last 10 years, the financial services and capital formation supporting industry follows right behind. That means a significant change in the way of doing business and where companies will go to set up their global enterprise. In the past, the "where" meant New York, San Francisco, and other regional financial centers. Now the race is on as new centers develop outside of the U.S. to attract the companies that are being forced to go abroad to stay competitive. The cost of raising capital in the U.S., regulation and oversight costs, and the low growth and returns in North America are causing domestic businesses to look elsewhere. Governments abroad realize this trend already and are seeking to attract those dollar-based investors.
It is hard news for North American economic development agencies, developers, brokers, and others in the site location business. While the New York Stock Exchange is trying to limit the impact of companies that want to de-list from the exchange, governments outside the U.S. are creating new tax incentives and other enticements to attract the global capital flow their way.
Where are these centers? A recent article in New York magazine suggested that the new center of the world financial market is London. In fact, a study authorized by local politicians and reported in The Economist suggests New York City would lose 7% of its employment in the financial sector because of this trend. The trend is already underway: The U.S. dollar reached a 26 year low against the British pound recently, and is at historic lows against the Euro and Swiss franc, with no stopping in sight.
London may or may not be the new global financial capital, but what's uncontested is that it has flooded Continental Europe with cash for real estate and corporate investment. However, its success has also created great problems locally, such as astronomical housing costs, high wages, an overloaded transportation infrastructure for the global business executive, among other things.
Asia has created its own new financial spheres including Shanghai, but the new riches in Asia have yet to create solid, stable markets, as the recent sell-off of regional stocks has clearly demonstrated. Dubai is developing as a regional center for the Middle East. All the new and existing financial centers are trying to capture financial services companies. In fact, they are being fought over by everyone as hotly as U.S. states compete for a new automotive plant. (With good reason: focusing on growing the financial industry can be very beneficial to a location. Just ask Omaha, NE.)
The rise of private equity companies has also affected cities; just look at real estate values and employment around financial centers like Greenwich, CT; Kronberg and Bad Homburg in the Taunus hills north of Frankfurt; and Zug, Switzerland, to name a few.
As for the back office work, India has proven itself an excellent niche market to outsource customer service call centers, computer centers, and even hospital X-ray diagnostics to. As mentioned, Citibank is making a huge commitment to India and its future. But even with the development in Asia, there are still large downsides and learning curves. Therefore, Western companies are looking more and more to Europe for their new future, and that more often is coming to mean Continental Europe.
The familiar phrase, "Follow the money," holds true in the global growth of the financial services industry. Interesting and often geographically small places are coming over the horizon, such as Monaco. Prince Albert is really trying to create transparency and attract a variety of hedge funds and financial services companies with new tax and corporate legislation. It is a unquestionably positive trend. Unfortunately, a lack of land and space may hinder huge waves of investment and employment there. Similarly, Lichtenstein, Luxembourg, and even islands in the English Channel have developed their own economic packages for potential financial services investors.
A CASE FOR SWITZERLAND
It looks like the real winner in the new global flow of capital may be Switzerland. Yes, the land of Heidi, cheese, and alpine music may actually be the best fit in the new global financial geography. After all, globalization is not about being bigÑit's about being fast and flexible. Neither of these descriptors fit the old image of Switzerland and the Swiss, but times have changed. In fact, approximately 30% of the population of Zurich comes from outside Switzerland. Thus, there is also a highly educated international labor pool to draw from. One relocation expert interviewed for this article has helped executives from over 60 countries settle into the area.
Globalization is about leveraging efficiencies and creating synergies. That means infrastructure. It goes without question that the Swiss banking and financial services industry is as effective and efficient as it gets. The old Swiss bank keys have been thrown away and replaced with smart cards and state-of-the-art systems for the financial services industry As an indication of the Swiss computer savvy and systems capabilities, Google has established a significant presence in Zurich. Vasco, a Chicago based supplier of authentication and security software, also recently announced their location in Zurich, a sign that Switzerland may provide a very competitive global center for financial support services. The country is also serving as Vasco's springboard to the world outside of North and South America.
Globalization also is about innovation, and the Swiss are particularly keen on this. After all, they have been a center for innovation for years. Just think how Swatch revitalized its watch industry when Asia had all but won the business. The same is true for new financial products and services. A few years back, the Basel, Zurich, and Geneva stock exchanges banded together to form the Swiss Stock Exchange, or SWX. The SWX has been very successful, with a total market value of approximately 1 trillion Swiss francs. (At press time, CHF 1.18 converts to $1.00.)
The exchanges in Frankfurt and Paris may be larger, but an exchange's small size also allows for greater ease of access into the market, and creates more accessible opportunities to put idea people together with the money men. That was also why Ohioans Henry Ford and Thomas Edison moved to sleepy Detroit and Menlo Park, NJ, respectively, to grow their newly formed, small businesses in totally new industries. They followed the money of their day. Right now, Switzerland's Bern Exchange is performing that function with smaller Swiss startup companies that prefer the public route instead of falling into the hands of a venture capitalist. The Bern Exchange is even referred to as the nursery for the SWX. Medical technology is just one of the key industries supported by the SWX and Bern markets.
Switzerland, already the capital for private banking and private equity, is also looking at the global flow of capital and proposing new tax breaks for hedge funds and other financial services companies. You could make the case that Switzerland has a great advantage versus some new markets around the globe; as Willi Meyer, Managing Director of the Greater Zurich Area says, "Where often the phrase in developing markets is 'anything goes,' in Zurich, the phrase is, 'everything works.'" And how: It is now estimated that 34% of the world's offshore wealth resides in Switzerland. That includes Geneva, Zug, Zurich, and all points in between. No wonder Singapore pays the country a compliment for its stability, security, and success by advertising itself as the "Little Switzerland of Asia."
For six years in a row, consulting firms and other organizations have rated Zurich the top location for quality of life. The proximity to lakes, mountains, the arts, and great culinary talents match the university and educational opportunities for younger family members. That makes the move an easy choice for global executives and their families. In a global world, where people and knowledge play a more critical role in the success of a company than ever, the best attracts the best. Zurich is an easy choice as one of the best locations to attract talent and keep it.
As the capital flows out from North America and companies follow with their offices, employees, and their families, certain locations like London, Frankfurt, Singapore, and elsewhere may sound inviting, but the new Switzerland and the new Swiss response to global capital flow makes a compelling case for site location experts and companies to consider. In fact, it may not be the world financial center, but it certainly could become the new global capital metropole.
Frederick Metz Shepperd, Esq. is Managing Partner of The Quadral Group, Ltd., and an Editorial Advisory Board member at Business Facilities. The Quadral Group is online at www.quadralgroup.com.
posted by Karim Khan at
7:08 PM
-Karim
New Global Capital Flow Creates New Global Hot Spots
The United States can no longer take its dominant position in finance and financial services for granted.
By Frederick Metz Shepperd
The meltdown in the financial markets and clouds on the economic horizon for the U.S. may be shocking to some, but in fact it has been in the works for a long time. The capital markets were euphoric during the summer, but it was only a matter of time before the facts would make it to the front page. Those include another real fact that the markets were starting to adjust to when the mortgage crisis hit: For several years, a tremendous outflow of billions in cash from the U.S. has grown to the point where it radically affects the financial industry. A new landscape of global hot spots is developing as the cash tries to find a home. That means new offices, new opportunity, and a new source for economic development.
The signs have been everywhere. Citibank announced massive layoffs this summer in North America as it announced massive hiring in India. Companies in the "back office" business of the stock market and financial services industry are getting offers for buyouts, takeovers, and joint ventures. For the first time in history, Goldman Sachs made as much money abroad as it did in the U.S. In the meantime, New York City lawyers, accountants, and money managers are wondering where the IPO business and the money has gone. Truly, globalization has hit the finance and financial services industries.
It was just a matter of time. The simple fact is that capital flows to where it is best used and where it receives the best return for the right level of risk. As industry left the U.S. in the last 10 years, the financial services and capital formation supporting industry follows right behind. That means a significant change in the way of doing business and where companies will go to set up their global enterprise. In the past, the "where" meant New York, San Francisco, and other regional financial centers. Now the race is on as new centers develop outside of the U.S. to attract the companies that are being forced to go abroad to stay competitive. The cost of raising capital in the U.S., regulation and oversight costs, and the low growth and returns in North America are causing domestic businesses to look elsewhere. Governments abroad realize this trend already and are seeking to attract those dollar-based investors.
It is hard news for North American economic development agencies, developers, brokers, and others in the site location business. While the New York Stock Exchange is trying to limit the impact of companies that want to de-list from the exchange, governments outside the U.S. are creating new tax incentives and other enticements to attract the global capital flow their way.
Where are these centers? A recent article in New York magazine suggested that the new center of the world financial market is London. In fact, a study authorized by local politicians and reported in The Economist suggests New York City would lose 7% of its employment in the financial sector because of this trend. The trend is already underway: The U.S. dollar reached a 26 year low against the British pound recently, and is at historic lows against the Euro and Swiss franc, with no stopping in sight.
London may or may not be the new global financial capital, but what's uncontested is that it has flooded Continental Europe with cash for real estate and corporate investment. However, its success has also created great problems locally, such as astronomical housing costs, high wages, an overloaded transportation infrastructure for the global business executive, among other things.
Asia has created its own new financial spheres including Shanghai, but the new riches in Asia have yet to create solid, stable markets, as the recent sell-off of regional stocks has clearly demonstrated. Dubai is developing as a regional center for the Middle East. All the new and existing financial centers are trying to capture financial services companies. In fact, they are being fought over by everyone as hotly as U.S. states compete for a new automotive plant. (With good reason: focusing on growing the financial industry can be very beneficial to a location. Just ask Omaha, NE.)
The rise of private equity companies has also affected cities; just look at real estate values and employment around financial centers like Greenwich, CT; Kronberg and Bad Homburg in the Taunus hills north of Frankfurt; and Zug, Switzerland, to name a few.
As for the back office work, India has proven itself an excellent niche market to outsource customer service call centers, computer centers, and even hospital X-ray diagnostics to. As mentioned, Citibank is making a huge commitment to India and its future. But even with the development in Asia, there are still large downsides and learning curves. Therefore, Western companies are looking more and more to Europe for their new future, and that more often is coming to mean Continental Europe.
The familiar phrase, "Follow the money," holds true in the global growth of the financial services industry. Interesting and often geographically small places are coming over the horizon, such as Monaco. Prince Albert is really trying to create transparency and attract a variety of hedge funds and financial services companies with new tax and corporate legislation. It is a unquestionably positive trend. Unfortunately, a lack of land and space may hinder huge waves of investment and employment there. Similarly, Lichtenstein, Luxembourg, and even islands in the English Channel have developed their own economic packages for potential financial services investors.
A CASE FOR SWITZERLAND
It looks like the real winner in the new global flow of capital may be Switzerland. Yes, the land of Heidi, cheese, and alpine music may actually be the best fit in the new global financial geography. After all, globalization is not about being bigÑit's about being fast and flexible. Neither of these descriptors fit the old image of Switzerland and the Swiss, but times have changed. In fact, approximately 30% of the population of Zurich comes from outside Switzerland. Thus, there is also a highly educated international labor pool to draw from. One relocation expert interviewed for this article has helped executives from over 60 countries settle into the area.
Globalization is about leveraging efficiencies and creating synergies. That means infrastructure. It goes without question that the Swiss banking and financial services industry is as effective and efficient as it gets. The old Swiss bank keys have been thrown away and replaced with smart cards and state-of-the-art systems for the financial services industry As an indication of the Swiss computer savvy and systems capabilities, Google has established a significant presence in Zurich. Vasco, a Chicago based supplier of authentication and security software, also recently announced their location in Zurich, a sign that Switzerland may provide a very competitive global center for financial support services. The country is also serving as Vasco's springboard to the world outside of North and South America.
Globalization also is about innovation, and the Swiss are particularly keen on this. After all, they have been a center for innovation for years. Just think how Swatch revitalized its watch industry when Asia had all but won the business. The same is true for new financial products and services. A few years back, the Basel, Zurich, and Geneva stock exchanges banded together to form the Swiss Stock Exchange, or SWX. The SWX has been very successful, with a total market value of approximately 1 trillion Swiss francs. (At press time, CHF 1.18 converts to $1.00.)
The exchanges in Frankfurt and Paris may be larger, but an exchange's small size also allows for greater ease of access into the market, and creates more accessible opportunities to put idea people together with the money men. That was also why Ohioans Henry Ford and Thomas Edison moved to sleepy Detroit and Menlo Park, NJ, respectively, to grow their newly formed, small businesses in totally new industries. They followed the money of their day. Right now, Switzerland's Bern Exchange is performing that function with smaller Swiss startup companies that prefer the public route instead of falling into the hands of a venture capitalist. The Bern Exchange is even referred to as the nursery for the SWX. Medical technology is just one of the key industries supported by the SWX and Bern markets.
Switzerland, already the capital for private banking and private equity, is also looking at the global flow of capital and proposing new tax breaks for hedge funds and other financial services companies. You could make the case that Switzerland has a great advantage versus some new markets around the globe; as Willi Meyer, Managing Director of the Greater Zurich Area says, "Where often the phrase in developing markets is 'anything goes,' in Zurich, the phrase is, 'everything works.'" And how: It is now estimated that 34% of the world's offshore wealth resides in Switzerland. That includes Geneva, Zug, Zurich, and all points in between. No wonder Singapore pays the country a compliment for its stability, security, and success by advertising itself as the "Little Switzerland of Asia."
For six years in a row, consulting firms and other organizations have rated Zurich the top location for quality of life. The proximity to lakes, mountains, the arts, and great culinary talents match the university and educational opportunities for younger family members. That makes the move an easy choice for global executives and their families. In a global world, where people and knowledge play a more critical role in the success of a company than ever, the best attracts the best. Zurich is an easy choice as one of the best locations to attract talent and keep it.
As the capital flows out from North America and companies follow with their offices, employees, and their families, certain locations like London, Frankfurt, Singapore, and elsewhere may sound inviting, but the new Switzerland and the new Swiss response to global capital flow makes a compelling case for site location experts and companies to consider. In fact, it may not be the world financial center, but it certainly could become the new global capital metropole.
Frederick Metz Shepperd, Esq. is Managing Partner of The Quadral Group, Ltd., and an Editorial Advisory Board member at Business Facilities. The Quadral Group is online at www.quadralgroup.com.
0 Comments
Post a Comment
Links to this post:
Create a Link
<< Back to the BF Blog main page