When U.S. banks come face-to-face with international opportunities, they often learn either of two hard lessons.
One lesson is learned by those satisfied with the status quo. Many large community banks and even some regionals are sticking with a parochial outlook; they seem unconvinced that customers whose needs are solely domestic today will, almost inevitably, have global needs soon. When that happens, these institutions are caught flat-footed, often losing out to a bigger bank with global services in place.
An entirely different lesson is learned by banks at the other end of the spectrum. Wisely anticipating the need to be in other countries, they establish infrastructure and broad offerings in many of them. Only then do they discover their new operations to be out of synch with their customers’ particular needs. By then they have overreached, overspent, and cast a shadow over their future international forays.
Globalization is an unpredictable force. It might show up as a one-off foreign transaction that suddenly morphs into a lucrative, multi-country partnership. Or, it could be a blip in an overseas currency that threatens to ruin a small, local customer’s supply line unless he has ready access to sophisticated trade finance. When a valuable corporate customer calls and says, “Next week my supplier needs to be paid in Chinese renminbi instead of dollars,” he’s not going to be impressed when his bank has to start from scratch to figure out the process.
Erasing the Peripheries
Many banks have been slow to go global because they owe their success to keeping a tight focus on their local customers and local environments. They are profitable precisely because they have not widened their lens when tempted by peripheral opportunities.
But globalization of commerce has a tendency to erase old peripheries. Consider the recent widening of the Panama Canal to accommodate huge cargo carriers. That news didn’t go straight into the strategic plan at most banks, but it doesn’t take a geopolitical seer to imagine that a change big enough to lessen Asian dependence on Mideast oil could also spark extraordinary growth in “Post-Panamax” port cities – from the Gulf of Mexico, around Florida, and all the way up the Eastern seaboard.
If the widened Canal creates a boom in the port of Houston, how will companies elsewhere in Texas and Louisiana handle resulting new opportunities? How will local banks respond to new competition? Will they find exploding opportunity in South America? A smart banker knows to ask such questions because, as stated before, globalization is unpredictable.
In our headquarters city of Dallas, for example, the local major league baseball team signed a popular Japanese pitcher in January. Since then, commerce between Dallas and Japan has exploded as jet loads of Japanese fans flock to our ballpark, sparking a flurry of Japanese interest in Dallas area real estate, country clubs and luxury providers. Dallas banks, then, face the challenge of trying to help their customers work with Japanese customers or partnering with larger banks to meet those needs.
Here are some tips for preparing for such globalization challenges:
Don’t wait for that urgent call from a treasured customer. Then, all you can do is refer them to a mega-competitor. Instead discern today what domestic trends and events might force your customers to find a new source or market. U.S. retailers, for example, are diving into China where they will need local treasury services, foreign exchange services and letters of credit. Others are cultivating South American, African and Asian cottage industries for U.S. consumers avid for foreign artisan products. Can you provide specialty banking services to help those cottage industries and artisans expand into going concerns? When foreign companies buy U.S. companies (e.g., AMC theaters), can you provide the transition services to the new parent company?
Know your customers’ supply chains and related risk. When last year’s floods in Thailand upset the hard-disk drive market, the effects rippled around the world. Are your customers currently sourcing components from countries afflicted by strikes, coups, protests, sovereign defaults or droughts? If your customer is exposed, so is the bank. Consider mitigating the risk by offering them the services they need in a new sourcing region.
Know your limits. Be ready to go where you must, but don’t actually go, build, and spend without clear demand from your customers. Don’t let the grand strategy of a better-heeled competitor tempt you into imitation. It is the rare bank that can or should undertake a vast multi-country build-out with all the regulatory and currency complications involved. Those banks can afford the occasional forced retreat; they can afford to stake out an attractive market and build business over time. But if you are going global mainly to facilitate current customers’ business, the only “attractive” market is one with a current customer.
“Fire bullets, then fire cannon balls,” as Jim Collins wrote in Great by Choice. When you’ve just arrived in a new country to facilitate business for a handful of customers who are barely there themselves, you probably don’t need a full service license, a handsome branded edifice or the full technology infrastructure you have at home. Early global forays are a good place for manual processes and workarounds that quickly meet the customers’ needs. The business that took you there may just as quickly take you elsewhere and you don’t want to be overinvested in local infrastructure. Once you’ve stabilized the products and services your customers need, you can consider further investment and expansion.
Look for regional commonalities and efficiencies. Creating a unique presence in every country can get costly fast, so look for opportunities to overcome operational hurdles posed by local regulations and languages. If you have to get very good at generating letters of credit for Taiwan, can you leverage them in other Asian countries? If a customer needs you to establish a top-notch lending team in Mexico, can you leverage them in neighboring countries?
Offer international advisory services, if your research finds sufficient need in your customer base. Consider packaging and providing current information and trending on exchange rates, inflation, and currency stability to assist your customers in their business decisions. Consider pooled services to provide opportunities that would not be economically feasible for a single customer.
Going global still represents uncharted waters for most banks. Your customers are at the mercy of borderless commerce, which is fluid, unpredictable and fragmented. They need “bankers without borders” who can strike a fine balance between readiness to do banking anywhere and the real danger of overinvesting in new markets.
Ms. Malaxos and Ms. Madden are principals of Irving, Tex.-based ABeam Consulting USA. They can be reached at emalaxos@abeam.com and gmadden@abeam.com. www.abeam-usa.com.
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