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Investment banks go east, past London
August 12, 2008
It has become so natural to think of Asia economies such as China and India being the new places for business opportunity while western economies struggle that it is easy to miss the way in which this City of London/Wall Street crisis differs from others in the past.
The tendency in the past was for investment banks to pull in towards the centre in the US when markets were troubled. Banks retreated a couple of times in the early 1990s from China during weak periods for the business.
The opposite is occurring in this downturn. While jobs are being cut in London and New York, they are still being added in India and China and other fast-growing regions such as the Gulf.
This article in the New York Times this morning details the ways in which India is benefitting from the shifting balance. Meanwhile, the FT on Monday recorded how Credit Suisse plans to expand there.
The upshot will be that cyclical weakness in western economies adds to secular trends towards the rebalancing of economies and investment banks.
One interesting question is what long-term effect this will have on London. London has had a great run as an international financial centre and the place from which bankers fly to do business in the Gulf and Asia. But, as local operations in these places develop, London’s role could weaken.
The next stage will be the migration of professionals from developed markets to developing markets in India and mainland China on a large scale. So far, this migration has been just a trickle and has consisted mainly of Indians and Chinese working in the West going back ‘home’ after a few years in London or NY. I don’t see western professionals easily migrating to India or mainland China very easily even though it is not uncommon to see Western professionals in Singapore and Hong Kong. The reasons are very simple. India and China are still not very comfortable places to live in. Also, the dollar and the pound do not go very far in Mumbai or Shanghai as they once used to. Until this changes, developing markets will not be able to attract professionals from the west, even if they really need them.
Posted by: Vinod Joseph | August 12th, 2008 at 11:04 am | Report this commentYes but European company invest in China and India? Until this changes, developing financial markets in Far East Us and Ue company win the global challenge?
www.theitalianbanker.blogspot.com
Posted by: janpiero | August 12th, 2008 at 3:03 pm | Report this commentIt might be a good step for investment banks to cut the cost via East-Shift but working in countries like India is not that easy. I moved to India in Aug last year and as per my experience, getting things done on-time is not an easy task. One could see the difference of operations of Indian and the UK offices of a leading UK based bank, where Indian operations are inefficient and always accompanied by huge delays. Biggest challenges will be getting an efficient team and dealing with corruption.
Posted by: Nitin Kumar | August 12th, 2008 at 9:15 pm | Report this commentFunny how globalisation has moved up the ladder. It used to be manufacturing 20 so years ago, then IT 10 years ago and now it is finance. We’ll see how the bankers in the west who were telling everyone else to be more competitive (i.e. you are paid too much) will react now that their turn has come. Can’t wait to tell my friends in the City “Yes, but you need to be more competitive, a Chinese can do your job for a quarter of the money”. We’ll see if they really meant all of that “free market” lecturing now that it applies to their bread and butter.
Posted by: Christian G. | August 13th, 2008 at 5:26 pm | Report this commentIndia’s emerging markets will see massive rises over a long period…
Posted by: srinivasan solaraj | September 11th, 2008 at 12:47 pm | Report this commentI would like to focus on China for a moment. I believe that in China, the process of professionals in the banking industry moving from western countries to Mainland it is only at the very beginning. From my personal experience, nowadays, I see mainly senior western professionals moving to Shanghai, Beijing and also Hong Kong. This is due to language barriers. A senior professional can bring experties and high value even without knowing Chinese language while junior professionals are hired only when they know Mandarin. This cleary restrict the wideness of this migration of professionals. I think that the real migration of wester professionals to China will start to be relavant only when also junior professionals will be involved in this process. However, this requires the Chinese market to change and become more international with a more international ownership of enterprises. This is why I see this migration to become relevant only in the long-run.
Posted by: Gabriele | September 13th, 2008 at 4:59 pm | Report this commentI think you’re right. China is a great, growing market, but it does need to become more international… or perhaps all markets need to become more global..?
More info on Investment banks
Posted by: Ed | September 23rd, 2008 at 5:31 pm | Report this commentI just saw a site called xwallstreeters dot com. Even with the mid-market and boutique banks Investment Banking will not be the same as it was with the big players. In fact these banks have seen what went down and they will just be even more cautious. As a career option I think IB has fallen from its high horse and we just have to rethink our alternatives ahead.
Posted by: Joe | October 4th, 2008 at 8:40 am | Report this commentWell, post wall street crisis, the whole situations have changed.
Now there is one business that is surely survive.
New ideas that has new revenue models. As you say financial companies’ focus will be more in India and China , not for outsourcing but for new invest opportunities.
New crisis demand new ideas. so new opportunities should be built on concrete business models , should be built on real economy.
London had been specialised in wall street business for quite sometime. now it is time the investors should focus on long term knowlege based investment opportunities than fly by night financial intermediaries.
In that sense you are right. But you have always the option of bringing the knowledge guys to London or going to them , depending on personal choice.
You are right, there is a scope for India and china to benefit, but creativity will be the driving force.So the emphasis should be on knowledge capital being used for investment rather than finance.
Posted by: francis K.j. | December 10th, 2008 at 7:26 am | Report this comment