Posted by Tim Williamson on Wed, Mar 12 2014

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Will Your Next Competitor Come from APAC?

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Many western financial services companies have been focused on innovation in their own markets, not least in response to regulatory change, and exporting that technology to APAC. It’s easy to overlook that in other industries—ranging from laptops to cars to mobile phones—Asian companies have grown rapidly, in many cases rising to market leadership. The article, in Singapore’s business daily newspaper, The Business Times, reported on a conference paper presented by the researcher IDC Financial Insights which raised two fascinating themes.

The first was the innovation required to capture the opportunities in Asia’s emerging markets. According to IDC, 40% of the Asia Pacific population has no access to traditional banking facilities. This is expected to drop to zero by 2020 driven by the entrance of internet and mobile banking systems and non-traditional banking players. These companies and platforms will transform the financial services landscape in rapidly modernizing and urbanizing regions. According to one survey, 85% of mobile financial services already originate from emerging markets.

This leads to the second interesting point: the convergence of investment in new technologies by Asian financial services providers who understand the need to innovate to reach new customers and to respond to the region’s own particular regulatory challenges.

IDC expects IT expenditure on new technologies to account for 30% of Asian financial institutions already growing IT budgets this year.

In a way, none of this should be surprising. Anyone who has seen the development of Shanghai’s financial district over the last 15 or 20 years, from a standing start to a modern Asian Manhattan, will understand the pace of change in the regions financial services industry. It is inevitable that this growth will lead to further innovation and change. It does, however, draw into sharp relief the growing importance for western companies to engage in a meaningful way in APAC. After all, this is a region which contains some 60% of the global population, was a driver of global growth during the financial crisis and, even with emerging headwinds facing its economies, is expected to grow significantly faster than the global economy as a whole.

According to analysis by Danny Quah, a Malaysian born economist at the London School of Economics, this is resulting in a fundamental shift of the world’s financial center of gravity. Somewhere over the Atlantic in the 1980s this is currently somewhere

over Turkey, inevitably moving east as generational economic modernization and urbanization occurs across Asia.

The long term fundamentals suggest that western companies need to be in Asia to capture the opportunities the region presents. The IDC research suggests to me that there is much more to doing business in Asia than simply pushing the products that you have already developed. For companies seeking to access Asia, there is an opportunity to engage on a more strategic level, whether that be in how you communicate your business or your products, and to engage more broadly with the change and innovation that is occurring here.

Ultimately, there may be the opportunity to be part of the next wave of disruptive financial services innovation, and it may well come out of this region.

Asia, Cognito Asia, Financial Services,
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