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Pointers Offered on Global Expansion


toronto - Firms seeking to expand globally better be prepared to wait for their efforts to pay off, and expect regulatory complications. That was the consensus of fund executives taking part in a panel discussion on industry globalization, held at the Investment Funds Institute of Canada annual convention in Toronto late last month.

In assessing the business case for moving into a new market, management should incorporate a long term view into their analysis, said Gerry Rocchi, president of Barclays Global Investors Canada of Toronto.

"Most local initiatives don't take as long to pay off," said Rocchi, whose firm is a subsidiary of Barclays Global Investors of London, with more than $800 billion under management worldwide. A venture in a new country might require five years to become economically viable, and it should not be expected to be self-financing right away, he said.

You can't wait to spend," he said. "You must put it on the ground even before you have money coming in."

A three- to five-year time frame would be appropriate for planning purposes, said Michael Mezei, vice president and general counsel of Templeton Management in Toronto. Firms also should set market share targets comparable to those that firms hold in North American markets, he said.

For Templeton and its parent firm, Franklin Resources of San Mateo, Calif., these benchmarks would be in the four to five per cent range, said Mezei.

Globalization entails not only having investment expertise around the world, but also a marketing presence, he said.

"It's a natural extension to meet the needs of investors, not only in Canada and the U.S., but wherever they may be," Mezei said.

Having a strong brand name is one of the building blocks for expanding internationally, said Mezei. Another is a common back-office platform that can be adapted to local requirements. Beyond that, expansion minded firms need to get local people involved so that they can gain a good understanding of the local market, he said.

Factors to consider include the composition of personal financial assets, how much personal savings are invested through institutions versus individually, the structure of the tax system and the main distribution channels for retail funds. In some countries, it might not be essential to create separate new products, said Mezei.

Canada is an example of a country where you need a domestic fund group, he said.

The best opportunities for global initiatives are in the less developed markets, said Jane Lesslie, a vice president and portfolio manager for Royal Bank Investment Management of Toronto.

"You can't go into a saturated market and add value," said Lesslie, whose responsibilities include emerging markets.

It is important to know what local investors are looking for, to have a local presence, and to be able to keep in close contact with the head office, Lesslie said. This creates logistical and communications challenges.

Royal has organized its private client and institutional money management operations on the basis of language and time zones. Twenty-four hour, seven day service has become a fact of life, said Lesslie. The opportunity to make cross-referrals between private and institutional clients is one of the advantages of targeting individual investors outside North America, she said.

Fund sponsors should recognize that investors in developing markets will not have the same asset mix requirements as North American investors, Lesslie said. In Latin America, for example, investors want to invest in their home region, but with the risk mitigated by diversifying into major world markets such as the U.S., she said. Even so, there may be similarities between investors throughout the Americas. Most Latin American investors consider the U.S. dollar to be their base currency, Lesslie said.

Fund firms can not escape the fact that global barriers are eroding, said Marlene Davidge, a securities lawyer with Torys of Toronto. For example, Canadian investors are doing cross-border comparison shopping via the Internet, and they have a growing appetite for exchange-listed funds based in the U.S., she said.

However, conflicting regulations between jurisdictions create obstacles to international expansion.

"It's almost impossible to get the laws to truly work together," said Davidge, who specializes in international laws governing the fund industry. Companies should ensure that they are able to take profits out of countries in which they wish to expand, she said. Regulations that are designed to "trap" money in local jurisdictions, she said.

Earlier in the conference, Tom Hockin, president of the Institute, outlined a new initiative designed to help Institute members deal with the regulatory problems in international expansion. Introduced Oct. 1, the Institute's "Blue Flag" service provides continually-updated regulatory information for more than 30 countries.

The service is aimed at marketing directors, compliance officers and lawyers, and is designed to help in developing marketing strategies in an evolving global marketplace, Hockin said. The information is delivered online via the Institute's members-only website.