Strategic and Organisational Challenges of Internationalisation in Financial Services

Abstract

The rapid international expansion by financial services firms since the early 1990s has occurred in the absence of any consistent evidence of such growth being associated with performance gains. Opportunism and imitation are identified as the key drivers of cross-border expansion, suggesting that internationalisation strategies need to be based on a more rigorous analysis of the sources of cross-border value creation. Applying Ghemawat's ‘Triple-A’ global strategy analysis framework identifies the sources of value creation from internationalisation in financial services, but also reveals the internal diversity of the financial services sector with regard to product and national market differences. Hence internationalisation strategies need to be uniquely tailored to the positioning and competitive advantages of individual financial services companies. These complexities of internationalisation strategy in financial services pose massive challenges to strategy implementation. The greatest management problem for financial services multinationals is to design structures and systems that can reconcile the (often very) divergent strategic requirements of different products and markets. The scale of this problem increases with additional product and international diversity. The organisational structures and systems of coordination and control that have proven effective for industrial multinationals have been less successful for financial services multinationals, partly because of the latters' greater strategic complexity and partly because the requirements for effective risk management create major barriers to decentralization. Given these challenges, financial services firms need to avoid the overconfidence that has characterised their aggressive international expansion of recent years, and adopt cross-border strategies that are sequential, experimental and adaptive.