World Business and Economic Analysis
World Business and Economic Analysis
The US has the most valuable country brand, according to the latest Nation Brands 2015 report. No coincidence, then, that it is also the number one destination for greenfield FDI.
When consumers shop for products, brand recognition weighs heavily on their choices. So too when companies shop around for their next expansion destinations. Although there is a science behind many decisions about where to invest – with elaborate benchmarking exercises carried out and numbers thoroughly crunched – underlying all of this is a human factor: people’s perception of a place and their immediate association with its name. After all, even the most hard-nosed executives are human.
While it is hard to quantify the precise impact these perceptions have on investment decisions, the results of a study on national brands suggest a match between the countries with the most highly regarded brands and those that attract the most FDI.
Nation Brands 2015, an annual report on the world’s most valuable country brands produced by consultancy Brand Finance, ranks the US as the world’s most valuable country brand. It also happens to be the number one destination for greenfield FDI projects, according to data from fDi Markets, a crossborder investment monitoring service affiliated with fDi Magazine. China, which ranks number two by brand value, happens to be the top destination for greenfield FDI when measured by capital expenditure. The countries that round out the top five on the brand value list – Germany, the UK and Japan – are all among the world’s top FDI destinations. The link is clear.
For the study, Brand Finance measured the strength and value of the brands of 100 leading countries using a method based on the royalty relief mechanism employed to value the world’s largest companies.
Brand Finance attributes the US’s top position to the country’s sheer economic scale. “Not only is there a large, wealthy market predisposed to ‘buy American’ but also an unrivalled group of established companies and organisations exporting worldwide, whose American heritage forms (to a lesser or greater extent) part of their appeal. The US’s world-leading higher education system and the soft power arising from its dominance of the music and entertainment industries are significant contributors too,” the report states. “This soft power will help the US to retain the most valuable nation brand for some time after China’s seemingly imminent rise to become the world’s biggest economy.”
Singapore’s strength
While the US retains the most valuable brand, Singapore is judged to have the world’s strongest brand. According to the metrics used for the study, a country’s brand value is reliant upon GDP, i.e. revenues associated with the brand. “Singapore’s small size means it will never be able to challenge for the top spot in brand value terms, because its brand simply cannot be applied extensively enough to generate the same economic uplift as ‘brand USA’ for example,” the report says.
But in terms of its underlying country brand strength, Singapore does a lot with a little. It is also among the world’s most popular investment destinations, as are the countries that follow it on the Brand Strength index: Switzerland and the United Arab Emirates. Finland, which ranks fourth, and New Zealand (fifth) are interesting outliers: while both hold appeal as FDI destinations, neither are in the top tier of FDI countries, suggesting they have not fully maximised their strong brands in their inward investment drives.
To download a copy of the full report please visit www.brandfinance.com
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An fDi Markets report shows that the Philippines almost doubled project numbers between 2011 and 2014.
According to greenfield investment monitor fDi Markets, FDI into the Philippines has increased significantly in recent years. The number of FDI projects recorded rose year-on-year between 2011 and 2014, as did the number of jobs created and capital expenditure (capex) invested. In 2011, a total of 81 investment projects were recorded by 74 investing companies, creating 20,982 jobs. Total capex for the year stood at $4.2bn.
During 2012, 77 companies invested in the Philippines creating 30,451 jobs through 96 FDI projects. The number of jobs generated, companies investing and projects recorded increased in 2012, compared with 2011, while total capex fell by just 0.76% to $4.12bn.
The following year, 138 investment projects were recorded by 97 companies, producing 26,584 jobs. The number of jobs created fell in 2013 compared with 2012, and the total capex further decreased from 2011 and 2012 figures to $3.91bn.
In 2014, 38,792 jobs were created in 160 FDI projects by 147 companies. The total capex nearly doubled from the previous year to $7.42bn. Over the whole four-year period, the number of projects recorded increased by 97.53%, the number of jobs created increased by 84.88% and the number of companies investing rose by 98.65%, representing significant increases in investment levels. The total capex also increased by 78.51%.
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With the financial crisis all but negotiated, banks and bankers may be looking forward with optimism at long last. However, reports from McKinsey and Deloitte suggest that the next big challenge – the impact of fintech firms – needs their imminent attention.
There is no respite in banking. With profits starting to recover after the financial crisis, the regulatory and compliance overhaul largely completed and costs slashed, bankers could be forgiven for wanting to go slow on further disruptive change.
But two recent reports suggest that no such luxury can be afforded. In its annual banking review, McKinsey claims that on the retail side in five major businesses – consumer finance, mortgages, SME lending, retail payment and wealth management – 10% to 40% of revenues and 20% to 60% of profits will be at risk by 2025 due to the market impact of fintech firms.
The greatest impact will not come because the fintech firms will steal large parts of the business, but more because their efforts will result in margin compression across the entire business, according to McKinsey.
The industry fear for some time has been that the banks could lose the valuable customer relationship to more tech-savvy competitors and end up as payments utilities. But, according to a report from Deloitte called ‘Payments disrupted – the emerging challenge for European retail banks’, they cannot rely on even that rather unsatisfactory outcome. “Deloitte expects the status quo, in which payment systems continue to be run by and for the major banks, will not survive as EU regulations will not permit it,” says the report.
So what is to be done? Most large banks now have innovation centres and are busy exploring everything digital from mobile apps to blockchain. All the same, innovating in a large, highly regulated organisation such as a bank presents challenges in pushing ideas through the bureaucracy. What’s more, banks don’t seem to be spending sufficiently. Deloitte estimates that banks only accounted for 19% of an estimated $10bn in overall fintech investment in 2014, while non-banks accounted for 62%, with the rest coming from collaborations.
The accepted wisdom was that the banks would eventually buy the fintech companies and so leverage off their innovations. McKinsey disputes this idea. “We do not think the answer is simply to acquire great fintechs and integrate them into the business,” says a McKinsey consultant. “For one thing, valuations are high. We may be at, or near the top, of the latest Silicon Valley cycle.”
So this means banks can either wait until the cycle turns and hope to pick up assets on the cheap, or start to invest even more in their own transformations. It may be a hard sell to boards and shareholders at a time when return on equity in many banks is not much greater than the cost of equity.
Furthermore, some banks will get it wrong and make bad acquisitions or poor transformations, so costing shareholders even more money. But doing nothing isn’t really an alternative in a market where all yesterday’s assumptions are being challenged. Banks will just have to get used to living in a world of perpetual change.
Source : Brian Caplen is the editor of The Banker.
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