Dynamics of Competitive Strategy: Managing Chinese Investment Banks Going Global

中資投行全球化的動態競爭戰略

Student thesis: Doctoral Thesis

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Award date7 May 2021

Abstract

Globalization has changed the world dramatically in past centuries, from products, services, capital, to technology, culture, and so forth. Under this trend, almost all industries engaged in globalization and accelerated cross-border trade and investment. Since the early 20th century, following their clients and exploring new opportunities, more and more financial institutions in developed economies have expanded businesses in abroad. This facilitated the globalization of financial industries. The first wave of financial globalization was primarily driven by international trade, which had been disrupted by two world wars. At the end of 1940s, the Marshall Plan was enacted to help finance economic recovery programs to Western European economies. Thereafter, investment and capital rushed into Europe and financial institutions followed capital and their clients to establish offices and operate in European countries in 1950s. In early1960s, the Eurobond market emerged, which gradually attracted top companies in the world to raise funds in this market. This propelled more financial institutions, particularly, investment banks, to provide services of bond underwriting and investment portfolio to institutional, corporate and individual clients, which drove the second wave of globalization of financial industry. Since 1980s, emerging markets in Asia, South America and other territories have recorded substantial and sustainable growth which attracted more financial institutions to enter and develop new opportunities, driving the third wave of financial globalization.

In retrospect, the three waves of financial globalization are all initiated by the financial institutions in developed economies, the routes are usually from developed economies to developed countries, or from developed economies to developing economies.

China, as the biggest developing economy, has continuously risen since the end of 1970s after commencing reform and openness. Now China has become the ‘Number Two’ economic entity in the world. It is predicted that China might overtake the United States as the world’s ‘Number One’ economy within 10 years according to some leading institutions. Further, in past decades, China’s financial industry has been developed dramatically. In commercial banking industry, the top 5 Chinese State-owned banks ranked in the top 10 globally, both, in terms of total assets and capitalization (Source: The Banker, annual rank). However, Chinese investment banking has been left behind. So far, none of the Chinese investment banks can be ranked in top 20, in terms of neither capitalization nor profit (Source: Bloomberg, datasets). None of Chinese investment banks can play important role in global markets, including all investment banking related business fields, which are definitely not in line with the position of Chinese economy, and not in line with the requirement of Chinese financial market development. Following the reforming and opening-up of the Chinese economy, more and more Chinese companies operate internationally, with a lack of financial services support from Chinese investment banks. Further, China needs to cultivate its own top investment banks to build leading financial markets and top international financial centers to provide financial services to companies operating abroad and to the foreign companies operating in China.

Under this backdrop, this thesis aims to identify the major issues and challenges faced by the Chinese investment banking globalization efforts, how to navigate better options for Chinese investment banks by going global practically, and help Chinese policy-makers construct more adaptable and applicable regulations to improve Chinese investment banks’ competitiveness internally and externally. The paper employs case studies and expert interviews as main research methodologies. The cases select multinational investment banks from four continents, with diversified economic backgrounds and different globalization strategies, from which, the paper concludes multiple similarities and differences for Chinese investment banks to learn from. The interviews invite industrial experts with diversified work experience in various international financial centers. After the case studies and expert interviews, the paper summarizes the main findings, and fully answers the research questions, including the goals of Chinese investment banks globalization, the timing and location of market entry, the patterns and organizational structure of market entry, the adaptation and aggregation, and risk management after market entry.

The thesis yields novel insights on both practical and theoretical sides. Through researching of the globalization’s history and the experience of the American bulge bracket, European, Asian and Oceania’s top investment banks, the thesis supplements Chinese investment banking industry into the world’s investment banking industry, and contributes a more complete and diversified landscape to the development of the world's investment banking industry.