Poor show when it comes to product innovation
08 November 2013
Category: Australia, China, Hong Kong, Japan, Singapore, Asia Pacific
By Hui Ching-hoo
Asset managers have identified product innovation as the biggest challenge to entering new markets in the Asia Pacific region, according to a survey jointly conducted by State Street Corporation and Longitude Research.
The research surveyed 200 senior asset management industry executives across the region, including Singapore, Hong Kong, Japan, Australia, and China.
Among the findings were that 42% of respondents are considering expanding into new markets, with 28% looking at developing economies and high saving rates in various Asian markets for growth. Deepening penetration of existing markets was the top priority for 24% of those polled.
Paul Khoury, head of asset manager sector solutions in Asia Pacific with State Street Global Services, notes that asset managers are looking to frontier markets; and within that 54% of those preparing to enter a new market have Malaysia in their sights, while another 43% are considering expanding into Thailand.
Mr. Khoury adds that these two countries’ markets have not been heavily exploited by foreign players. “Both are dominated by domestic brands and JVs with significant entry barriers from the asset management perspective. However, there are cross-tier agencies from the insurance perspective that indicate local banks are less dominant. The market penetration for foreign players such as independent financial advisors (IFAs) is relatively higher, with around 20% in Malaysia.”
The survey shows that 51% of those surveyed said the region’s fragmentation is a serious challenge for their business.
“These markets are more fragmented than anywhere else in the world in terms of size, geography, language, culture, regulation, and tax harmonisation,” says Damien Barry, State Street’s senior vice president, offshore funds services.
One big issue is regulation: 52% of the respondents said they would need to make significant changes to their systems and processes to meet the diverse reporting requirements of multiple jurisdictions. A further 38% are concerned about their firm’s ability to assure compliance with fragmented and evolving regulatory regimes in these different jurisdictions. Another 51% said they would need to make substantial changes to develop strong risk management strategies tailored to each market.
Although there are several pan-regional initiatives, such as Asian fund passports, mutual recognition among ASEAN countries, and between Hong Kong and China, the extent to which these will materialise as sustainable, scalable, efficient product opportunities, and the precise form they will take remain unclear.
According to the survey, 71% of those responding thought that optimising returns in a challenging global environment was a serious challenge. When asked in what areas they see the need to make the most significant changes to maximise value, 57% cited integrating and consolidating investment data from disparate sources, while 49% highlighted preserving margins in the face of downward fee pressure.
In terms of constraints on product development, 64% said they were highly concerned about regulatory constraints on their ability to develop innovative products and services – and that this issue is critical to their expansion efforts. Thirty-six percent conceded that their businesses need to make significant changes to understand the regulatory implications of new products, while 49% were concerned about management time and focus being devoted to regulatory compliance at the expense of other issues.
When developing new products, asset managers also have to develop a greater understanding of investor appetites and product preferences, with 47% of those polled saying that their businesses required significant changes to their approach to this aspect.
“Product innovation is a major challenge for asset managers in the region,” says Mr. Barry. “Critical success factors include having the right technology, a deep insight into local investor demand, and a clear view of regulatory impacts on new product development.”