A Study on the Development of Ways to Enhance Global Compatibility of Korean Investment Banks for Overseas Expansion
by Yim, Han Yong
Dept. of International management
The Graduate School of Business Administration
Kyung Hee University
Both Korean and global financial markets a...
A Study on the Development of Ways to Enhance Global Compatibility of Korean Investment Banks for Overseas Expansion
by Yim, Han Yong
Dept. of International management
The Graduate School of Business Administration
Kyung Hee University
Both Korean and global financial markets are going through a huge change. Externally, the emergence of WTO, various economic alliances(EU, NAFTA, ASEAN, etc.), global depression caused by the subprime mortgage crisis, and internally the IMF crisis, FTA, enforcement of Capital Market Consolidation Act allowing cross ownership within the money market are bound to happen and the center of financial activity moving towards the capital market with asset management going through a transition from deposit to investment.
Financial business not only functions as a supply of capital to the economy but also is a promising industry itself creating high value. An efficient and developed financial system is the prerequisite for the continuous development of national economy. The government issued the notification of the Capital Market Consolidation Act on June 2006 to cope with the fluctuating financial environment and solve the structural problems of Korean financial system and the act went into effect on February 4th, 2009. The enforcement of the act is expected to increase the necessity of investment bank services and expand the area of service.
Hereupon, government organizations such as Korea Institute of Finance and private institutions such as Hyundai Research Institute have conducted many researches including the strategy of Korean financial industry to counteract with the enforcement of the Consolidation Act and ways to vitalize investment banks. However, these researches were conducted based on the domestic market where a monopoly is predominant, and the study for overseas expansion was excluded or very insufficient.
As a study for seeking ways to enhance compatibility of Korean investment banks' overseas expansion, this study analyzed the compatibility factors of investment banks and captured opportunities for overseas expansion and examined the comparative advantage required for the expansion by applying the Dunning's Eclectic Theory and other traditional overseas investment theories to the current situation. Also, the core element of an investment bank is defined as compatibility and analyzed Korean investment banks' compatibility by comparing them with leading investment banks worldwide and suggested ways to enhance global compatibility of the Korean investment banks.
To summarize this paper, the allowance of cross ownership in accordance with the enforcement of Capital Market Consolidation Act will formulate Korean investment banks into three categories. It is concluded that global compatibility can be achieved through expanding the size of the banks by increasing capital depending on the global and domestic market status, enhancing risk management skills by diversifying source of revenue, employing financial experts and providing adequate compensation, and developing new financial products and establishing of customer network.
The limitation of this study is that the study is not a positive analysis on practical obstacles, improvements, counter measures that will arise when penetrating overseas markets under the circumstance that Korean financial institutions have just embarked on the investment banking business and overseas expansion is yet to be realized. Also, the study is based on existing data and theories and realistic explanation of general problems that will occur upon the expansion can only be given in the future studies.
Nevertheless, I hope this study will stimulate various organizations e.g. financial institutions, government, and research institutions to conduct further research on overseas expansion of Korean investment banks. I hope one of the banks will grow to become a leading global investment such as Goldman&Sachs by capturing the opportunity and enhancing global compatibility in the rapidly changing financial environment. Finally, I hope such tragedy like a second IMF crisis that foreign investors encroached and disturbed Korea market will never happen again.
A Study on the Development of Ways to Enhance Global Compatibility of Korean Investment Banks for Overseas Expansion
by Yim, Han Yong
Dept. of International management
The Graduate School of Business Administration
Kyung Hee University
Both Korean and global financial markets are going through a huge change. Externally, the emergence of WTO, various economic alliances(EU, NAFTA, ASEAN, etc.), global depression caused by the subprime mortgage crisis, and internally the IMF crisis, FTA, enforcement of Capital Market Consolidation Act allowing cross ownership within the money market are bound to happen and the center of financial activity moving towards the capital market with asset management going through a transition from deposit to investment.
Financial business not only functions as a supply of capital to the economy but also is a promising industry itself creating high value. An efficient and developed financial system is the prerequisite for the continuous development of national economy. The government issued the notification of the Capital Market Consolidation Act on June 2006 to cope with the fluctuating financial environment and solve the structural problems of Korean financial system and the act went into effect on February 4th, 2009. The enforcement of the act is expected to increase the necessity of investment bank services and expand the area of service.
Hereupon, government organizations such as Korea Institute of Finance and private institutions such as Hyundai Research Institute have conducted many researches including the strategy of Korean financial industry to counteract with the enforcement of the Consolidation Act and ways to vitalize investment banks. However, these researches were conducted based on the domestic market where a monopoly is predominant, and the study for overseas expansion was excluded or very insufficient.
As a study for seeking ways to enhance compatibility of Korean investment banks' overseas expansion, this study analyzed the compatibility factors of investment banks and captured opportunities for overseas expansion and examined the comparative advantage required for the expansion by applying the Dunning's Eclectic Theory and other traditional overseas investment theories to the current situation. Also, the core element of an investment bank is defined as compatibility and analyzed Korean investment banks' compatibility by comparing them with leading investment banks worldwide and suggested ways to enhance global compatibility of the Korean investment banks.
To summarize this paper, the allowance of cross ownership in accordance with the enforcement of Capital Market Consolidation Act will formulate Korean investment banks into three categories. It is concluded that global compatibility can be achieved through expanding the size of the banks by increasing capital depending on the global and domestic market status, enhancing risk management skills by diversifying source of revenue, employing financial experts and providing adequate compensation, and developing new financial products and establishing of customer network.
The limitation of this study is that the study is not a positive analysis on practical obstacles, improvements, counter measures that will arise when penetrating overseas markets under the circumstance that Korean financial institutions have just embarked on the investment banking business and overseas expansion is yet to be realized. Also, the study is based on existing data and theories and realistic explanation of general problems that will occur upon the expansion can only be given in the future studies.
Nevertheless, I hope this study will stimulate various organizations e.g. financial institutions, government, and research institutions to conduct further research on overseas expansion of Korean investment banks. I hope one of the banks will grow to become a leading global investment such as Goldman&Sachs by capturing the opportunity and enhancing global compatibility in the rapidly changing financial environment. Finally, I hope such tragedy like a second IMF crisis that foreign investors encroached and disturbed Korea market will never happen again.
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