Partner or perish?
Online financial services institutions that are contemplating the best way to expand internationally may ponder that question - whether 'tis nobler to go it alone under your own brand name, or to form alliances with local concerns that can ease the introduction.
The path taken by E-Trade Group Inc., which started expanding into foreign markets four years ago, may map the way for other firms. At first, E-Trade took what Judy Balint, its chief international officer, describes as a "low-risk approach," which involved forming joint ventures and signing local licensing agreements.
But now that E-Trade's overseas operation has grown, the company, based in Menlo Park, Calif., is seeking majority ownership of its international ventures "so we can control the development of our network, and consolidate our revenues," Ms. Balint said.
E-Trade now has a presence in 13 countries, and by the middle of next year it hopes to add Israel, Germany, and Hong Kong to its portfolio. It also has plans to reenter France, where its previous relationship broke down when another institution acquired its partner.
The barriers to expansion in foreign markets are diverse, she said. For example, although the United Kingdom is one of the largest potential markets for E-Trade, online investing has not taken off there to the same extent as in the United States, and "there is still a lot of education needed" before British consumers will cotton to online stock trading, Ms. Balint said.
In Europe, E-Trade is going up against some formidable local players, especially in Germany, Ms. Balint said. "But they don't have a global vision, which will limit their long-term growth opportunities. We are still the only true global online player."
E-Trade currently allows domestic trading in all of its countries, except Sweden and Norway, where it allows retail investors to buy and sell equities in U.S.-traded companies. Next year it plans to offer access to multicurrency trading. "We will be the Coca-Cola of the online financial services industry," Ms. Balint vowed.
Not if executives from other brokerage firms have their say. While brokerage is the industry group pursuing international markets most aggressively, executives from many firms say they are having a hard time finding the right formula. Many lament their travails with differences in language, regulation, and product mix in foreign lands.
Frank Petrilli, president and chief operating officer of TD Waterhouse Group, which has operations in Canada, Australia, Hong Kong, India, Japan, and the United Kingdom, said it is a misconception that the U.S. model for offering financial services is exportable.
"You have to pick markets where you can scale by buying, building, or forming partnerships," he said. "It's about thinking global but acting local."
To attack Continental Europe, where Mr. Petrilli says "you definitely have to be," TD Waterhouse announced in July that it would set up a pan-European joint venture with Banque Generale du Luxembourg that will target high-net-worth individuals seeking to invest internationally.
Albert Bashawaty, managing director of J.P. Morgan, said his company is "starting to run into issues as we develop our prototypes" as the Morgan Online service is launched in Japan and five European countries.
Rather than viewing the world as a "giant land rush, we're rounding up lots of partners with local behavior and knowledge," he said.
Continental Europe is a tough market, with more than 120 brokers vying for market share, according to J.P. Morgan.