Cities that tried and failed

BusinessworldVishal Krishna

Mumbai is not the first city to have IFC aspirations. Several cities such as Frankfurt, Paris, Tokyo and Sydney have tried and failed. Others like Dubai and Shanghai are still trying, but have met with little success.

Istanbul, Kuala Lumpur and Johannesburg, too, are seeking the IFC tag.

“Frankfurt and Paris are overshadowed by London because of the language. London offers many incentives for financial companies to set up base there,” says Rohit Kapur, head (corporate finance) KPMG. Both cities have now become regional players as the language of the financial world has remained English.

New York, another product of the English-speaking world, had a headstart in the world’s financial market, a result of post World War II economics, that led the dollar to become the primary currency of world trade. More importantly, New York and London offered a range of innovative financial services to their customers, both domestic and international. The London International Financial Futures Exchange, set up in 1982, was an open outcry to futures trading market. This futures market was considered to be an innovative method of trading by the financial fraternity in the early 1980s. London has moved on to offer many more structured derivative services for hedge funds in recent years. These cities have made it a haven for talent that could create new risk management services for large firms and individuals.




“London is popular for its credit default swaps, which is a unique financial service in the European market,” says Bimal Modi, director (corporate finance services), Deloitte Mumbai. London’s stock exchanges, the Alternative Investment Market (AIM) and the LSE are attracting companies from all over the world because of their simple listing procedures. Also, London and New York’s uncomplicated regulatory system and a safety net in terms of monitoring IPOs are some of the reasons for these cities towering over others.

Innovation and talent is where Frankfurt, Paris and Tokyo lagged behind. Frankfurt, although a bridgehead for industries making inroads in to Russia and Turkey, still failed to capture London’s or New York’s innovative strengths in financial services.

Tokyo seemed to generate interest when it opened its financial markets to the world in the early 1990s. But investment bankers say that cultural differences and the lack of financial talent slowed down developments. Also, the Japanese economy itself hit rock bottom when the real estate bubble burst during that time. Bankers still consider the Japanese financial market to be regulated and, therefore, place Tokyo as a regional financial player. Sydney has been hampered only because of its geographical location and the time zone difference with other markets.

So, cities vying to become the next New York or London will have to deal with issues such as being unique in cultural integration, infrastructure management, financial innovation and deregulation of financial markets.