Source: Industry analysts, PWC Foreign Fund Management Companies, April 2009.
Based on industry analyst forecasts by Capgemini and PWC, and factoring in current trends and potential market position, estimates indicate that Parsec International should easily be able to attain AUM of USD $100 million within 5 years (2015). The market potential for wealth management services in these quantities—with an average fee of 0.750%—will yield approximately USD $750,000. This translates to a Parsec International market share of approximately .09% of the overall market.
Strengths, Weaknesses, Opportunities & Threats (SWOT Analysis)
Strengths
Parsec International brings a considerable pool of product and marketing strengths to the Chinese marketplace. In terms of product strength, Parsec International’s wealth management has several distinct advantages over the competition. First and foremost, over the past ten years Parsec has riveled the S&P 500 with a 14% return compared the the S&P’s mere return of 1%. Secondly, is Parsec’s marked advancement in how it manages a client’s money. Most firms try to “sell” products to their clients in order to earn commissions. Parsec’s vision is to be completely aligned with the clients’ interest, so Parsec never sells financial products. We are always in the clients interest by prudently managing thier funds. At Parsec, we do not receive commissions of any sort, to sell a product. Investments are solely based on raising a client’s net worth, and our fees are dependent upon their success.
Parsec International’s greatest strength is the innovative approach it has taken to designing and building its unique business model. Being a smaller company, Parsec International has greater flexibility than its larger competitors to charge a fee contingent upon a customer’s success. This is because Parsec International does not have to consult with an entire panel of board members or obtain unanimous approval from multiple divisions to implement client-based solutions. This means that the latest market knowledge can be disseminated more quickly to our customers for immediate investment;
larger firms cannot react quickly enough because they have to wait to sell the product first.
In marketing, our most powerful assets are:
Highly reputable publications listing our company as one of the top wealth management firms in America.
30 years of successful experience in wealth management.
A large book of business.
Word of mouth from existing customers.
Location in Xiamen, China for first mover advantage
Much lower fees than our competition in China
Weaknesses
Because of its relatively small size, Parsec International is not yet a “household” name among prospective Chinese customers. However, with the necessary resources, Parsec International can substantially expand into the Chinese market and build brand awareness.
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It is possible to increase new business in the lucrative market that is made up of Chinese HNWIs, Emerging- HNWIs and the Mass Affluent, who are anxious to find a reputable company to manage and increase their wealth, but they may still prefer a bigger,
“household” name.
There are several minor handicaps inherent in the Chinese wealth management business;
these are, Chinese QDII regulations; the inability to introduce innovative service offerings; and finding good personnel. The only notable marketplace disadvantages caused by these weaknesses are slowed introductions of new products and services and high employee turnover. These disadvantages both result from overwhelmingly strict Chinese QDII regulations. QDII highly regulates which investments a foreign fund can offer, as well as, limiting the number of foreign employees that can work in a firm (the limit is five foreigners). In addition to hiring limitations, there are additional regulations on outsourcing of certain financial activities.
As far as outsourcing is concerned, since Parsec International is technically going to be a company branch of Parsec Financial, Parsec International will be able to “outsource”
investment advice from Parsec Financial through purchased weekly research reports.
These weekly reports are designed to guide Parsec International financial advisors to follow Parsec Financial’s portfolio movement. It will be one of many reports purchased by Parsec International to stay abreast of US financial trends. In this fashion, Parsec International will not have to qualify an international financial advisor under QDII regulations, instead, Parsec International will attain information through a written report.
This is in order to circumvent strict QDII requirements on hiring an outside international financial advisor. In this way, both Parsecs can legally maintain their core competencies.
Another threat faced by Parsec is cause by the newness of the wealth management industry in China. Because of this many Chinese investors do not have sufficient knowledge about products and expect short-term results. Parsec International sees this as a natural challenge to any young industry. To meet this challenge, Parsec will educate investors about the long-term rewards of investing, and prevent customers from measuring their investments from a short-term perspective. Parsec International will set savings and investment goals together with clients so that reasonable expectations are clear from the start.
Company weaknesses, at this time, consist only of lack of experience in the Chinese market. However, we are taking steps to understand the complexities of both Chinese regulation, culture and investment behavior. Parsec will also assimilate a “local” team of consultants, accountants, lawyers and other advisors that will help us through this process.
We feel these measures should eliminate or significantly reduce this problem.
THE MARKET
Research has shown that the China foreign fund market annually manages a total of RMB 1.9 trillion (USD $284 billion) Chinawide. Currently, domestic fund managers hold 54%
of market share and foreign funds have 46% of market share in China.
Parsec International has a substantial amount of work to do in order to secure a portion of
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the Chinese foreign fund management market.
Parsec Financial is currently successfully competing with wealth managers on the U.S.
front who have been managing assets for customers for over a hundred years and whose names are now synonymous with banking and wealth management. China will be no exception. In the U.S., Parsec Financial is able to offer its customers better returns for a smaller fee than its larger competitors. On the Chinese front, Parsec International plans to deliver the same excellent service and phenomenal wealth management capabilities as Parsec Financial does in the States.
By 2015, we should be able to position ourselves to build up a reputation of excellence in the local market and thereby considerably reduce this weakness.
Opportunities
The enormous upside potential for wealth management services in China will support substantial revenue increases in the immediate future. Over the next two years, Parsec International’s assets under management are expected to grow at rapidly increasing levels in China, where there is an overwhelming, yet unmet, demand for wealth management services. With the fast-pace growth of many emerging financial markets, Parsec International has an immense opportunity for a first mover advantage in Chinese tier-2 cities.
Based on current and projected market conditions introduced in the Product Strategy section of this plan, it is apparent that Parsec International will be able to penetrate and acquire new Chinese business and take full advantage of the ever-growing wealth management sector. Allowing for any unexpected economic and/or politically driven drops in sales, Chinese market trends indicate that Parsec International stands to realize a substantial jump in revenues, due to the growing demand of Chinese consumers for QDII foreign fund wealth management.
Unexploited Opportunities
Parsec International could create a completely new approach to wealth management by entering the Chinese market and positioning our management services as a “fee-only”
rather than the selling another financial product – as do our competitors. There are also unexplored opportunities beyond Xiamen in other Chinese tier-2 cities. This is a market that our competitors have yet to enter so we will be able to initiate a first mover advantage. There is also a buzz starting on tier-3 cities and what their future demand will be for wealth management services.
Further opportunities for our services exist in other Chinese tier-2 cities and surrounding Asian markets (i.e. Thailand, Vietnam, Cambodia, Indonesia).
Still another possibility for development involves moving into other unexplored regions of South America and Africa where HNWI are also growing by leaps and bounds. These markets too are considerably untapped by the wealth management industry and would provide a “blue ocean strategy”.
Threats
The main threats to Parsec’s ability to succeed in China are the following: governmental
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regulations; an uncooperative joint venture; the recent global financial crisis; and the falling attractiveness of US investments (or the falling value of the US dollar).
The main driver of change in the Chinese management fund business, according to PWC 2009, is regulatory changes in China. It has been noted that the China Securities Regulatory Commission (CSRC) “micromanages” the new product process. Fortunately, since Parsec’s investments mainly focus on individual stocks, mutual funds and some fixed income products, new product approval will not be so difficult as other more complex financial products such as derivatives or futures.
A joint venture is required for a foreign fund management firm to operate in China. But just like China’s regulatory behavior, these regulations could change as well. A joint venture in China provides a positive side, in that market penetration will be facilitated and market knowledge of the customer can be shared. However, so much depends on this shared relationship and this guanxi should be approached carefully.
According to PWC in 2009 one of the major complaints for a compulsory partnership with a joint venture firm is that the partner takes an inordinate amount of the profits.
Although the majority of foreign partners did not complain about the fee structure, there were eight foreign firms in China that complained that “the banks were awarded a disproportionate portion. They noted that 50% to 70% of management fees went to the distributors”.
Parsec believes that clear negotiation is the best way to mitigate any problems that might arise from partnering with Xiamen International Bank. Xiamen International Bank will share in half of Parsec International’s revenues, but they will also share in half of our expenses. Parsec International will also be able to exercise considerable freedom when it comes to how money is spent. By detailing a budget each year with Xiamen International Bank, Parsec International will be given freedom on expenses less than USD $10,000 per month on any single expense.
Another threat is the global financial crisis and how this has impacted investor attitudes in China. One of the many listed frustrations, according to PWC, is that many Chinese investors are immature, impatient investors with a short-term focus. Combine these attitudes with the recent fall in the equity markets, and you have a population that might be wary of investing in equities once more. The positive side, is that the DOW rebounded from 6,000 to 10,000 and is remaining somewhat stable. Also, Chinese investors looking to diversify their investments might see now as the perfect time to invest in U.S. equity markets, because they are not at an all time high. Parsec also has 30 years of experience in beating the S&P each year, which will boost the confidence of our clients.
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A customer is the most important visitor on our premises.
He is not dependent on us. We are dependent on him.
He is not an interruption in our work.
He is the purpose of it.
He is not an outsider in our business.
He is a part of it.
We are not doing him a favor by serving him.
He is doing us a favor by giving us an opportunity to do so.
- Mohandas Karamchand Gandhi (a.k.a. Mahatma Gandhi)
The most typical client for Parsec Interational will be an HNWI, Emerging-HNWI or Mass Affluent client (basically an individual who has at least USD $100,000 of disposable income available for investment). They will most usually be an HWNI with at least one million dollars in net assets. They will probably have several residences, take vacations abroad and be looking for a smart, long-term way to grow their investments.
It is likely that potential customers are going to be familiar with investing in equity markets, at least in China if not abroad. They will readily accept the idea of Parsec buying and selling stocks on their behalf through an approved custodian. They might, however, be confused why Parsec operates with a fee-only structure. But, after Parsec employees explain that this is to keep our interests in line with the customers interests, Parsec will look more attractive for investments than another company trying to just
“sell” them financial products.