Why do some companies still fail in markets where customers are hungry for FX? – View from the industry

Attempting to enter uncharted territory is a feat that the vast majority of FX firms avoid like a cat avoids water, resulting in a massive drive by a number of companies in the retail FX sector heading toward specific regions which they have either researched an entry in great detail and at great cost, or simply followed the lead of other companies which have shown high volume figures in specific regions.

Simply heading where everyone else heads, however, is not a guaranteed route to success.

China, along with neighboring Asia Pacific nations, has been the darling of all FX companies in the retail sector for a number of years, and despite the country’s blocking of websites, payment systems and free trade which is imposed on citizens, firms from the West have been establishing operations in locations with good business environments and close proximity to China, such as Saxo Bank and FXCM’s presence in Hong Kong, and the rise of brokerages in Australia such as AxiTrader. Even Japan’s Invast Securities has large and successful operations in Australia serving not only the domestic market, but the Asian markets too.

However, for the handful of large firms that enjoy presence, and medium sized brokerages that acquire Chinese clients via partnerships with local IBs, there is a series of failures that have not been able to enter, a matter quite evident by the three or four large brokerages that the vast majority of Chinese IBs place business with, a matter studied by FinanceFeeds in detail on a recent visit to mainland China.

Most large IBs in China only place business with one of four companies.

Why do some crack it and others not? FinanceFeeds today spoke to Itai Damti, Managing Director for Asia at Leverate, who is a seasoned expert in this matter, as he presides over one of the largest global brokerage solutions vendors and serves brokerages across the Far East, from Leverate’s headquarters in Hong Kong.

Mr. Damti explained:

I’ve seen many companies failing when trying to get into new markets, especially in China. For every publicized fall (eBay vs. Taobao) there are hundreds of untold stories about hasty moves into new markets that ended with companies falling on their face.

Localization can (and should) be done in so many fronts- sales & pricing, marketing channels, customer service, recruiting, product, IT- that companies must spend more time and money mapping the gaps upfront. From paid research to consultants to discussions with experienced entrepreneurs in the target market- it’s worth every dollar

Indeed, business culture and the functionality of the business environment varies from place to place, however the value proposition of what is being offered by a whole host of brokerages is often standard, therefore this either has to be adapted, or the market entrants should expect to spend considerable time and effort with boots on the ground, sitting with those who are charged with bringing the business.

Time consuming and expensive at the outset, but rewards have been reaped by companies which have taken the initiative to spend time with their partners, in their local environment, certainly bearing out Mr. Damti’s advice.

Flow characteristics differ dramatically depending on point of origin – Jeff Wilkins

Getting the business model right is also of great importance. Going to a new region, and then generating substantial business is one thing, but ensuring the right model when approaching a new market is critical. Jeff Wilkins, Managing Director of ThinkLiquidity, a renowned risk management specialist, explained to FinanceFeeds “The largest reason I see companies fail in new markets is due to lack of local market expertise.”

“The sales and marketing process doesn’t need to be completely re-written, but a company needs to adapt. Just because a sales process is successful in one region of the world, does not mean it will work elsewhere.”

The second largest reason is product offering and risk. Flow characteristics differ dramatically depending on point of origin. Most brokers do not realize this until it is too late. I strongly advise seeking outside help on risk expansion before it becomes too costly” said Mr. Wilkins.

“I cannot comment, as I have no experience of failure”

Such a moot point is this, that a senior executive from one particular brokerage shrugged off the question by explaining that he “couldn’t comment as he has no experience of failure.” Amusing indeed.

Photographs: Top left, Itai Damti, Managing Director for Asia at Leverate. Lower Right, Jeff Wilkins, Managing Director, ThinkLiquidity.