Description
Given the capital-intensive nature of the operations and data processing functions in financial services firms, U.S. jobs related to such critical support functions will continue to expand.
U.S. Financial Services Industry
Contributing to a More Competitive US Economy
JULY 2010
2
US Financial Services Industry
Contributing to a More Competitive US Economy
The fnancial services industry is a vital component of the US and world economies. It
provides the fuel that promotes job creation and sustains economic growth and innovation.
A robust fnance industry provides businesses with new ways to lower the cost of capital,
stimulates global investment and trade, and presents investors with a broad array of products
and services to increase return and manage risk. Importantly, these fnancial services and
products help facilitate and fnance the export of manufactured goods and agricultural
products, while helping the US become the world’s number one exporter of services. The
long-term health and vigor of this sector, and its ability to service customer needs, depends
on its ability to remain competitive both at home and abroad.
A vibrant US fnancial services sector requires having access to clients not only in the US,
but in markets around the world. And why are these non-US markets essential for future
US economic growth and job creation? The answer lies in the growing market share of non-
US markets — more than three-quarters of the world’s GDP, about two-thirds of the world’s
equity market capitalization, approximately two-thirds of the world’s debt markets, and 95
percent of the world’s consumers, are now found outside the United States. As the table
below shows, these trends are especially strong in the rapidly growing “BRIC” countries
(Brazil, Russian, India, and China). Underscoring growth in the BRICS — current estimates
indicate that the BRICs will account for 50% of global GDP by 2050.
1
Not surprisingly, many
of the best future growth opportunities for the global companies lie in non-US markets.
1
Goldman Sachs Global Economics, Commodities and Strategy Research, November 4, 2009.
3
Timeline for BRICs to Overtake
G6 Gross Domestic Product
France Germany Italy Japan UK US
Brazil 2027 2029 2020 2034 2038 --
China 2006 2008 2004 2010 2006 2027
India 2021 2024 2017 2027 2023 --
Russia 2024 2029 2017 2037 2027 --
Source: The Long-Term Outlook for the BRICs and N-11 Post Crisis, Goldman Sachs Global Economics
The primary motivation for fnancial services frms to operate in non-domestic markets is to
follow their multinational clients and become better acquainted with the markets in which
they operate so they can provide the fnancial tools and products to among other things raise
capital and manage risk. Multinational companies and investors seek the global expertise
of fnancial services frms for a wide array of activities — research, fund management,
corporate fnance, and risk management, to name a few. To compete effectively and serve
their customers, many of whom operate and raise capital in global markets, fnancial services
frms must have the capabilities to establish a local presence in many markets around the
world, while providing other services on a cross-border basis. Access to non-US markets
enhances the competitiveness of the US fnancial services industry, beneftting its more than
5.77 million US employees, and further strengthening the entire US economy.
A Vital Component of the U.S. Economy
The US services sector is the most dynamic component of the US economy, accounting
for over three-quarters of total US employment. The services sector also accounted for
more than 78 percent of US Gross Domestic Product (GDP) in 2009.
2
Without question, this
sector dominates the economy and will be the springboard for future US economic growth.
During the period 1998-2008, for example, services industries added nearly 14 million jobs,
in contrast to the loss of over 2.9 million jobs in goods-producing industries.
3
The shift to
a more services-oriented economy is more than a short-term phenomenon; the US Bureau
of Labor Statistics (BLS) projects future job growth to mirror this trend. BLS employment
projections for 2008-2018 show that of a projected 14.6 million increase in employment,
service industries will account for virtually all of the job growth.
4
2
U.S. Department of Commerce, Bureau of Labor Statistics, ‘Employment by Sector’, January 2010
3
U.S. Department of Commerce, Bureau of Labor Statistics, ‘Employment by Sector’, November 2009
4
U.S. Department of Commerce, Bureau of Labor Statistics, ‘Employment by Sector’, November 2009
4
Financial services export: source of US job growth. Within the services sector, the
fnancial services industry employs some 5.77 million individuals, about six percent of total
private non-farm employment. Employment in the securities sub-sector (including broker-
dealers, commodities, and other fnancial investments and related activities) is projected
to expand 12 percent by 2018, spurred by the large number of baby boomers in their peak
savings years, the growth of tax-favored retirement plans, and the globalization of securities
markets.
5
Interestingly, rapid expansion of the fnancial services sector abroad has been
accompanied by increased employment in the US.
The wealth generated by the fnancial services industry contributed nearly 6 percent, or more
than $828 billion, to 2009 US GDP. The most recent data available (2000-2008) indicates
contributions by the sector remain an important and growing portion of GDP. As an overall
contributor to the US GDP, the services sector grew by more than $120 billion during
2009, while the fnancial services industry grew by more than $16 billion. The substantial
contribution of the fnancial services industry is supported, in part, by the export of fnancial
services and products. In 2008 (latest export data available), US fnancial services frms
exported $70.9 billion of fnancial products and services, and garnered a surplus of more
than $8.9 billion.
6
These exports continue to generate signifcant employment opportunities
within the US.
5
U.S. Department of Commerce, Bureau of Labor Statistics, ‘Overview of 2008-2018 Projections,’
6
Financial services exports totaled $60.2 billion (with a surplus of $41 billion), while insurance exports of ?nancial
goods and services exported $10.8 billion.
5
US Exports of Financial Services and Products
Are Nearly 13% of All US Services Exports
Given the capital-intensive nature of the operations and data processing functions
in fnancial services frms, U.S. jobs related to such critical support functions will
continue to expand. As foreign affliates generate new business, support services in
the US will expand to meet the additional volume. Because technology has made
it possible to conduct such support functions off site, the foreign affliates can take
advantage of economies of scale and “piggyback” off the US parent’s existing
systems, thus reducing the frm’s overall costs. Other areas that use the expertise of
specialists — such as portfolio management, research, and new product development
— will similarly beneft as frms draw on the capital-intensive infrastructure already in
place in the US for their operations in foreign markets. These US facilities serve as
“factories” which develop the fnancial service products US companies sell abroad.
Role in economies of US states. The fnancial services industry plays an equally
important role in state and local economies and is a vital component of many states’
revenue streams. In nearly half the country, the industry provides for 6% or more
of state gross domestic product. In traditional fnancial hubs such as New York
and Massachusetts, the industry accounted for 16.4% and 9.7% of overall state
GDP, respectively, in 2008. The sector also supports a signifcant number of jobs
and tax revenue in states such as Illinois, Pennsylvania, Texas, Florida, Connecticut,
Georgia, South Dakota and Delaware, where the industry directly employs at least
20,000 individuals in each state.7
7
Bureau of Economic Analysis, of Commerce. “Signi?cant” is de?ned as more than 5% of
overall GDP per state.
0
100
200
300
400
500
600
700
4%
2%
6%
8%
10%
12%
14%
16%
T
o
t
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l
S
e
r
v
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o
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S
e
r
v
i
c
e
s
E
x
p
o
r
t
s
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Total Service Exports ( $ Billions) Percent of Services Exports
6
The Financial Services Sector is an Important Component
of Growth and Jobs at the State Level
States greater than average contributions to GDP from the ?nancial services and insurance sector. Source BLS data
Links to the Global Economy
To be fully competitive, US companies must span the globe, from large developed markets
such as the European Union, to smaller developing markets like Vietnam. US goods and
services frms want to expand to foreign markets because the US economy only accounts
for about 27% of total world output.8 Confronting mature markets in the US, multinational
companies increasingly rely on foreign markets to boost sales and develop new sources of
income. And, as multinational companies seek to expand their global footprint by selling
cars in fast growing emerging markets, or providing infrastructure investments for roads,
electricity, and technology development, these companies must have the fnancial tools that
only global fnancial services frms can provide.
In order for the fnancial services industry to help multinational companies take advantage of
these global opportunities, they must have ability to provide, for example, currency related
products, deal with cross-border tax differences, offer country risk assessments, develop
global cash management facilities, and provide country-specifc investment advice and
solutions: all key services provided by global fnancial institutions to promote US exports.
8
IMF Global Financial Stability, 2008 Appendix Table 3,
0%
D
E
S
D
N
Y
C
T
R
I
I
A
N
C
M
AI
L
U
T
M
N
N
H
N
J
N
V
O
H
5%
10%
15%
20%
25%
30%
35%
Financial Services as GDP) Average Financial Services GDP
7
Financial ?rms adjust scale to meet needs of global market. To provide these services
to their clients, global fnancial institutions have developed platforms in order to offer their
services on a cross-border basis, or thorough the establishment of local offces. In this
way, fnancial services frms have set up the infrastructure to help multinationals navigate
through the complexities of trade and investment fows that span geographic regions and
economies. That is why large global fnancial institutions can have a third or more of their
asset-base outside their “home” country as many fnancial services require direct knowledge
of local regulation, market practices and other requirements. The global reach of these
frms creates economies of scale and scope where frms combine different products and
services, resulting in greater savings for the customer. Global frms are able to afford the
overhead costs of building global platforms and systems for carrying out global trade and
fnance in a manner that smaller purely domestic frms cannot. As the size of a bank’s
customers grows, they require a broader and more sophisticated product suite and demand
that these products be offered on a large scale, global basis. The credit demands of a large
multinational corporation are larger, broader, and more global. Big banks with ample balance
sheets and global reach are required to service these customers.
Financial ?rms enrich domestic capital markets and build export markets. Global
fnancial services frms also play an important developmental role by encouraging increased
dissemination of information, enhancing price discovery, and lowering transaction costs.
The products and services they provide in the local markets facilitates access to capital
by making it cheaper and more plentiful, provides a broader and more tailored variety of
products to investors, mobilizes and increases capital investment in local businesses,
enhances productivity, and promotes balanced growth. This, in turn, supports economic
growth and job creation. Consequently, global investors will beneft from more attractive
investment opportunities, exporters will be able to access to a more vibrant export market
for goods and services, and workers will beneft from increased job opportunities.
8
Conclusion
As the US share of global output and its fnancial markets becomes relatively smaller, access to
foreign markets is of increasing importance to global fnancial services frms. As multinational
clients continue to expand their global capabilities and establishment in foreign markets, US
frms need to follow these clients to remain competitive. Financial institutions provide the
services which facilitate the entry of companies into international markets. As fscal belt-
tightening limits the government resources available, US companies will increasingly rely on
US fnancial services frms to raise the funds necessary to enter and be competitive in foreign
markets. Clearly, the fnancial services sector must have access to world capital markets to
raise the lowest cost capital and provide the advice necessary to help a company establish
a proftable presence in a foreign market. As the US seeks to increase the standard of living
for its citizens, economic growth, job creation and the ability to compete internationally will
be critical ingredients in achieving this goal.
July 28, 2010
doc_333410965.pdf
Given the capital-intensive nature of the operations and data processing functions in financial services firms, U.S. jobs related to such critical support functions will continue to expand.
U.S. Financial Services Industry
Contributing to a More Competitive US Economy
JULY 2010
2
US Financial Services Industry
Contributing to a More Competitive US Economy
The fnancial services industry is a vital component of the US and world economies. It
provides the fuel that promotes job creation and sustains economic growth and innovation.
A robust fnance industry provides businesses with new ways to lower the cost of capital,
stimulates global investment and trade, and presents investors with a broad array of products
and services to increase return and manage risk. Importantly, these fnancial services and
products help facilitate and fnance the export of manufactured goods and agricultural
products, while helping the US become the world’s number one exporter of services. The
long-term health and vigor of this sector, and its ability to service customer needs, depends
on its ability to remain competitive both at home and abroad.
A vibrant US fnancial services sector requires having access to clients not only in the US,
but in markets around the world. And why are these non-US markets essential for future
US economic growth and job creation? The answer lies in the growing market share of non-
US markets — more than three-quarters of the world’s GDP, about two-thirds of the world’s
equity market capitalization, approximately two-thirds of the world’s debt markets, and 95
percent of the world’s consumers, are now found outside the United States. As the table
below shows, these trends are especially strong in the rapidly growing “BRIC” countries
(Brazil, Russian, India, and China). Underscoring growth in the BRICS — current estimates
indicate that the BRICs will account for 50% of global GDP by 2050.
1
Not surprisingly, many
of the best future growth opportunities for the global companies lie in non-US markets.
1
Goldman Sachs Global Economics, Commodities and Strategy Research, November 4, 2009.
3
Timeline for BRICs to Overtake
G6 Gross Domestic Product
France Germany Italy Japan UK US
Brazil 2027 2029 2020 2034 2038 --
China 2006 2008 2004 2010 2006 2027
India 2021 2024 2017 2027 2023 --
Russia 2024 2029 2017 2037 2027 --
Source: The Long-Term Outlook for the BRICs and N-11 Post Crisis, Goldman Sachs Global Economics
The primary motivation for fnancial services frms to operate in non-domestic markets is to
follow their multinational clients and become better acquainted with the markets in which
they operate so they can provide the fnancial tools and products to among other things raise
capital and manage risk. Multinational companies and investors seek the global expertise
of fnancial services frms for a wide array of activities — research, fund management,
corporate fnance, and risk management, to name a few. To compete effectively and serve
their customers, many of whom operate and raise capital in global markets, fnancial services
frms must have the capabilities to establish a local presence in many markets around the
world, while providing other services on a cross-border basis. Access to non-US markets
enhances the competitiveness of the US fnancial services industry, beneftting its more than
5.77 million US employees, and further strengthening the entire US economy.
A Vital Component of the U.S. Economy
The US services sector is the most dynamic component of the US economy, accounting
for over three-quarters of total US employment. The services sector also accounted for
more than 78 percent of US Gross Domestic Product (GDP) in 2009.
2
Without question, this
sector dominates the economy and will be the springboard for future US economic growth.
During the period 1998-2008, for example, services industries added nearly 14 million jobs,
in contrast to the loss of over 2.9 million jobs in goods-producing industries.
3
The shift to
a more services-oriented economy is more than a short-term phenomenon; the US Bureau
of Labor Statistics (BLS) projects future job growth to mirror this trend. BLS employment
projections for 2008-2018 show that of a projected 14.6 million increase in employment,
service industries will account for virtually all of the job growth.
4
2
U.S. Department of Commerce, Bureau of Labor Statistics, ‘Employment by Sector’, January 2010
3
U.S. Department of Commerce, Bureau of Labor Statistics, ‘Employment by Sector’, November 2009
4
U.S. Department of Commerce, Bureau of Labor Statistics, ‘Employment by Sector’, November 2009
4
Financial services export: source of US job growth. Within the services sector, the
fnancial services industry employs some 5.77 million individuals, about six percent of total
private non-farm employment. Employment in the securities sub-sector (including broker-
dealers, commodities, and other fnancial investments and related activities) is projected
to expand 12 percent by 2018, spurred by the large number of baby boomers in their peak
savings years, the growth of tax-favored retirement plans, and the globalization of securities
markets.
5
Interestingly, rapid expansion of the fnancial services sector abroad has been
accompanied by increased employment in the US.
The wealth generated by the fnancial services industry contributed nearly 6 percent, or more
than $828 billion, to 2009 US GDP. The most recent data available (2000-2008) indicates
contributions by the sector remain an important and growing portion of GDP. As an overall
contributor to the US GDP, the services sector grew by more than $120 billion during
2009, while the fnancial services industry grew by more than $16 billion. The substantial
contribution of the fnancial services industry is supported, in part, by the export of fnancial
services and products. In 2008 (latest export data available), US fnancial services frms
exported $70.9 billion of fnancial products and services, and garnered a surplus of more
than $8.9 billion.
6
These exports continue to generate signifcant employment opportunities
within the US.
5
U.S. Department of Commerce, Bureau of Labor Statistics, ‘Overview of 2008-2018 Projections,’
6
Financial services exports totaled $60.2 billion (with a surplus of $41 billion), while insurance exports of ?nancial
goods and services exported $10.8 billion.
5
US Exports of Financial Services and Products
Are Nearly 13% of All US Services Exports
Given the capital-intensive nature of the operations and data processing functions
in fnancial services frms, U.S. jobs related to such critical support functions will
continue to expand. As foreign affliates generate new business, support services in
the US will expand to meet the additional volume. Because technology has made
it possible to conduct such support functions off site, the foreign affliates can take
advantage of economies of scale and “piggyback” off the US parent’s existing
systems, thus reducing the frm’s overall costs. Other areas that use the expertise of
specialists — such as portfolio management, research, and new product development
— will similarly beneft as frms draw on the capital-intensive infrastructure already in
place in the US for their operations in foreign markets. These US facilities serve as
“factories” which develop the fnancial service products US companies sell abroad.
Role in economies of US states. The fnancial services industry plays an equally
important role in state and local economies and is a vital component of many states’
revenue streams. In nearly half the country, the industry provides for 6% or more
of state gross domestic product. In traditional fnancial hubs such as New York
and Massachusetts, the industry accounted for 16.4% and 9.7% of overall state
GDP, respectively, in 2008. The sector also supports a signifcant number of jobs
and tax revenue in states such as Illinois, Pennsylvania, Texas, Florida, Connecticut,
Georgia, South Dakota and Delaware, where the industry directly employs at least
20,000 individuals in each state.7
7
Bureau of Economic Analysis, of Commerce. “Signi?cant” is de?ned as more than 5% of
overall GDP per state.
0
100
200
300
400
500
600
700
4%
2%
6%
8%
10%
12%
14%
16%
T
o
t
a
l
S
e
r
v
i
c
e
E
x
p
o
r
t
s
P
e
r
c
e
n
t
o
f
S
e
r
v
i
c
e
s
E
x
p
o
r
t
s
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Total Service Exports ( $ Billions) Percent of Services Exports
6
The Financial Services Sector is an Important Component
of Growth and Jobs at the State Level
States greater than average contributions to GDP from the ?nancial services and insurance sector. Source BLS data
Links to the Global Economy
To be fully competitive, US companies must span the globe, from large developed markets
such as the European Union, to smaller developing markets like Vietnam. US goods and
services frms want to expand to foreign markets because the US economy only accounts
for about 27% of total world output.8 Confronting mature markets in the US, multinational
companies increasingly rely on foreign markets to boost sales and develop new sources of
income. And, as multinational companies seek to expand their global footprint by selling
cars in fast growing emerging markets, or providing infrastructure investments for roads,
electricity, and technology development, these companies must have the fnancial tools that
only global fnancial services frms can provide.
In order for the fnancial services industry to help multinational companies take advantage of
these global opportunities, they must have ability to provide, for example, currency related
products, deal with cross-border tax differences, offer country risk assessments, develop
global cash management facilities, and provide country-specifc investment advice and
solutions: all key services provided by global fnancial institutions to promote US exports.
8
IMF Global Financial Stability, 2008 Appendix Table 3,
0%
D
E
S
D
N
Y
C
T
R
I
I
A
N
C
M
AI
L
U
T
M
N
N
H
N
J
N
V
O
H
5%
10%
15%
20%
25%
30%
35%
Financial Services as GDP) Average Financial Services GDP
7
Financial ?rms adjust scale to meet needs of global market. To provide these services
to their clients, global fnancial institutions have developed platforms in order to offer their
services on a cross-border basis, or thorough the establishment of local offces. In this
way, fnancial services frms have set up the infrastructure to help multinationals navigate
through the complexities of trade and investment fows that span geographic regions and
economies. That is why large global fnancial institutions can have a third or more of their
asset-base outside their “home” country as many fnancial services require direct knowledge
of local regulation, market practices and other requirements. The global reach of these
frms creates economies of scale and scope where frms combine different products and
services, resulting in greater savings for the customer. Global frms are able to afford the
overhead costs of building global platforms and systems for carrying out global trade and
fnance in a manner that smaller purely domestic frms cannot. As the size of a bank’s
customers grows, they require a broader and more sophisticated product suite and demand
that these products be offered on a large scale, global basis. The credit demands of a large
multinational corporation are larger, broader, and more global. Big banks with ample balance
sheets and global reach are required to service these customers.
Financial ?rms enrich domestic capital markets and build export markets. Global
fnancial services frms also play an important developmental role by encouraging increased
dissemination of information, enhancing price discovery, and lowering transaction costs.
The products and services they provide in the local markets facilitates access to capital
by making it cheaper and more plentiful, provides a broader and more tailored variety of
products to investors, mobilizes and increases capital investment in local businesses,
enhances productivity, and promotes balanced growth. This, in turn, supports economic
growth and job creation. Consequently, global investors will beneft from more attractive
investment opportunities, exporters will be able to access to a more vibrant export market
for goods and services, and workers will beneft from increased job opportunities.
8
Conclusion
As the US share of global output and its fnancial markets becomes relatively smaller, access to
foreign markets is of increasing importance to global fnancial services frms. As multinational
clients continue to expand their global capabilities and establishment in foreign markets, US
frms need to follow these clients to remain competitive. Financial institutions provide the
services which facilitate the entry of companies into international markets. As fscal belt-
tightening limits the government resources available, US companies will increasingly rely on
US fnancial services frms to raise the funds necessary to enter and be competitive in foreign
markets. Clearly, the fnancial services sector must have access to world capital markets to
raise the lowest cost capital and provide the advice necessary to help a company establish
a proftable presence in a foreign market. As the US seeks to increase the standard of living
for its citizens, economic growth, job creation and the ability to compete internationally will
be critical ingredients in achieving this goal.
July 28, 2010
doc_333410965.pdf