Will Consumerism Drive Global Economic Growth and Development - Assignment Example

Introduction Consumerism has its origin from the huge amount of resources which producers spend on advertising budgets in order to create demand (Hill and Jones 2012). Consumerism is now the key driver of economic demand since consumers have more information on the products (Hill and Jones 2012). The economic growth and development is interconnected with consumerism since economic and social systems are built on consumerism. However, consumerism has been counter-productive since consumers have been forced to incur high debts and suffer from lifestyle diseases such as obesity which has increased the health care costs (Hill and Jones 2012). Consumerism has also led to environmental degradation to mineral depletion and pollution of water resources. Consumerism has enabled regulatory authorities safeguard the interests of the consumers through a legal framework and economic pressures on the producers (Thomson and Martin 2010). Investment banking sector acts on behalf of clients in underwriting or issuing new securities. The sector assists clients during mergers, acquisitions and take-over. The sector also provides other services like trading derivative instruments, foreign exchange and equity securities. The investment banking industry in the UK netted $ 3.3 billion of European investment banking fee revenues in 2011. However, business activity from acquisitions, mergers and securities underwriting declined during the financial crisis (Thomson and Martin 2010). The UK government is geared at imposing regulatory reforms in order to make the sector competitive in the world and sustain economic growth. The government has established a Green Investment bank which will accelerate additional capital in green infrastructure and address market failures in investment banking (Hill and Jones 2012). The government has played an important role in protecting consumers in the investment banking sector. The UK government is geared at promoting financial stability of the Investment banking sector while supporting sustainable economic growth and development (Thomson and Martin 2010). This is geared at making the investment banks more resilient to financial shocks. The principle is to separate retail banking from investment banking and increase competition in the investment banking sector. The UK investment banking sector is one of the most leveraged in the world making it more vulnerable to financial shocks. The investment banking sector has lost market confidence which has forced many investors to withdraw their funds Thomson and Martin 2010. The Prudential Regulator Authority (PRA) and Financial Conduct Authority (FCA) will develop the guiding standards for prudential reporting of the investment banking sector (Thomson and Martin 2010). The investment banking sector will have to move from the culture of poor risk management which is responsible for investor losses to more prudent regulation and risk analysis. Investors should also remain more responsible by challenging the management in order to ensure their investments and funds are safe. The management of the investment banks will have to create more trust and confidence in the market by providing timely information to investors (Freeman 2010). PESTLE analysis and strategies for the future PESTLE analysis which is an industry competitive analysis tool includes six economic variables which influence the business strategies and plans chosen by a firm. The environmental forces include political environment, economic environment, social-cultural environment, technological environment, legal environment and the ecological environment (Freeman 2010). Political environment De-regulation of the investment banking sector and little government intervention has impacted on the choice made by the investment banks. The political environment has shifted to micro-management and on-site inspection of each firm in the sector (Freeman 2010). The focus of the regulation has also shifted from the traditional transaction-based to risk-based investment. The role of regulators is critical in ensuring firms undertake sound risk management practices and good corporate governance. The regulators have issued strict guidelines and benchmarks on capital adequacy, disclosures and credit provisions. Investors are able to share information on the soundness and financial position of each firm in the industry. New sophisticated solvency and risk management guidelines have been issued in order to protect consumers against systemic failures. In the future, investment bank leaders will promote a reporting culture of fairness, transparency and accountability in their decisions (Freeman 2010). The Investment banks will have to adhere with the changing political pressures in order to escape liability of heavy fines from the regulatory authorities. The banks must maintain sufficient capital and implement strong risk identification and management measures. The investment banks must also provide clients with detailed and timely information about their investment portfolios and changes in market dynamics (Freeman 2010). Economic environment Investment banking sector which is part of the financial systems remains the lifeline of any economy (Cheverton 2008). The interest rates will remain high due to the high default rates over the past few years. Although the share prices of most companies are recovering, the liquidity of major investment banks is still worrying. The consumer incomes will keep growing after the full recovery of the economy. The rate of economic growth and development will remain high due to increased demand of financial services by the growing middle income class consumers (Cheverton 2008). Investment banks should aim at accelerating economic growth and capital accumulation in the economy. The banks should maintain adequate liquidity in order to pay clients claims as they fall due. The banks should also invest in high return and low risk investments in order to guarantee the clients an acceptable return on their investment portfolio. The banks should also diversify their investments in order to avoid negative returns during periods of economic stagnation (Cheverton 2008). Social-cultural environment The current social environment is not conducive for investment banking sector. The increase in literacy levels have enlighten the consumers thus most of them require detailed information before making their investments (Stowell 2010).The increase in human population and emergency of new business structures will increase the demand of investment services. Most of consumers are moving to cities in search for employment thus the demand for investment banking services will increase (Cheverton 2008). The investment banks should take advantage of the increase in the number of retirees who need long term investments to expand their client portfolio. The increase in literacy level will assist the investment banks to offer more detailed and technical information to clients with ease (Cheverton 2008). Technological environment Technology is fundamental in the investment banking sector. Recent improvement in information communication technologies and business technology systems have enabled the firms provide excellent customer services and attract new customers through internet business model (Stowell 2010). Technology will encourage cross-border services and also cut operating costs. Investment banks should utilize technology to provide accurate and efficient services to customers. The investment banking strategy for the future will include implementing technological systems that can enable consumers track their investment portfolio in real-time or access relevant and timely market information (Stowell 2010).The investment banks should utilize technology to source funds from other markets where the interest rates are low. Legal environment There are numerous legal requirements that control the activities which investment banks can undertake. The industry should adhere to the regulatory framework in order to ensure market confidence, reduce negative reputation and accelerate economic growth (Stowell 2010). All investment banks must abide with the legal framework in order to eliminate financial scandals and ensure consumer confidence in the industry. Ecological environment There are numerous concerns about environmental degradation. Investment banking sector should provide green business strategies by reducing the number of paper work and participating in environmental conservation efforts like planting trees. The business leaders should implement initiatives like energy saving policies and use of renewable energy sources (Stowell 2010). Major changes to processes and core competencies needed The investment banking sector should implement major changes in operations. The investment banks will have to change their culture from profit-motivated culture to risk-based culture which considers the interests of the clients (Saloner, Shepard and Podolny 2006). The risks management structures in the banks should be strengthened. There is a need of adoption of globally accepted guidelines on capital adequacy and income recognition by the investment banks. The leadership style should ensure that interests of clients are considered before any major investment. The investment banks should move from transactional related business to long-term customer relationships by ensuring market confidence. The investment banks should implement risk management measures that can handle economic shocks and market uncertainty (Saloner, Shepard and Podolny 2006). Investment officials should be trained on risk management techniques and risk identification measures. Investment banks should utilize technology to enhance payment and settlement procedures and eliminate transaction risks associated with payments like fraud. The banks should be evaluated on an ongoing basis on their solvency and capital adequacy levels. The investment banks should set up a market intelligence and research unit in order to remain innovative and meet the changing needs of the clients (Witcher and Chau 2010). Advice to investment bank leaders on unfolding events The increase in consumer knowledge will translate to more demand for real-time information on their investments. The leaders should create close-working relationships with the market regulars in order to ensure early identification of potential risks to customer investment portfolio (Witcher and Chau 2010). The emergency of the internet has enabled cross-border investments and integration of the world financial systems thus leaders should closely monitor what is happening in other world markets. The leaders should monitor global capital flows and movements in interest rates in other markets and determine the likely impact on their markets (Witcher and Chau 2010). For instance, the increase in the amount of acquisitions may be an indicator of poor business operating environment thus leaders should assess the impacts of such a scenario on their businesses. The leaders should monitor and track instances of fraud, changes in consumer confidence and failure of other financial institutions. For instance, the leaders should monitor changes in bank interest rates, rate of economic growth, employment level and exchange rates in order to predict likely financial shocks in the financial system (Witcher and Chau 2010). Overcoming resistance to scenario-thinking Business leaders in the investment banking sector can overcome resistance by changing their organizational culture. The leaders should utilize the cultural web tool to implement new changes to their organizational culture. The leaders should formulate a clear strategic vision for their organization and create urgency for changes in the culture. The management should display their commitment to the necessary cultural changes (Witcher and Chau 2010). The management should demonstrate the need to move away from transaction based strategy to risk based strategies which ensure long term customer relationships and loyalty to the organization. The management should create the relevant scenarios like the implication of sound risk management principles to the market share of the company and accompanying profitability (Witcher and Chau 2010). The management should also engage the employees in success stories and keep repeating the need of a new culture in all corporate communications and meetings with employees (Cheverton 2008). The management should also create short term wins which will motivate employees to the realization of the business strategy. For instance, a short term win can include elimination of fraud or increase in the number of clients by 10 percent in the first year. The management should track the scenarios and monitor the implementation of new strategies and take any corrective action (Cheverton 2008). The management should also institutionalize the scenarios and integrate them in the corporate culture and strategy process. Cultural web (Saloner, Shepard and Podolny 2006) Application of cultural web tool According to the cultural web tool, the management of investment banks can change the culture from transactional based culture to long term relationships with customers. The management should tell stories of how the previous culture contributed to losses and negative reputation of their businesses (Alvesson and Sveningsson 2007). The management should also tell stories of how the new culture will contribute to the success of the business and greater economic growth. The management should change the rituals and routines in the organization. For instance, training and development of all employees should become the ritual and routine of the firms in the industry. The management should also change the symbols which include logos and dress code in the firms (Alvesson and Sveningsson 2007). The management should emphasize on logos which symbolize prosperity and dress codes which symbolize professionalism in the industry. The management should also change the organizational structures like the lines of authority and hierarchy of command. The structure should ensure effective communication and close working relationships among all employees. The management should implement control systems that reward excellent performance and discourage fraud. The financial systems and risk management systems should be effective. The power structures which include senior management executive should also contribute to the strategic direction of the organization (Alvesson and Sveningsson 2007). Overcoming resistance-leadership Senior managers in investment banking sector are likely to resist the necessary changes to risk management business strategy. However, the regulatory authorities can overcome their resistance by involving them in developing new guidelines on capital adequacy, solvency and liquidity of their operations (Alvesson and Sveningsson 2007). The business executives should provide their concerns and suggestions on new risk management models. The business leaders should feel that they own decision to move to new risk management practices and models of business. The business leaders should ensure low cost models and sound risk management practices are implemented in all corporate business strategies (Alvesson and Sveningsson 2007). Conclusion Investment banking sector has moved from transaction based industry to long term relationships with customers. The industry should implement sound risk management systems and real time customer payment and settlement systems in order to avoid frauds. The management should change the organizational cultures in order to attain a competitive edge in the markets and ensure customer confidence in the markets. Bibliography: Alvesson, M and Sveningsson, S. 2007. Changing organizational culture: cultural change work in progress. London. Taylor & Francis. Cheverton, P. 2008. Key account management in the financial services industry: tools and techniques of building success. London. Kogan. Freeman, R.E. 2010. Strategic management. Cambridge. Cambridge University Press. Hill, C and Jones, G. 2012. Strategic management: an integrated approach. Mason. Cengage Learning. Saloner, G., Shepard, A and Podolny, J. 2006. Strategic management. New York. John Wiley & Sons. Stowell, D. 2010. An introduction to investment banks, hedge funds, and private equity: the new paradigm. Burlington. Academic Press. Thomson, J and Martin, F. 2010. Strategic management: awareness and change. Andover. Cengage Learning. Witcher, B and Chau, V. 2010. Strategic management: principles and practice. Mason. Cengage Learning. Read More