Offshore Perspectives: Curing market leader syndrome

Recent developments provide us with another opportunity to bring back the days when innovation and staying ahead of the game was central to the success of the Cayman Islands financial services sector.

Most experts on business development and strategy agree that there are roughly six stages of a business’ life cycle. The first is the start up stage when the business is created, the second is a period of growth, the third represents the stage where the business has been established. After this business may further experience another growth stage (fourth) and then enter into decline phase (fifth) and finally a formal exit from the markets.

The Cayman Islands financial services industry, viewed as a “business” seems to be in the “established stage”. Continuing the analogy of the life cycle of a business, this means that our industry has become a thriving business with a leadership position in the offshore financial services market and has a strong group of loyal clients. This stage of our industry’s development reflects a more routine operation rather than any aggressive growth spurts or introduction of new services.

While we may be in the theoretical phase of our financial services industry’s life cycle, there is no reason to simply accept this course of action. While the hedge funds sector driven primarily by international demand for our services, has done well for many years leading up to the current crisis, the rest of the financial services sector can for the most part be described as routine or complacent.

If we were to carry out a similar assessment in say the mid 1980s or early 1990s, we could have concluded that the Cayman Islands had done pretty well up to that point and was arguably in some form of the “established” phase as well. But instead of sitting on our laurels back then, we entered (and re-entered) into further innovative efforts which have kept the Cayman Islands as a leading international financial services centre. In effect we entered into further additional growth stages rather than simply falling into the decline phase. There are several examples of this but arguably the introduction of the mutual funds law in 1993 was one of the most impressive displays of innovation in the jurisdiction’s relatively short history in financial services.

The launch of that industry created a phase of growth of additional services and subsectors that would improve the jurisdiction’s leadership on an international scale. That success has also generated increased attention and of course scrutiny but no one would argue that the jurisdiction has not a significant net benefit from this growth.

Since the launch of this industry however there has been very little evidence of such innovation. Therefore while most of us are already aware of some international challenges mainly of a regulatory nature, these challenges are further compounded by the risk of sitting comfortably in the current “established” phase.

Experts in the areas of business strategy or marketing would describe the current situation as Cayman suffering from “market leader syndrome”.
So how do we snap out of this?

Unfortunately it is not as simple as saying we just need to create new products and services. Clearly the context of competition has changed dramatically. In the past the Cayman Islands faced less competition. This meant less eyes watching and replicating our ideas. It also meant that in the past there was less competition for the brilliant minds that we either nurtured locally or recruited from overseas. But some of today’s offshore financial services professionals are being poached from Cayman or are choosing other jurisdictions before coming to Cayman. This means our competitors also have access to some of the innovative thinkers that we had access to in the past.

The current context is also different in another important way. Back then it can truly be said that there was an intense private sector public sector partnership which meant a very nimble and responsive legislature when industry needs and issues were raised. Much is touted today about this relationship still existing and thriving etc but a discussion with a few of the stakeholders who were involved in the past will quickly illustrate that the partnership today is inferior to that which existed in the past for a number of reasons.

Whatever the reasons for failure to inject some innovation in today’s market, it is inevitable that we find some medicine for the Cayman Islands market leader syndrome. Otherwise, even if we are able to deal effectively with the international regulatory (and economic) challenges, we may still find “business” of Cayman Islands Financial Services Inc entering the decline phase of its life cycle, as a result of the creativity (and sense of urgency) of our competitors.

Paul-Byles-BW

Paul Byles, Managing Director of Focus Corporate Services & Consulting

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