A local presence won’t sell but may keep them happy

The buyer/supplier relationship depends on such factors as whether the supplier can speak the local language and understand their clients’ businesses. Thus, suppliers need to keep their feet on the ground – literally – or risk alienating themselves from buyers. Monica Lara Acera gives a breakdown of Sector Analysis data gathered from across Europe, which shows different attitudes to ‘local presence’. Europe’s major fund suppliers have a physical representation in most countries, or that is the impression given by their marketing literature. Sometimes the local office is no more than an elegantly converted apartment staffed by one sales representative – who is frequently out visiting clients – and an assistant. Nevertheless, fund suppliers feel the expense of being on the ground can be justified. However, fund buyers think differently. Across Europe, a small majority think it is not important for suppliers to have local offices, as shown in Chart 1. Conversely, 23 per cent believe a local presence is important, while 25 per cent say it is very or extremely important. Three categories Europe’s countries can roughly be divided into three groups according to their attitude:

• Belgium, Luxembourg, the Netherlands, Switzerland and Sweden, are countries where a clear majority of buyers feel suppliers require local presence.
• Italy, Spain and the UK are countries where a substantial majority believe suppliers need local presence. In all three cases, at least a quarter of all buyers say local presence is very, or extremely, important.
• France and Germany show a polarisation in buyers’ opinions. Half (and in Germany’s case, 60 per cent) of buyers say a local presence is not important. However, the remaining buyers feel it is very important or extremely important. Different receptions The nationality of a supplier is a relevant issue for a 55 per cent majority, revealed when Sector asked buyers whether they perceive or experience important differences between domestic and foreign suppliers of funds. However, as Chart 2 shows, this is not the case for the remaining 45 per cent. And there is a huge variation of attitudes from country to country. In Sweden, Belgium and Germany, over 70 per cent of buyers perceive or experience significant differences between domestic and foreign suppliers that affect, to some extent, their relationships with the suppliers. The corresponding figures are only around 30 per cent in Italy, Luxembourg and the UK. Foreign suppliers were perceived very positively on some fronts. Significant numbers, as shown in Chart 3, alluded to the foreigners’ superior analytical and technical skills (5 per cent of responses) and superior service levels (7 per cent). Remarkably, the most common complaint among those with negative perceptions of foreign suppliers was that the foreigners’ limited local presence reduces levels of personal contact between buyers and suppliers’ representatives. This is clear evidence that local presence plays an important role in the perceptions that fund buyers form about foreign fund suppliers. Expectation levels So how important is a local presence in the specific context of this buyer/ supplier relationship? Sector Analysis asked fund buyers to determine their expectation level of five key attributes of the suppliers’ representatives:
• product knowledge
• industry understanding
• understanding of the buyer’s business;
• ability to speak the local language
• full-time location in the buyer’s country. Fund buyers place far greater importance on the representatives’ product knowledge and an understanding of the fund industry, were proved the most important, as shown in Chart 4. Local presence of the suppliers’ representatives showed the lowest expectation level. This puts the importance of a local presence in the right context. Product knowledge and industry understanding are “must haves”. A local presence is desirable but not essential. However, it is still “highly expected” by a quarter of all respondents. Unsatisfactory performance aside, poor service levels play a key role in a buyer’s decision to exit a fund, according to Sector Analysis. More interaction and personal contact was considered one of the most value-adding of these service elements by fund buyers in Europe, as shown in Chart 5. Does it really matter? A foreign supplier’s share of the third party market is not seriously dependent on local presence, although a lack of physical presence is the most common gripe registered by buyers. The suppliers with the strongest brands and the largest market shares are often local groups in several particular national fund markets. UBS is the leading player in Switzerland; Deutsche/DWS in Germany, and so on. However, foreigners have made good progress in all national markets. Foreign suppliers of funds hold an estimated (and very respectable) 45 per cent share of the European third party fund market, as revealed in Sector’s European Investor Focus 2002 survey. Furthermore, 79 per cent of fund buyers across Europe do not express a clear preference for domestic over foreign suppliers. Europe’s fund buyers are always very consistent in the criteria that they use to select suppliers. Good investment performance is almost invariably the most important criterion. The brand/reputation of the supplier and the quality of management follow reasonably closely behind. In general it is important for suppliers to combine all three criteria. The local presence of a supplier is seldom mentioned by fund buyers as a reason for selection. In fact, local presence appears to play a negligible role in the process of selecting a supplier, but a key role in determining the fund buyer’s satisfaction level. In times like these, when performance levels seem to be satisfying only a few, who is to say that the creation of satisfaction through other means is of no value? Monica Lara Acera, research director, Sector Analysis