Press Releases
June 22nd, 2007
Success of Toronto’s financial services cannot be taken for granted
Toronto’s financial services industries are critical drivers of prosperity in the city, in Ontario, and in Canada. But their success cannot be taken for granted as the industry undergoes ever increasing globalization. Government policy makers and industry participants need to step up their efforts to ensure we are building a world beating financial services cluster in Toronto. That is the key conclusion from a study released today, Assessing Toronto’s financial services cluster, by the Institute for Competitiveness & Prosperity on behalf of the Toronto Financial Services Alliance and the Ontario Ministry of Economic Development and Trade.
The study assessed the strengths of Toronto’s financial services cluster – banking, insurance, investments, securities dealers, and risk capital – against leading clusters in North America using the framework developed by Michael Porter of the Harvard Business School. Clusters refer to concentrations of similar industries in geographic areas. Many researchers have observed that most industries of tradable goods and services already cluster in specific regions around the world, for example, automobiles in Detroit, printing presses in Heidelberg, and consumer electronics in Tokyo. Clusters attract leading firms, suppliers, and related industries to build their advantages over other regions even further. These advantages lead to more innovation and higher wages. As the Institute’s previous work has shown, successful clusters are built on support from highly qualified workers and managers, excellent infrastructure, and supportive economic conditions and pressure from sophisticated customers and innovative rivals.
“Our study confirmed that Toronto has one of the most vibrant financial services clusters in North America”, said James Milway, the Institute’s executive director. “We have strong and successful Canadian firms in each area of the cluster. Of particular note, our banks are world leaders in shareholder returns and our life insurance firms are world leaders in market capitalization.”
The study concluded that Toronto’s financial services cluster benefits from an excellent foundation of geographic location, comparable costs, and sound macroeconomic conditions. Moreover, the cluster can boast a well educated work force and a high incidence of professional designations. It is well supported by related industries, especially in business services, information, communications, and computer services.
The cluster also benefits from demanding and sophisticated consumers of the various kinds of financial services. “US households and corporations have greater quantity and quality of demand than in Canada, but it’s fair to say Canadian consumers are among the world’s leaders in sophistication of demand”, said Milway.
The major challenge for the cluster is getting the regulatory environment right. The study concludes that while our banks compete intensively in the domestic market, none have developed break out strategies to place them among the world’s largest banks. By precluding foreign banks’ entry into the Canadian market through the acquisition route, our regulatory framework reduces the benefits of external forces to stimulate greater differentiation among our banks. In many cases in financial services and in other industries, global leaders have emerged from a domestic market that drives differentiated and innovative strategies.
“This is a tricky area for public policy”, admits Milway. “Greater openness to foreign acquisitions would feed the current concerns about hollowing out. But we’re fooling ourselves if we think we can build a world class financial services cluster without being open to competitive international forces. We need to move from a focus on preserving the status quo to one that encourages innovativeness and growth. And we need public policy to drive the development of Canadian firms who are global leaders. Some of Canada’s global leaders – Manulife, TD Waterhouse/Ameritrade, and Scotia Mocatta – already come from financial services. Our continued prosperity requires us to build more. ”
The study makes recommendations for Toronto’s industry leaders in collaboration with the Toronto Financial Services Alliance to develop strategies and encourage public policy debate and development in the area of regulation and taxation.
Janet Ecker, the president of the Toronto Financial Services Alliance concluded, “This report highlights the importance of financial services. It needs to be a priority for all levels of government. Unlike some sectors, this is not an industry requiring first aid. But we need to ensure that our policies are supporting and promoting the industry’s competitive success here in Canada and around the world.”
“It has also highlighted key areas for further research,” Ms. Ecker said. “For example, the impact of regulation on the sector’s efficiency is one important area. The securities industry must contend with the presence of 13 provincial and territorial regulators which undermines their international competitiveness. Banks and the insurance industry, especially auto insurance, must also deal with the inefficiencies of multiple regulators. So this report provides us with a good agenda for engaging stakeholders and advancing our understanding of what is required for success.”
The complete report can be downloaded directly from:
http://www.competeprosper.ca/images/uploads/FSstudy_June07.pdf
About the Institute for Competitiveness & Prosperity
The Institute is an independent not-for-profit organization established in 2001 to serve as the research arm of Ontario’s Task Force on Competitiveness, Productivity, and Economic Progress. The Institute and the Task Force are supported through the Ministry of Economic Development and Trade.
About the TFSA
The Toronto Financial Services Alliance is a public/private initiative whose mandate is to enhance and promote the long-term competitiveness of Toronto as a premier North American financial services centre. Its membership encompasses core financial services companies – banks, brokerages, investment fund managers, insurance companies – as well as partner sectors – accounting, law and education. The TFSA was created in 2001 by the financial services industry, in partnership with the City of Toronto and with the support of the federal and provincial governments. For more information, visit http://www.tfsa.ca.
For more information contact:
James Milway, Executive Director, Institute for Competitiveness & Prosperity at
416-920-1921 ext. 222
Janet Ecker, President, Toronto Financial Services Alliance at 416-599-2121 ext. 226
