Merrill Lynch in Japan

Given the changes that have occurred in the international capital markets during the past decade, Merrill Lynch's strategy of expanding internationally makes sense. According to Merrill Lynch's 2003 annual report published online, the financial services industry in the United States is extremely competitive and highly regulated. Merrill Lynch's private client business, which offers banking, financial advice, and stock-brokerage services to individuals, had historically been concentrated in the United States (2004). For this reason, Merrill Lynch (ML) wanted to find opportunities to diversify and the Japanese market represents a substantial business opportunity given the propensity of Japanese citizens to save and to invest. ML wanted a portion of what was the world's largest asset pool, an estimated U.S. $11 trillion dollars of Japanese savings.

Another reason to expand internationally is that many of ML's non U.S.�competitors may have competitive advantages in their home markets. For this reason, the decision to establish a foreign subsidiary in Japan dealing directly with Japanese clients would be the best way to enter the Japanese market and to be seen by potential clients as an important participant in the Japanese domestic financial services market. The problem of how best to enter the Japanese market was solved by the bankruptcy of Yamaichi Securities.

The collapse of Yamaichi seemed to present ML with an

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e of Japanese household investments toward a more "American" pattern of investment of personal wealth would seem to create enormous opportunities for the retail securities industry. If ML were able to bring under its own management even a small fraction of the nearly U.S. $6 trillion in funds invested in Japanese bank and postal savings accounts, it would reap enormous profits. Another factor that made Japan a favorable place for ML to invest was the fact that Japanese savings were expected to continue its 5 percent annual growth and reach U.S. $14 trillion by 2002. Considering the timing and scale of entry and the nature of the strategic commitments ML made in Japan, one of the most attractive features involved the type of investments made by individual Japanese citizens. In 1997, only 3 percent of Japanese individual investments were in mutual funds. In February 1998, ML launched its first mutual fund in Japan and the results were dramatic. ML saw the value of its assets swell to $1 billion by April of 1998. By mid-2002, ML had $12.9 billion under management in Japan (Espig, 2003). There are clearly costs and risks associated with ML's decision to return to Japan. The costs include the cost of acquiring Yamaichi Securities a

Category: Business - M