Maritime Finance Clusters The Nature of Maritime Finance Clusters: What Busan Needs to do to Become a More Competitive Cluster FINAL VERSION – December 2015 Z/Yen Partners Limited 90 Basinghall Street London EC2V 5AY United Kingdom Telephone: +44 20 7562 9562 Facsimile: +44 20 7628 5751 Email: [email protected] www.zyen.com Prepared by Mark Yeandle of Z/Yen Partners Maritime Finance Clusters TABLE OF CONTENTS 1. EXECUTIVE SUMMARY ............................................................................................. 3 1.1 BACKGROUND ................................................................................................................. 3 1.2 METHODOLOGY .............................................................................................................. 3 1.3 MAIN FINDINGS .............................................................................................................. 3 2. INTRODUCTION............................................................................................................ 8 2.1 INTRODUCTION ............................................................................................................... 8 3. THE NATURE OF MARITIME FINANCE CLUSTERS......................................... 10 3.1 WHAT IS A MARITIME FINANCE CLUSTER – A DEFINITION ........................................... 10 3.2 THE COMPONENTS AND FEATURES OF COMPETITIVE MARITIME FINANCE CLUSTERS .. 11 3.3 COMPETITIVE MARITIME FINANCE CLUSTERS .............................................................. 17 4. BUSAN AS A MARITIME FINANCE CLUSTER .................................................... 22 4.1 WILL A MARITIME FINANCE CLUSTER HELP BUSAN ..................................................... 22 4.2 STRENGTHS AND WEAKNESSES OF BUSAN - DEVELOPING A MARITIME FINANCE CLUSTER ............................................................................................................................... 24 4.3 PRIORITIES FOR DEVELOPING A MARITIME FINANCE CLUSTER IN BUSAN .................... 26 5. APPENDIX 1 – PERSONAL INTERVIEWS ............................................................. 30 5.1 INTERVIEWS .................................................................................................................. 30 5.2 PERSONAL INTERVIEW QUESTIONS ............................................................................... 31 2 Maritime Finance Clusters 1. EXECUTIVE SUMMARY 1.1 Background BEPA - the Busan Economic Promotion Agency – has a mandate to develop Busan, already a major port city in South Korea, into a maritime finance cluster. BEPA asked Z/Yen to conduct some research to help guide their strategy to develop a maritime finance cluster. This brief report examines the features of maritime finance clusters, the factors that promote their existence, the importance of a maritime finance cluster to Busan, the strengths and weaknesses of Busan as a host for a maritime finance cluster and measures that Busan might adopt to encourage the development of a cluster. 1.2 Methodology Our research findings are based on extensive desk research, the use of Global Financial Centres Index1 data, twelve structured interviews with maritime finance professionals and some less formal discussions with experts in the field. Details of the interviews can be found in the Appendix. 1.3 Main Findings We define a maritime finance cluster as ‘a geographical grouping of organisations specialising in the financing and management of seagoing activities.’ The activities within a maritime finance cluster include: 1 http://www.longfinance.net/programmes/financial-centre-futures/fcf-gfci.html 3 Maritime Finance Clusters Features of maritime finance clusters include: maritime finance clusters are often but not always located near a major port; successful maritime finance clusters tend to be successful at attracting ship owners or those who exert commercial control of ships; the main established maritime finance centres have subsidiaries or branch offices of the world’s major global banks present; some of the most successful maritime finance clusters have become successful by offering advantageous tax environments to certain sectors; top maritime finance clusters generally have a strong representation of firms in the professional services sector – law firms, accountants, brokers, advisers; the presence of a ship building industry is not a pre-requisite of a maritime finance cluster but is often present in these clusters; top maritime finance clusters often have strong educational and training organisations; top maritime finance clusters often have the same attributes as successful financial centres: Clusters bring well recognised benefits and these benefits are why developing a maritime finance cluster is important to Busan. The main benefits can be summarised: clusters increase the productivity of the companies in the cluster, by driving innovation in the field, and by stimulating new businesses; significantly more innovation takes place in communities which have stronger inter- personal networks; clusters usually reduce costs; clusters increase the pool of relevantly skilled labour; clusters generate trust. Busan’s performance in the key factors of successful maritime finance clusters are summarised below: 4 Maritime Finance Clusters Factors often Present in Busan’s Performance in these Factors Successful Maritime Finance Clusters A broad range of maritime A strong and broad mix of activities is present activities and a need for people that understand the industry Proximity to a large port (although The existing port facilities and size are a great not a pre-requisite) strength of Busan Success in attracting ship owners or Very limited number of ship owners at those who exert commercial control present, hence the cluster has no reason to of ships (the support functions of develop in Busan maritime finance follow the business – i.e. the ship owners) A good representation of the large Limited at present – most big banks are global banks represented in Seoul A strong representation of service Korea has a very limited number of domestic firms - law firms, accountants, professional service firms and few brokers, advisers international ones are present in Busan A presence of a ship building There is ship building and maintenance industry (although not a pre- capability in Busan requisite) Financial centre attributes – Busan has a generally strong business business environment, environment and strong infrastructure. It infrastructure, human capital and rates less well for reputation and financial reputation sector development Strong training and educational Limited at present facilities Based on the research conducted, we believe that the following seven objectives should be prioritised by Busan’s policy makers: increase the number of ship owners based in Busan; increase the number of global banks with representation in Busan; increase the number of international professional service providers working in Busan; develop business environment attributes; develop human capital; develop Busan as an outward looking and connected city; develop the Busan city brand. Other maritime clusters have gone to great lengths to attract ship owners and Busan is advised to do the same. Currently Seoul is a major location of ship owners and yet Busan is 5 Maritime Finance Clusters a much bigger port. There are a number of strategies that have been pursued by other clusters to attract ship owners. Many of these have relied on offering short to medium cost reductions. Singapore, Hong Kong and Tokyo have all invested significantly in tax incentives or other cost facilitators to attract ship owners. Ship owners are fairly flexible about their locations and will tend to operate from places that offer reasonable costs, are easy places in which to do business and offer a good quality of life. Large international banks are becoming increasingly involved in maritime finance. They generally have an established presence in the large maritime centres such as London, New York, Hong Kong, Singapore and Tokyo. The vast majority of these banks also have a presence in Seoul. If Busan is to host a maritime finance cluster it should try to find a way of getting these institutions to have a representation in Busan. A good approach might be to contact the banks with subsidiaries or branches in Seoul and offer them an incentive to open an office in Busan for their maritime division or their maritime specialists. If owners and banks can be persuaded to have a presence in Busan then specialist marine service providers will want to follow the clients and have a presence in Busan. These service providers are often part of large international law firms and accounting practices. They may already have offices in Seoul and may be attracted to having a presence in Busan in the same way as the banks. Busan should try to engender an institutional framework as transparent and efficient as possible. If Busan wants to host a maritime finance cluster then it needs to position itself as an international financial centre and a great place in which to do business. Effective and transparent institutions are a necessity in a modern business cluster. Improvements in the city and country institutions to speed up decision making could also be a positive step towards enhancing Busan’s reputation as a business centre. There are certainly other areas in which Busan could claim thought leadership by holding conferences, workshop programmes, sponsoring publications