Global investment banking keeps the wheels of the international economy turning

One of the principles of classical free market economics is that people seek to invest their money wherever it is going to bring them the highest dividends at the lowest risk. Until the transportation and communications revolutions of the nineteenth century the choice of investment opportunities was geographically limited.

Internationalization of investment banking had to wait for the development of the electric telegraph and telephone to facilitate easy communications. In our own time the introduction of computer technology and the Internet has completed the globalization of the investment banking industry to a degree unimaginable fifty years ago.

Now global investment banking plays an indispensable role in the smooth functioning of the world economy by presenting investors with an international range of options for maximizing their dividends or raising money for their projects.

Global investment banking houses provide a range of services for financing business expansion and taking advantage of promising investment opportunities across the world.

For example, suppose a company in Norway is looking to expand its market share and one way of achieving this objective is taking over their major competitor in Hungary. The company turns to a global investment banker to help them develop a strategy and to handle the negotiations for acquiring their Hungarian rival.

In this example, the banker might start their acquisition assignment by investigating and analyzing the financial status of the firm in Hungary and assessing its real value. Following this assessment the banker could structure a proposed takeover deal and prepare a report for their Norwegian client. Assuming that the deal meets with approval the actual negotiations can commence.

In addition to their business clients, the international investment banker performs a vital function in raising money for governments and other financial institutions. These opportunities to raise funds on the world markets make it possible to finance major private infrastructure projects such as railway building or dam construction, and they also help finance a variety of important government activities.

Sometimes a country lacks the means to finance a project entirely from local sources, or they find it is actually cheaper to raise funds on the world market rather than raise the money locally and so they turn to an investment banking house.

While global investment banking has created many new opportunities for investors and business entrepreneurs, it has also raised significant political and social challenges. While governments in the western world subscribe to the idea of the free movement of capital across international borders, they are concerned at some of the consequences.

A good case in point is the controversy over the future of the famous British pottery manufacturer, Wedgwood. The Wedgwood pottery factory has been located for the past 250 years in a town in Northern England. The economic downturn severely impacted on the firm’s profitability and it was sold to a private American equity firm. Now there are fears that the new owners will relocate production to Indonesia where production costs will be lower.

To an investment banker the move makes economic sense but to the firm’s English workers and their political representatives it is an unacceptable blow to their livelihoods and national pride.

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