英文DOC

Nomura Securities Co Ltd

Strategic Analysis

Boon Chung Phua

Yasushi Iguchi

Akio Saita

Norihito Shimizu

1 Introduction Nomura Securities Co Ltd (NSC) is a wholly-owned subsidiary of Nomura Holdings

Inc (NHI) which forms part of the Nomura Group NSC plays a central role in the

securities business the Groups core business As the leading securities and investment

banking firm in Japan NSC endeavors to provide individual investors and other

diversified corporate clients with a range of services through the capital markets including

investment advisory services and fund raising In this paper we analyze the current

business of NSC using the framework provided in ldquoTHE STRATEGY CONCEPT AND

PROCESSrdquo by Arnoldo C Hax and Nicolas S Majluf and ldquothe delta projectrdquo by Arnoldo

C Hax and Dean L Wilde ll and propose a business strategy for NSC

The later part of this section we introduce NSC from three points of view its history

business overview and current business strategy

11 Company History

Nomura was incorporated in Japan on December 25 1925 under the Commercial Code

of Japan when the securities division of The Osaka Nomura Bank Ltd became a

separate entity specializing in the trading and distribution of debt securities in Japan

Nomura was the first Japanese securities company to develop its business internationally

with the opening in 1927 of a representative office in New York which actively traded

non-yen-denominated debt securities In Japan Nomura broadened the scope of their

business when they began trading in equity securities in 1938 and when they organized

the first investment trust in Japan in 1941

In recent years Nomura have sought to take advantage of new opportunities presented

by deregulation of the Japanese financial market and by developments in information

technology For example to increase retail customersrsquo access to their services they have

taken advantage of the Internet to offer on-line brokerage and related services

On October 1 2001 Nomura adopted a holding company structure In connection with

the reorganization Nomura changed its name from ldquoThe Nomura Securities Co Ltdrdquo to

ldquoNomura Holdings Incrdquo A wholly-owned subsidiary of Nomura assumed Nomurarsquos

securities businesses and is named ldquoNomura Securities Co Ltdrdquo the strategic business

unit being analyzed in this paper

Nomura have also strengthened their mergers and acquisitions and other financial

advisory business by acquiring majority interests in Nomura Corporate Advisors Co Ltd

formerly Nomura Wasserstein Perrella Co Ltd in November 1999 Nomura Corporate

Advisors became a wholly-owned subsidiary of Nomura in September 2000 and merged

with Nomura Securities in April 2002

Nomura have also enhanced their asset management business through the acquisition of

a majority interest in Nomura Asset Management Co Ltd in March 2000 Nomura Asset

Management became a wholly-owned subsidiary of Nomura in December 20011

12 Business Overview Nomura Securities Co Ltd (NSC) is the leading securities and investment banking firm

in Japan and have worldwide operations As of March 31 2003 they operated offices in

more than 20 countries and regions including Japan the United States the United

Kingdom Singapore and Hong Kong As of the same date they employed 14385

people with 11583 in Japan and 2802 outside Japan

NSCrsquos customers include individuals corporations financial institutions governments

and governmental agencies Their businesses consist of the following three business

segments

bull Domestic Retail ndash principally investment consultation services to retail customers

bull Global Wholesale ndash principally fixed income and equity trading investment banking

and merchant banking in and outside Japan

bull Asset Management ndash principally development and management of investment

trusts and investment advisory services

NSC is also one of the worlds leading securities firms with more than $150 billion assets

and shareholder equity of over $135 billion

13 Current Business Strategy

According to their core business fields NSC defined their current strategy as the

followings

1) Retail

1048774Reinforcement of channel to customers

1048774Stimulation of stock market

1048774Improvement of productivity and efficiency of branch management

1048774Customersrsquo attention to asset management by 401K plan

2) Investment banking

1048774Establishment of complete product line and management for customersrsquo demand

to equity finance

1048774Entry to merchant banking

3) Trading (bond and equity)

1048774Global product line

1048774Readiness to Straight Through Processing (STP) and T+1 []

1048774Adaptation to electronic transaction

4) Asset management

1048774Expansion of demand to mutual fund

1048774Stable portfolio management

[] STP means that information passing seamlessly and electronically among all participants

involved in the transaction process It goes far beyond the buyer and seller to include all affected

parties data provider exchange service provider computer operator regulator and more T+1

means that market participants have to make settlement on the day following trade date

2 Corporate Vision Nomura Grouprsquos vision is to establish its position as a globally competitive Japanese

financial services group In order to realize this vision it currently focuses on three areas

strengthening action to expand the securities market in Japan enhancing business

origination in Japan and pursuit of collective strength through greater cooperation among

its divisions

The Japanese economy has experienced severe recession over more than ten years

Most recently the Japanese economy experienced a recession in 2001 primarily due to a

global high technology recession but started recovering in early 2002 due to inventory

adjustments and economic turnarounds in the United States and Asia Since mid-2002

however the economy has stagnated as the recovery in domestic demand has been

weak and export growth has slowed In the spring of 2003 growth had yet to show signs

of recovery In October 2002 the Japanese government announced its Program for

Financial Revival to accelerate the disposal of non-performing loans at major Japanese

banks as a necessary step to revive the economy At the same time the government

decided to establish the Industrial Revitalization Corporation of Japan to coordinate the

disposal of bad debt and revitalization of Japanese industries and corporations This new

organization started operations in May 2003

The two key thrusts for Japans Revival are 1) Acceleration of Corporate Restructuring

and 2) the Shift of Individual Financial Assets Key developments toward economic

revival have begun to surface in the form of quicker corporate restructuring and the shift

of individual financial assets to capital markets Nomura increasingly expect to see a

where accelerated corporate restructuring helps boost corporate profitability and

individual investors move their money through capital markets to the more profitable

companies

This is Nomurarsquos fundamental stance regarding the business environment Its strategy is

for each division to play its own part towards Japanrsquos revival2

3 Strategic Positioning by using the Delta Model Nomura aims to contribute to Japanrsquos revival by supporting the flow of money between

companies progressing with restructuring and individual investors Its strategy towards

this end is to promote corporate restructuring by providing solutions via capital markets

and encourage the shift of individual financial assets from cash and deposits into higher

risk-return products by supplying diverse products (Ref Fig1)

Fig1 Two corporate objectives of Nomura

2 Investor presentation on May 16 2003 by Nobuyuki Koga President amp CEO Nomura Holdings Inc

The strategic positioning of Nomura is to provide a competitive capital marketplace

bringing together complementary groups of buyers and sellers through Total Customer

Solution based on Horizontal Breadth and Customer Integration and Systems Lock-In by

establishing a Dominant Exchange (Ref Fig2)

Fig2 Strategic positioning Movement of Nomura (Delta Model)

Nomurarsquos business portfolio comprised of Domestic Retail Global Wholesale and Asset

Management divisions Division heads are given discretion to execute business within

the management resources allocated

Business execution is split between the Chief Operating Officer (COO) and Co-COO

To strengthen cooperation among Nomura Group Business Lines and give full scope to

the Grouprsquos collective strength and achieve Horizontal Breadth the COO is responsible

for all three divisions and aims to pursue business that extends beyond Nomurarsquos

business lines (Ref Fig3)3

To promote integrated Group Management for Customer Integration the Co-COO will

advance integrated Nomura Group management transcending legal entities (Ref Fig4)

Nomurarsquos greatest asset is its integrated corporate strength By taking this approach

Nomura aims to break the division-legal entity mould and pursue efforts to enhance

Nomura Grouprsquos collective strength

Nomura should aim to achieve a System Lock-In position through Dominant Exchange by

developing diversified customer-focused products and collaborating with other world wide

players to provide broad investment instruments opportunities and high return on

investments to attract the targeted investorsbuyers The ready pool of investorsbuyers

will further attract companies to approach Nomura to lead manage their capital raising

needs reinforcing the value of the marketplace

Fig4 Customer Integration in Nomura Group

4 Customer Segmentation Thinking about customer segmentation there are basic measurements such as

geography demography psychographics and behavior In this section we define

customer segmentation of NSC Basically customers for securities companies are

divided into two categories 1) individuals 2) corporate and government To analyze the

business we segment customers into the following tiers

Table 1 Customer Segmentation

First we subdivide individuals according to the following Fig5 We adopt 10 million

Japanese Yen as the level to differentiate rich from mass because the amount will be the

cap on the guarantee of full bank savings deposits when the deposit payoff system is

introduced in Japan in the near future We also use 30 million Japanese Yen as the level

to differentiate rich from middle-rich The household expenditure survey conducted by the

Management and Coordination Agency shows that about 15 of households in Japan

has over 30 million Japanese yen saving

Fig5 Individual customer segmentation

We characterize Tier 1 as individuals who are wealthy and have already built asset

These people are relatively few but they invest much money to utilize their own

familiarity with investment method and investment products To meet their demand NSC

has to provide professional know-how to reinforce customer satisfaction by realizing high

performance of investment result Tier 2 is a group of individuals who are not familiar with

investment but have substantial money to invest They are diamonds in the rough but

extremely attractive for NSC Thus NSC should place much emphasis on providing

education services to this tier as a coaching staff for investment Tier 2 customers

currently have much of their asset as cash or deposits The pie chart in Fig 6 shows the

business potential for this customer tier This chart shows a breakdown by product of

individual financial assets As of December 2002 56 of these assets were still held in

cash and deposits NSCrsquos role is to connect these assets with the risk assets 4

Fig6 Individual customer asset allocation

Tier 3 is a group of individuals who are low-value customers for NSC NSC should

provide low price user-friendly system and reliable information to this tier and lead them

to use on-line trading the low cost direct channel

On the other hand we also subdivide corporate customers into three tiers We use the

availability of bond IPO and financing issues as a measurement to divide the three tiers

Tier 1 is a group of companies which can offer bonds to the public or which meet the IPO

standards defined by Tokyo Stock Exchange NSC provides consultation services for

them to realize a low cost procurement of fund and build a good partnership to lead

manage bond and equity issues Since government can issue bond the government is

also included in this tier Tier 2 is a group of companies which have no large issue but

they may have the possibility to grow and result in IPO or MampA Therefore we cannot

easily conclude that NSC should lead them to low cost service channel To assign

companies to this tier NSC has to assess customersrsquo future growth precisely It is

essential to provide the necessary face-to-face financial consultation to maintain a good

relationship with them For Tier 3 with low business potential low price standardized

service can be provided

To summarize the description above the Business Dimension for each of the Customer

Tiers is shown in Table 2 and the Value Proposition for different Customer Tiers is

shown in Table 3

According to this customer segmentation each segment is located in the delta model as

following Fig7

Fig7 Strategic positioning based on our customer segmentation

Table 2 Business Dimension of the Customer Tier

Table 2 Business Dimension of the Customer Tier (Cont)

Table 3 Value Proposition

Table 3 Value Proposition (Cont)